A Recycling Boom Gone Bust

Trash means cash—or at least it did a year ago. When the global economy was chugging along, mills were willing to pay good money for old paper, aluminum, and glass. No more. With the recession, prices for recyclables have plunged more than 60% in the past nine months as demand for everything from newspapers to bottled juices has shriveled. Says Johnny Gold, an executive with the Newark Group, a paper recycler: "Business stinks."

The recycling boom has turned into a bust. One company that's feeling the pain big time is Waste Management (WMI). With $13.4 billion in revenues last year, the Houston-based company is the nation's largest trash hauler. In late 2007, Waste Management set a goal of tripling the amount of trash it recycles, to 20 million tons a year by 2020. But now the company says its recycling division is headed for a $98 million loss this year. To cope, it's scrambling to change the way it purchases and sells recyclables, even as it continues to invest in the business. "The days of irrational exuberance based on commodity prices are over," says Patrick J. DeRueda, the head of Waste Management's Recycle America division.

Prices for recyclables soared so high that companies like Waste Management could afford to pay municipalities for their recyclable refuse, rather than charging them to haul it away. Last year, Waste Management wrote Denver a $1.2 million check for its recyclable trash, an arrangement that began in 2005. "We get a lot of calls from other cities," says Charlotte Pitt, director of Denver's recycling program. "They say: 'Boy, you got a really great contract.' "

The new economics of the business may make such deals scarce. Waste Services (WSII), a smaller trash hauler that operates in Florida and Canada, has been slapping surcharges on its commercial customers to help cover its recycling costs. Waste Management, meanwhile, is looking to rejigger contracts so cities foot the tab for processing their recyclables. DeRueda also aims to ink more long-term deals with mills that buy recyclables so Waste Management will have a more predictable revenue stream. Last year only 25% of the unit's revenues came from such contracts. The rest came from sales on the spot market, where prices are more volatile.


No major cities have cut their recycling programs because of the plunge in prices, but Jerry Powell, publisher of the trade publication Resource Recycling, fears that if prices remain low, some municipalities will. Cities may drop several commodities—plastic bottles, for instance, which fetch lower prices than aluminum cans do.

Despite the downturn, Waste Management continues to invest in the business. In April, the company broke ground on a $16 million state-of-the-art "single-stream" sorting facility near Phoenix that uses optical scanners, blasts of air, and magnets to separate recyclables. With such plants, Waste Management can process five times more volume at lower costs than if recyclables were collected in separate bins.

Waste Management currently has 33 single-stream sorting facilities, and DeRueda hopes to acquire or build 12 more plants over the next five years. It's a bet that the prices for old cans and bottles won't stay in the dumps forever.

    Before it's here, it's on the Bloomberg Terminal.