Fiber prices are slowly recovering from the rock-bottom values of late last year and early this year, but scrap plastic prices have fallen dramatically in recent months, taking a toll on the largest haulers’ recycling businesses.
For Waste Management (WM), strained recycled plastic markets have forced executives to revise downward their commodity pricing forecasts for the rest of the year.
“The bigger story really is on the non-fiber pricing and related to plastics, which is a smaller part of our volume but higher-value commodity,” Tara Hemmer, WM’s chief sustainability officer, said during a recent call with investors. “And we’ve seen prices decline roughly 30% to 55% from May to July. So that’s what’s driving our recycled commodity price outlook for the second half of the year.”
Overall, year-over-year drops in recyclables prices dented all of the top haulers’ recycling revenues during the second quarter. WM reported a 21% recycling revenue decrease, Republic Services experienced a 30% decrease, Casella Waste Systems saw a 12% drop, GFL Environmental tallied a 13% drop and Waste Connections calculated a 43% decrease.
The following are more details on recycling-related financial results for the top five publicly traded garbage and recycling companies in the second quarter of 2023:
The company’s recycling business brought in $370 million in revenue during the second quarter, down 21% year over year.
Profits from recycling also fell off significantly. Operating earnings before interest, taxes, depreciation and amortization (EBITDA) dropped by $41 million compared with the second quarter of 2022, according to a press release.
Driving the decrease was a 55% year-over-year drop in the average recovered commodity price during the first half of 2023, according to the company’s quarterly report. Much of that was due to down pricing for scrap plastics.
During a July 26 conference call with investors, Hemmer, WM’s chief sustainability officer, said commodity prices averaged $60 per ton during the second quarter. That was down from $131 per ton during the second quarter of 2022, or down 54%.
In the press release, WM noted that MRF investments continue to soften the financial blow from the down commodity markets, however. The company is in the midst of an estimated $1 billion project to upgrade its MRFs with new sorting technologies and open new automated MRFs. During the quarter, WM completed a technology and automation upgrade at its Surprise, Ariz. and opened a recycling facility in the Toronto area.
Among the reasons cited: WM executives now think that recyclables prices will recover more slowly than they originally expected. Specifically, they’re now expecting recyclables to average about $60 per ton in 2023, which would be down 40% from 2022. They were originally expecting the price to average $70 this year.
During the call, Hemmer said WM expects fiber prices to continue rising slowly, driven by some domestic mill capacity coming on-line. But recycled plastics prices have come down sharply. Hemmer said they’ve been forced down by competition from low prices for virgin plastic.
Still, WM expects the prices will rise again on strong demand from brand owners.
“If you think about what’s happening with brands, they all have commitments to buy recycled content, and we think that will come back,” she said. “They are going to come back into the market to buy to meet their commitments.”
Recycling now makes up about 7% of WM’s operating revenue. Overall, the company tallied $5.12 billion in revenue during the second quarter, up 2% year over year.
The company’s recycling business reported $80 million in revenue during the second quarter, down 30% year over year.
According to the Republic Services’ quarterly report, the average price for a ton of recovered commodities (excluding glass and organics) was $119 during the quarter, down from $218 during the second quarter of 2022, marking a drop of 45%. That $119 was up from $105 during the first quarter, however.
In late July, Republic announced a major deal with global polymers producer Ravago to open and run a series of plastics recycling plants. Republic plans to put $160 million into the $350 million joint venture, which is called Blue Polymers. Republic will build four U.S. plants that Ravago will operate. The plants will take in recovered HDPE and PP sorted by Republic’s Polymer Centers, the first of which is coming on-line in Las Vegas, and recycle them into pellet for sale into various markets.
During a July 31 conference call with investors, Jon Vander Ark, Republic’s CEO, said the deal allows Republic to not only act as a feedstock supplier for the plants but to also get to share of Blue Polymers’ profits as a 45% minority owner.
The four Blue Polymers plants are expected to be up and running in the next five years, with the first coming on-line by late 2024.
