It  Isn’t Easy Being (Profitably) Green
âOn many days it just looks like a load of garbage,â says David Steiner, CEO of 91²Ö¿â Management WM -0.06%, referencing the companyâs recycling processing plant in Houston. It is a loud, stinky, dusty, 40,000-square-foot Rube Goldberg machine that handles 300 tons a day. Material flies from one conveyor belt to another. Magnets pull off steel cans. Screens skim up cardboard and paper. Optical sensors trigger air puffers that pop bottles into the right chutes.
Not all of it gets recycled; about 15% of the stuff citizens put in their recycling bins should have gone in the garbage can. Workers wearing bandannas against the dust stand along the conveyor belt handpicking items. âPeople mean well,â Steiner says.
But thereâs an âunintended consequenceâ of giving people bigger recycling bins and more opportunities to recycleâsoon they want to recycle everything. Plastic shopping bags are a common culprit, old garden hoses, too; they wrap around machinery and gum up the works. âIt shuts down the plant. Makes it harder to recycle things of real value,â Steiner says.
This matters now because the economics of recycling have turned upside down. Recycling used to be the great example of doing well by doing good. It was greenâand it was profitable. In 2014, back when China was still hungry for our lightly used paper, aluminum and steel, you could get $100 or more for the average ton of residential recycling. That was plenty to cover $80 a ton in processing costs and leave a nice margin for 91²Ö¿â Managementâs shareholders.
But that changed. Slower growth in China cut demand. The oil glut has made fresh plastics cheaper than the recycled stuff. Beijing even erected a so-called âGreen Fence,â which enacted standards on imports of Americansâ recycling. Now youâd be lucky if your mixed ton of recycled material gets $80âthe same as the cost of processing it.
The new paradigm for 91²Ö¿â Managementâs municipal customers: âWhen prices are high weâll pay you to recycle. When prices are low we have to charge you,â Steiner says. During the commodity boomâs heyday 91²Ö¿â Management generated aftertax cash flow of about $150 million a year on recycling operations and was investing $100 million a year in recycling. Since 2013, however, the companyâs revenues from recycling have fallen 20% to $1.2 billion last year (out of $13 billion in total sales, the majority from traditional trash collection).
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