Recyclers still squeezing profit from mountain of worry Despite recession, firms seem to be holding own

EARTH MATTERS IN BUSINESS

March 26, 1991|By Grant Ferrier | Grant Ferrier,1991 Los Angeles Times Syndicate Times Mirror Square Los Angeles, Calif. 90053

Paper down. Plastics up. Metals and glass level. That seems to be the market consensus for recycled materials in the first quarter of 1991. The post-consumer recycling business has always ridden the roller coaster of changing commodity prices with companies coming and going with each climb and descent. As the industry matures, however, companies are finding it increasingly risky to base their profits on selling recycled materials.

Many recyclers who depended on getting good prices for their material have fallen by the wayside. For the best odds of success, companies need to cover their fixed costs first. Recyclers have to be sure their bids on municipal contracts will cover their collection and processing costs, says Jerry Powell, editor of Resource Recycling magazine of Portland, Ore.

The recycling business appears not to have suffered much from the recession so far. Demand for materials has not dropped significantly -- with the possible exception of paper. Less disposable income means less discretionary spending, which means fewer pizza boxes. Containers such as glass and aluminum are not expected to change much because consumers such as beer drinkers are more likely to change to a cheaper brand than stop buying brew altogether.

The most prominent effect of recession on recycling companies is the trimming of municipal budgets. "If you have to choose between a police car and a recycling truck or between a schoolteacher and a recycler, it's pretty obvious that recycling is not the first choice," says Powell. Major cities have already cut budgets for recycling programs and many others have postponed instituting new collection programs.

A continued recession will put a lot of pressure on "marginal operators without cash resources," Powell says. When prices for reclaimed materials go down, the public collection infrastructure dries up, making it more costly for smaller and independent recyclers to stay in business. Powell sees this as continuing to fuel the "buying frenzy" for large recycling companies.

Not all companies are finding reliance on commodity markets an impossible task. Joe Blankenship, vice president of the waste-processing division of Reuter Inc. of Hopkins, Minn., says the economic slowdown hasn't had much impact on the firm's recycling operations but admits that a long recession would affect business to some extent. Reuter's waste-processing division is only 3 years old but already makes up 60 percent of the company's total $27.5 million in revenues.

Reuter uses private haulers to transport residential waste to its Minneapolis plant. True solid waste is separated out, and the company then sells aluminum, cardboard, plastic and ferrous metals to manufacturers. Generating a market for these materials is still the biggest challenge of being in the recycling business, Blankenship says.

Besides just selling reclaimed materials to manufacturers, Reuter makes garbage cans out of HDPE (primarily milk jug plastic) and a fuel product out of waste paper for industrial process heat.

The recycling business "is definitely a supply-side issue," Blankenship says. The woes of companies in the newsprint recycling field can attest to that as a paper glut still persists in many parts of the country. Reuter can hardly be encouraged by what Blankenship characterizes as "depressed prices" and the declining demand for some materials. The company, however, can't be doing too badly -- there are plans to open a second plant in Florida soon.

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