Recycling operators across the country two years ago were enjoying record high values for old corrugated containers. Now, they are either storing the material, unloading it at little profit or sending loads to disposal.
OCC, which constitutes a large and growing percentage of the residential recycling stream, has dropped well below its price at any point in at least two decades, according to industry experts. A price sheet from fiber market analyst firm RISI called the current price a 25-year low.
So far, 2019 has brought month after month of price drops, which came after relative stability last fall. What that means for MRF operators and municipal programs is revenues plunging further and a previously fast-moving commodity collecting dust.
“We have no choice but to store,” said Dale Gubbels, CEO of Nebraska-based First Star Recycling. “We’re sitting on quite a bit of it.”
He said the company is sending some of its OCC to buyers, but the movement is slow and prices continue to decline – Gubbels said he hasn’t seen prices this low for decades, since at least before First Star began operating in the 1990s.
With the consistent downward movement, many recycling operations have begun to wonder where the true OCC pricing floor is, or if there even is a floor in the current market.
“The question is, are we going to see a basement?” Gubbels said.
Factors converge to drive down price
Markets for residential recyclables – and fiber in particular – have been hit hard over the past couple years, pressured chiefly by international trade restrictions.
OCC has fared much better than mixed paper, which hovers around negative $2 per ton nationally. Some operators in the Northeast, in fact, are paying as much as $35 to get rid of mixed paper.
“Some of this is the hangover, the long-term hangover of Asian markets sort of backing out.” – Joe Jurden, Cook Paper Recycling Corporation’s president
In recent months, however, OCC has pushed lower and lower. According to RecyclingMarkets.net, the grade is currently trading for a national average of $28 per ton, compared with $32 last month and $70 at the beginning of the year. The current price represents an 85% decrease from two years ago, when OCC hit a record high of $180 per ton.
“Some of this is the hangover, the long-term hangover of Asian markets sort of backing out,” said Joe Jurden, president of Kansas-based Cook Paper Recycling Corporation, a brokerage. Although OCC, unlike mixed paper, is not banned from import into China, OCC shipments must be far cleaner than in the past. This, along with the general international market turbulence spurred by China’s new policies, has led to OCC price swings.
Jurden also pointed to a strong U.S. dollar making it disadvantageous to export and relatively limited domestic options. He postulated that some of the pricing is artificially low due to overreaction to the fast-shifting market.
“In a rising market, you get euphoria. It artificially stimulates the price up,” he said. “The same theory applies to a sinking market.”
Meanwhile, in the San Francisco Bay Area, where RISI’s price sheet recently reported the lowest OCC prices in the nation, a longtime MRF operator described uncharted territory in markets.
“OCC was always one of the higher-value fiber streams compared to the mixed paper and the like,” said Louie Pellegrini, president of Peninsula Sanitary Service, which provides recycling service to multiple municipalities. Pellegrini said he’s never seen times quite like these in his 45 years in the industry. And he predicts the OCC price has further to drop before the strife is over.
Pellegrini similarly pinned fiber price declines on a variety of international factors, including the slowing Chinese economy, the growing trade war between the U.S. and China, and ongoing adjustments following China’s recycled material import restrictions.
He said Peninsula’s OCC is being exported to Southeast Asia. Cook Paper and First Star are selling the material to domestic buyers, according to the leaders of those companies.
OCC’s volume in the recycling stream varies widely by geography and program. For instance, in waste composition studies shared by Cascadia Consulting Group, the city of Seattle estimated OCC contributed 16.4% of the residential recycling stream in 2015, and the city of Palo Alto, Calif. estimated 13.1% in 2017. Meanwhile, Waste Management reports that OCC contributes 29.5% of the tonnage handled by its MRFs.
Impact on local recycling operations
Tip fees are high enough that it’s still more profitable to collect and market OCC than it is to landfill it in California, Pellegrini noted. But elsewhere, OCC is reportedly being sent to disposal due to the market downturn. In an earnings call last week, executives with fiber mill operator Greif touched on the trend. Company CEO Pete Watson commented that “right now you’ve got a situation where the pricing on OCC is so low that you are having a bunch of stuff dumped into landfills.”
Sources say the OCC landfilling is mostly occurring when haulers take loads directly to the landfill rather than the MRF. For the most part, companies are not landfilling OCC that’s been separated and baled. It’s a different story on mixed paper, where “we’re nearing the threshold for [it to be] cheaper to landfill it than collect it and process it and try to market it,” Pellegrini said.
Even if companies aren’t landfilling OCC en masse, the low pricing is causing constant financial headaches.
In Arkansas, a nonprofit drop-off recycling center that funds itself primarily through commodity sales is feeling the pressure, according to the Magnolia Banner News. The newspaper reported that the Abilities Unlimited recycling organization, which makes most of its money from OCC sales, is asking its local government for financial support, citing rising costs and falling income from the market shift.
“Right now you’ve got a situation where the pricing on OCC is so low that you are having a bunch of stuff dumped into landfills.” – Pete Watson, CEO of paper manufacturer Greif
It’s a similar situation in North Dakota, where a drop-off recycling operation recently ended public service. The owner of the Carrington, N.D. facility, 4R’s Recycling, told the Jamestown Sun newspaper that cardboard has carried the business financially in the past, and that the operation hopes to reopen the public drop-off if OCC prices come back up. In the same article, another North Dakota recycling company said OCC is “what everybody counts on to make a profit.”
Jurden of Cook Paper pointed to another potential shift driven by the pricing slump. Some collectors make the rounds to small commercial generators, picking up a couple bales at grocery stores each week. That type of service, which likely would have been covered by OCC revenues in the past, will require a service charge as prices push lower. At some point, particularly in areas without landfill bans, generators may decide it’s not worth the extra cost to recycle the material.
“They’re probably saying, we’ll just stop baling – we’ll just put it in the dumpster or compactor,” he said.
Meanwhile, MRFs continue receiving load after load of the material in the residential recycling stream, and even if they can get by for now, it’s a delicate balancing act. Gubbels of First Star said his facility has filled up most of its interior storage space and is already storing OCC outdoors, creating an additional time crunch.
“You can only keep it outside for so long before you will be landfilling it, because the mills aren’t keen on sun-bleached paper,” Gubbels said.
At the same time, mill operators have enjoyed lower recovered fiber costs each quarter. Late last year, fiber giants anticipated OCC prices would be flat or slightly decreasing moving into 2019. At that time, OCC was sitting at about $71 per ton, well over twice the current national average.
Photo credit: sylv1rob1/Shutterstock
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