Recycler Needs To Clean Up Balance Sheet Bad Market For Paper Causes Losses

December 15, 1991|By John H. Gormley Jr.

From houses all over Maryland and Delaware, the wastepaper flows to Baltimore by the truckload: old newspapers, junk mail, boxes, phone books.

From Howard and Baltimore counties in the Baltimore area; from Calvert and Charles counties in Southern Maryland; from Wicomico, Queen Anne's, Kent and Talbot counties and Ocean City on the Eastern Shore; and from Cecil County and drop-off centers all over Delaware, the trucks come laden with paper. They converge on the waterfront warehouse on Clinton Street, drive up a ramp and dump their loads -- about 150 tons every working day -- on the second floor.

These mountains of paper are what David C. Tolzmann Jr., the president of Mid-Atlantic Recycling Corp., calls the urban forest. Mid-Atlantic's recycling plant, billed as the nation's largest paper recycling facility, provides an alternative to trees as a source of paper-making fiber.

But after six months of operation, the urban forest is in deep trouble. It costs Mid-Atlantic more to process a ton a paper than the processed material is worth on the market -- in fact, a lot more, about $15 a ton.

It costs Mid-Atlantic about $35 to process a ton of wastepaper, but the company can sell the processed material for an average of only about $20 a ton.

The implications of the resulting losses go far beyond Clinton Street. Mid-Atlantic's problems threaten to disrupt wastepaper recycling efforts in the entire region.

Mid-Atlantic's suppliers now dump their paper at the Clinton Street warehouse for free. But Mid-Atlantic wants to start charging a "tipping fee" of $12 to $20 per ton to stem its losses.

Suppliers of the paper, mostly local government agencies, don't want to hear about any tipping fees. They're too deep in financial crises of their own to help Mid-Atlantic out of its morass.

When Linda Fields, the recycling manager for Howard County, was asked about Mid-Atlantic's plans to charge a tipping fee, she let out a cry like the victim in a slasher movie. A $15-a-ton tipping fee would cost her county about $150,000 a year.

"You know Howard County doesn't have any money," she said. Howard's one-year contract with Mid-Atlantic, with no tipping fees, expires June 30.

Mid-Atlantic also receives about 600 tons of paper a month that Delaware collects at about 100 sites around the state. N. C. Vasuki, head of the Delaware Solid Waste Authority, said his organization would never agree to pay even $10 a ton to dump the paper.

"If they decided to charge that kind of fee, we would try to find other uses," he said. "You could compost it, for example, or you could burn it. I'm going to do my best not to pay."

For his part, Mr. Tolzmann is adamant that Mid-Atlantic cannot continue long on its present course. It handles about 3,000 tons of residential wastepaper a month. At an average loss of about $15 per ton, that amounts to about $45,000 per month.

"You can't keep doing that," he said. "It's a problem. . . . Recycling will have to pay its own way."

As a start-up company, Mid-Atlantic did not expect to make money in its first year. "Frankly we budgeted losses," Mr. Tolzmann said -- but not losses of such magnitude.

The problem, he said, is that the recession has depressed the demand for new paper at the same time a growing recycling industry has flooded the market with new supplies of wastepaper.

Mr. Tolzmann is convinced that the problem is short-term, that the price of wastepaper will rise as the economy improves.

Some states have mandated the use of recycled fiber in the paper used by newspapers. As these requirements kick in, the demand for wastepaper -- and prices -- will go up. Eventually, that should mean Mid-Atlantic will turn a profit on its residential paper operations, and communities will be paid for delivering paper.

Consumption of recycled paper will increase from 22 million tons in 1990 to 69 million tons in 1994, the American Paper Institute forecasts. And by 1994, 30 percent of the raw material used for paper-making will be recycled fiber.

But Mid-Atlantic's short-term outlook is bleak. The company is making money on its commercial paper recycling because corrugated cardboard, computer paper and other papers generated by business have a higher value. But those profits don't cover losses in the residential wastepaper operation.

Mr. Tolzmann insists his company is not in mortal danger. To survive, it must move quickly to reduce the losses: by charging tipping fees, by de-emphasizing its residential wastepaper operation, by boosting the commercial end of the business, by some combination of the three.

The first two options, charging fees or reducing the amount of residential paper processed, have serious implications for the region's recycling projects. A locality that refuses to pay a tipping fee could have a tough time finding other outlets where the paper will be handled for free.

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