Brian DelGhiaccio, chief financial officer, discussed the estimated profits to be generated by the Blue Polymers plants. He said Republic expects that the first two plants will generate a total of about $15 million in annual EBITDA for the company beginning in 2026. In 2029, when all four are up and running, he expects they’ll generate about $30 million to $32 million in additional annual EBITDA for Republic, he said.
In terms of Republic’s existing recycling business, DelGhiaccio said during the investors call that commodity prices are currently averaging $115 per ton. The company now expects that average to remain fairly flat through the rest of the year, with prices averaging in the range of $110 to $115 per ton for the full year.
Republic also recently published its 2022 sustainability report, which included what the company is calling a “Climate Transition Road Map.” The document showed Republic recycled 2.4 million tons of key materials last year, down from 2.6 million tons the year before. “Key materials” includes OCC, metals, organics, paper and plastics. The company aims to recycle 3.4 million tons of these materials annually by 2030.
In 2022, Republic Services made $126.5 million in recycling investments, according to the report, which noted recycling investments totaled $325.0 million over the past five years.
Recycling now brings in about 2% of Republic’s operating revenue. Overall, the company brought in $3.73 billion in revenue during the second quarter, up 9% year over year. Nearly half of the increase was due to acquisitions, however.
In May 2022, Republic Services acquired US Ecology for $2.2 billion. And on June 1, 2023, Republic bought vertically integrated operations in Colorado and New Mexico from GFL Environmental. Those included recycling, hauling, transfer and landfill operations. A dollar figure for the acquisition wasn’t disclosed.
Republic plans to spend amply on acquisitions this year. The quarterly report notes Republic is anticipating spending $1 billion on acquisition of recycling and solid waste companies in 2023.
Casella Waste Systems
Casella’s Resource Solutions segment, which includes recycling and other businesses, brought in $72 million in revenue during the second quarter, down 12% year over year.
The Resource Solutions segment includes the company’s recycling business, its organics processing and disposal business, and services for large industrial, institutional or multi-site retail customers.
According to the company’s quarterly report, the $9.6 million decline in revenue in the Resource Solutions segment was a result of several factors but was mostly attributable to lower commodity prices.
Specifically, lower recyclables prices (partially offset by higher tipping fees and other processing prices) decreased year-over-year revenue by $11.3 million. Further reducing revenue by $900,000 was lower revenues from the national accounts business. Nevertheless, Casella did enjoy high processing volumes, which gave the company $2.6 million more than the prior year. The net change amounted to a decrease of $9.6 million.
In a press release, John W. Casella, the company’s chairman and CEO, noted that average commodity prices in the second quarter were down 53% from the second quarter of 2022. He described that as “significant recycling headwinds.”
During a July 28 conference call with investors, Ned Coletta, chief financial officer, pointed to lower pricing pretty much across the board, including for OCC, mixed paper, metals and plastics.
“Commodity prices hit a high point in April 2022 and then declined 67% through the remainder of 2022, hitting a multiyear low last December,” Coletta said during the call. “Combined prices have rebounded from this low level, up roughly 30% sequentially from December through June.”
He noted that market conditions helped translate into lower EBITDA for the Resource Solutions segment. That segment brought in $3.8 million in EBITDA during the quarter, down $5.6 million year over year, or 60%. Lower recyclables prices were responsible for $3 million of that drop, Coletta said.
“Our risk-mitigating commodity programs helped to offset most of the significant drop in commodity prices. Unfortunately, these programs are not fully implemented in several newly acquired markets that had legacy contracts that do not allow us to pass recycling risk back to the customers,” he said. “These markets accounted for roughly 60% of the year-over-year decline from commodity prices.”
Also during the quarter, Casella opened its upgraded Boston MRF, the product of a $20 million investment into automation. In the release, Casella said the facility is expected to contribute to overall financial results starting in the second half of 2023. That being said, the facility’s closure for the upgrade for most of the second quarter resulted in a $2.5 million drop in adjusted EBITDA, Coletta said.
