Wednesday, November 26, 2008

Recycled materials market chaos spurs talk of easing restrictions

State and local waste diversion agencies are trying to calm the jittery waste industry before it starts sending aluminum cans and glass bottles to landfills because the economic crisis has rocked recycling profits.

An emergency workshop in Sacramento on Dec. 10 will focus on ways to maintain a once-thriving recycling industry that suffered a precipitous profit drop largely due to a Chinese market meltdown.

If demand for recycled metals, glass and paper does not improve, some believe haulers may ask the state for a reprieve from Assembly Bill 939 — the landmark 1999 state law requiring jurisdictions keep at least half of their waste out of landfills.

"If they took all of what they've been diverting, landfills would be overwhelmed," said William Winchester, a Southern California consultant and broker to recycling facilities, who has heard AB939 may come under fire.

His clients, including one in Contra Costa, have begun looking at tweaking disposal contracts, which could lead to higher garbage rates for residents.

"I know everyone is looking at their agreements. We're constantly looking at projections and data for them, which is like looking into a crystal ball," said Winchester, a Berg Mill Supply Company executive.

Last week, the Central Contra Costa Solid Waste Authority board set up an ad hoc committee to monitor the recycling market. The agency contracts for garbage service and recycling in Lamorinda, Walnut Creek, AdvertisementDanville and unincorporated Contra Costa County areas near those cities.

"We may have to make temporary amendments to our contracts ... to ensure we keep these commodities out of the landfill," Executive Director Paul Morsen told the board.

In the past, the authority received about $1 million in profit-sharing from Pacific Rim Recycling, a Benicia firm that sorts and sells recyclables from homes along the Interstate 680 corridor. The authority faces difficult budget issues, Morsen told the board, including a significant drop in those funds, if not a stoppage.

Against the background of growing concern, the larger crisis abated somewhat.

At the beginning of November, Steve Moore was renting warehouse space to store thousands of tons of recycled materials. The owner of Pacific Rim Recycling could not find a buyer, let alone a profitable sale price.

Since then, Moore has unloaded his entire inventory.

"I'm safe through the first week of December," he said.

Prices have only slightly increased, but Asian buyers are finally buying materials again, and most importantly, shipping costs have nose-dived. At the Port of Oakland, container costs on westbound freighters have dropped from about $1,100 to $400, Moore said.

"There's more empty containers going back toward Asia, so prices are coming down," he said. The lower costs save him about $25 a ton, allowing him to just about break even on certain orders.

"I still think it's very touch-and-go. We haven't seen the economy improve, have we?" Moore asked. "I have short-term relief, but there's an unknown future."

Some in the industry are hoarding materials, betting on higher prices.

Winchester has a few thousand tons of materials warehoused for clients. His Southern California brokerage firm consults and markets for recycling centers.

"They have contracts that require the collection of waste," Winchester said. "The flow does not stop, even if it's not profitable to move or just unable to move."

The specter of a never-ending stream of materials with no place to go has perked Sacramento's ears. The California Integrated Waste Management Board's market development committee will host the upcoming workshop to find short-term and long-term solutions, said spokesman Jon Myers.

"One fortunate thing that's taking place is we're trying to get ahead of the issue," he said.

The state is not shying from its recycling drive. At the Nov. 13 Integrated Waste board meeting, members granted a nearly $400,000 consulting contract to identify the cost effect of expanding commercial recycling.

So far, no disposal contracts in California have been renegotiated because of the market collapse, Myers said. And tweaking AB939, he said, should not be on the table.

"I'm sure there are other solutions without the adjustment of AB939," he said.

Waste Management, the largest recycler in the state and nation, is not prepared to ask for state law waivers, said company spokesman Kent Stoddard.

"We're worried and we're watching the markets very carefully. There may need to be some action by the state, but I don't think we're there yet," he said.

Waste Management — which sold 5.8 million tons of recycled materials in 2005 — has not had to stockpile materials in the weak market, Stoddard said. But, the domestic market needs a boost to help stabilize the battered commodities, he said.

"The industry is very, very nervous. It was so sudden, like almost overnight, from robust demand, high pricing to almost no demand, low pricing," Stoddard said.

"It's much deeper and broader than we've ever seen in the past, so a little panic is setting in."

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