http://www.forbes.com/sites/michaelkanellos/2013/11/12/profits-become-elusive-in-recycling/
Waste Management WM -0.31%, the country’s largest waste hauler and processor, has long been an advocate of recycling and reuse. Five years ago, the company recycled around 6 million tons of materials in the U.S. explained CEO David Steiner during a meeting recently at the BSR conference San Francisco. It set a goal of recycling 20 million tons by 2020 and began up to $100 million a year in recycling facilities and technology.
Last year, the company recycled 12 million tons of materials. The company has even helped General Motors GM +0.03% and Toyota turn manufacturing facilities in zero-waste centers, turning old plastic armrests into pelletized fuels. When you think of WM, think less waste, more management.
Unfortunately, the commodities markets aren’t playing along, said Steiner. With the slump in commodity prices, the profits from recycling have dried up.
“Recycling is not profitable. We have lost money in recycling over the last one and a half years,” he said. “Investment has slowed to a trickle.”
Steiner, however, says that doesn’t mean that Waste Management will dump the idea. The benefits of recycling—fewer landfills, less demand for virgin materials-are still there. Instead, he has begun to advocates new types of contracts that limit risks for both sides of the transaction. When commodity prices are high, municipalities can share a greater portion of the resale revenue. But a floor will also exist so that the trash hauler’ s profits are eviscerated by high diesel costs or other factors beyond its control.
In other words, garbitrage.
“If you want us to invest, we need a sustainable business model,” he said.
Whether or not we will see these contracts anytime soon, expect to see a stream of interesting concepts come out of the trash and recycling industry. Simply put, we generate a lot waste, virgin materials over the long haul will continue to get more expensive, and technologies and new business models are getting more adept at extracting value from castoffs.
Late last month, for instance, eRecyclingCorps raised $105 million to expand its smart phone recycling business. The company isn’t primarily interested in raw materials. It wants to undercut Apple AAPL +1.14% and Samsung by collecting old iPhones and Samsung Galaxy 4s, wiping the memory, and refurbishing them for consumers in emerging nations.
Plastic recycler MBA Polymers is booming, says founder and president Mike Biddle. The company is expanding overseas. It has also benefitted from recent recycling efforts by car makers. Auto makers have been going into their old dumps to recover copper and other metals. When they do, the auto makers also end up segregating the plastics, glass and other materials they find. The piles of plastic effectively become ready-made plastic mines for MBA.
The challenge, though, is in the details. The single recycling bins popular in the U.S. have increased recycling rates here, but they also add to the cost, said Steiner. “The costs go way up,” he notes. Organic waste constitutes about 30 percent of the U.S. waste stream. You can compost some of it, but most of it lives up to its reputation as garbage. Methane can be captured form organic waste—Waste Management built an LNG plant at its Livermore, Calif. Landfill and has converted about 70 percent of its truck fleet to natural gas—but gas prices have also plunged with fracking.
Paper is profitable to recycle, he notes, but glass rarely, if ever, is profitable. That’s why bottle laws exist. Glass also shreds the recycling machinery.
Still, it’s tough to ignore the potential. A few years ago, Steiner noted that the value in Waste Management’s landfills came to $12 billion, close to the annual revenue of $14 billion.
“We need to understand how to unlock the value of it,” he said.
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