“Revenues were lower as we displace volumes, and costs were higher as we had to transload volumes to other facilities,” he noted.
Looking forward, the company is forecasting recyclables prices to remain flat at current levels through the remainder of the year.
Resource Solutions now brings in about 25% of Casella’s operating revenue. Overall, the company brought in $290 million in revenue during the quarter, up 2% year over year.
The Canadian company’s recycling business brought in 82 million Canadian dollars ($61 million U.S.; all dollars below converted to U.S. on Aug. 4) in revenue during the second quarter, down 13% year over year, according to the company’s quarterly report.
In presentations, the company noted the year-over-year drop in commodities prices. During a July 27 conference call with investors, Patrick Dovigi, founder and CEO of GFL, said that although “commodity prices continue to be a margin headwind compared to the prior year, we believe an eventual price recovery will occur and the future benefit of margins as we go forward.”
Luke Pelosi, the company’s chief financial officer, noted during the call that GFL is typically able to sell bales of recyclables for higher-than-market rates because of the company’s scale and the quality of its commodities.
“However, periods of significant price volatility can temporarily cause spread compression such that the net price we realize can decrease even when the headline market indices increase, and that’s what we saw in Q2,” Pelosi said. “Although fiber prices have increased recently, the coincident rapid and significant decline in non-fiber prices yielded this type of spread compression during the end of Q2.”
He said GFL expects recyclables prices to rise in the second half of the year and into next year. “I mean we are very optimistic commodities will start rebounding this year, but I think that’s going to be a real tailwind going into next year,” he said.
Recycling now makes up about 4% of the company’s total operating revenue. Overall, GFL reported revenue of $1.45 billion, up 14% year over year.
Recycling brought the company $38 million in revenue during the second quarter, down 43% year over year.
The lower recyclables sales revenues were due to pricing drops across OCC, aluminum, plastics and other paper products, according to the company’s quarterly report. “Commodity pricing decreased significantly during the three months ended September 30, 2022 and have not fully recovered,” the report notes.
During an Aug. 3 conference call with investors, Ronald Mittelstaedt, the CEO of Waste Connections, noted that OCC prices averaged $75 per ton during the quarter. That was down from $158 per ton during the second quarter of 2022, or 53%.
During the call, Mary Whitney, the company’s chief financial officer, noted that third-quarter 2023 commodity values are expected to be down from the second-quarter values, driven by lower prices for plastics.
In terms of capital investments, Whitney later noted that Waste Connections expects to invest about $25 million in its recycling facilities this year.
Recycling now accounts for about less than 2% of Waste Connections’ total operating revenue. Overall, the company brought in $2 billion in revenue during the second quarter, up 11% year over year.
By the numbers
The following is a look at key second-quarter 2023 recycling numbers from the five largest publicly traded haulers in North America:
- Q2 recycling revenue: $370 million
- Q2 revenue change YoY: Down 21%
- Average Q2 commodity price: $60 per ton
- Commodity price change YoY: Down 54%
- Q2 recycling EBITDA YoY: Down by $41 million
- Q2 recycling revenue: $80 million
- Q2 revenue change YoY: Down 30%
- Average Q2 commodity price (excluding glass and organics): $119 per ton
- Commodity price YoY: Down 45%
Casella Waste Systems
- Q2 Resource Solutions (which includes recycling) revenue: $72 million
- Q2 revenue change YoY: Down 12%
- Q2 EBITDA: $3.8 million
- EBITDA YoY: Down 60%
- Commodity price change YoY: Down 53%
GFL Environmental (converted to U.S. from Canadian dollars on Aug. 4, 2023)
- Q2 recycling revenue: $61 million
- Q2 revenue change YoY: Down 13%
- Q2 recycling revenue: $38 million
- Q2 revenue change YoY: Down 43%
- Average Q2 OCC price: $75 per ton
- OCC price YoY: Down 53%