‘GRC Annual Conference – St. Simons Island, GAAugust 2015

Recycling Megatrends

Bill MoorePresidentMoore & AssociatesAtlanta, GA

www.MARecycle.com

Moore & Associates – Paper Recycling Market Consultants

• Recovered Paper Market Experts

• Based in Atlanta, Global Practice

• Market Research

• Strategic and Tactical Business Assistance

• Pricing Analysis

• Recovered Paper Sales & Procurement Assistance

My Personal Background

• Less well known about me is my broad environmental industry and recycling background

• Environmental business professional since 1975 – long before it was fashionable

• Air, water, and waste responsibilities in the chemical industry

• Hazardous waste, Superfund, & groundwater work in the late 1970s/early 1980s

• All material recycling work in the mid 1980s

• First recycling specialty before paper was plastics

Presentation Format

• First we’ll cover “modern” recycling history (since the 1970s)

• The overall megatrends forecast going forward in US recycling – will be covered throughout

• A fairly deep dig into paper recycling issues, our strong suit

• A look at plastics recycling, an important and fast growing segment

• Finally a look at EPR and organics recycling

• Closing with a Future Trends summary

US MSW Recovery Rate1960 - 2012

Legislation that Moved Recycling Forward –1970s

• 1970 – The Big Year!– Earth Day– National Environmental Policy Act (NEPA) - established a US national policy

promoting the enhancement of the environment– EPA formed

• NEPA led to the Resource Conservation and Recovery Act (RCRA) to regulate solid and hazardous waste

• While RCRA applies to solid waste, the early years focused on hazardous waste regulation

• While not solid waste, the Love Canal issue (hazardous waste induced groundwater contamination in western NY in the mid-1970s) added fuel to the disposal/groundwater

• Led to the 1980 passage of Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA –

commonly known as Superfund)

Resource Conservation and Recovery Act (RCRA)

• While RCRA regulates solid waste, it has very little direct attention to recycling

• It did address recycling commodities markets and required the Federal government to purchase recycled content products – paper, motor oil, etc.

• This approach to “end market” stimulus became a model for many states to follow and even businesses

• The most important effect of RCRA on recycling: set the environmental standards for the disposal of MSW, thereby forcing closure of substandard landfills – it caused disposal costs to steadily increase for thirty years, the most important driver of recycling

“Modern” Recycling Collection History – 1970s

• Up until the 1980s, recycling primarily took place through scrap yards (focused on metals) and paperstock plants: not residentially oriented - buy backs, newspaper drives, etc.

• Commercial/industrial recycling always happened on an economic, avoided disposal, & market supply/demand basis

• There were a few ONP only household collections in early/mid 1970s and even some activity in the 1960s as the first recycle fiber based newsprint mills emerged in New Jersey and Illinois.

• First real multi-material residential recycling programs started in the US in Somerville & Marblehead, MA (1976)

Residential Curbside Comes of Age – the Middle 1980s

• Almost at the same time, three areas of residential curbside collection emerged, with pretty different approaches:– New England/New Jersey – dual stream collection: one

household bin, two compartments on the truck: paper (usually only ONP) and containers (only steel & Al cans and glass). Materials were sorted/processed at the first generation true MRFs

– Ontario, Canada – the blue bin system which featured collection vehicles with three or four bins and the materials were sorted at the truck-side

– Northern California – three bins in the household and the truck: ONP, metal containers, & glass containers – processed at simple MRFs

Curbside Recycling Turning Point

• 1986/87 – When San Jose, CA decided to implement a city wide residential curbside recycling program after piloting it in a small area

• Pilot programs in parts of cities were the approach in the late 1980s as city official wanted to determine “would it work” (would people participate!)

• First very large city (about 750,000 population) to have full curbside recycling program

• Three bin program popular at the time in California, modeled after the Santa Rosa, CA program run by local company – Empire Waste Management

• Mississauga, ON was Canada’s first large curbside program – 1986 (population 375,000)

Multi-Material Processing Facilities – the Early Years

• As mentioned earlier, paperstock plants and scrap yards were the earliest processing facilities

• Some of these emerged as the first MRFs– Peter Carter – Resource Recycling Systems (CT) – the

godfather of the modern multi-material processing facility

• His facilities in the northeast US were the first real MRFs– Several operations in Connecticut (Hamden?)– Camden, NJ – the first real MRF to process dual stream

material (at a scrap yard)– RRS assets were acquired/rolled up over the years into today’s

ReCommunity

MRF Style History(courtesy of Nat Egosi, RRT)

0%10%20%30%40%50%60%70%80%90%

100%

1980 1985 1990 1995 2000 2005 2010 2015

Single Stream

Blue Bag

Two Stream

Source Separated

Late 1980s

• Mobro – the garbage barge – “the Flying Dutchman” of solid waste – a barge of MSW from Long Island that “wandered “ the Atlantic for months in 1987 going as far as Belize seeking to dispose of it’s cargo: ultimately going back to NY where it was incinerated

• Significant number of “old”, environmentally unsound “dumps” closed as a result of the implementation of Subtitle D of RCRA

• Perceived shortage of disposal capacity throughout the US

• Skyrocketing landfill costs, a number of costly waste-to-energy plants built

• Higher disposal costs/perceived landfill capacity shortage accelerates move to recycle

• A number of states enact recycling legislation

US Average Annual MSW Gate Rates1990 to 2014 - $/Ton

Residential Recycling Grows – 1990s

• All three types of earlier collection/processing operations grew in the first half of the decade: truck-side sort, two (dual stream) and three compartment trucks

• New materials are added:– Plastic containers: usually only PET & HDPE– Additional paper grades added, Mixed Paper & OCC

• The first single stream programs emerge• Toward the middle to later 1990s, truck side sort and three

bin trucks start to fade because of high collection costs• By the end of the 1990s dual stream collection still leads

with single stream gaining

Recycling in the 2000s

• Residential– Single stream collection gains market share

– Dual stream programs decline

– Mixed Waste Processing starting to emerge

– Organics at the curb

– Many new materials added, poly-coated packaging and others

• Commercial/Institutional/Industrial– Has remained fairly similar over the last thirty years, with efficiency

improvements

– Single stream commercial emerges and gains momentum

• Recyclable commodity quality continues to deteriorate as collection systems change and recovery rates go higher

Number of Operating MRFs and Mixed Waste Facilities in the United States

Source: Governmental Advisory Associates, Inc. Database of Materials Processing Facilities in the United States. Westport CT., 2015.

Growth in Single Stream MRFs

Source: Governmental Advisory Associates, Inc. Database of Materials Processing Facilities in the United States. Westport CT., 2015.

The Current Decade

• Greening and sustainability movement takes hold in both the general public and businesses/government follow suit – spurs recycling even further

• Sustainability becomes an important factor in source reduction, material/packaging choices – changes the attitude of the “generators” of MSW

• Extended Producer Responsibility increasing?

• Partly because of recycling, the amount of MSW disposed of begins to decline. Disposal costs moderate, disposal capacity not an issue

• Recycling becomes mainstream

• Quality of recyclables bottoms out

• Interest in Mixed Waste Processing increases – see next slide

Operational and Planned Mixed Waste Facilities by Year

Source: Governmental Advisory Associates, Inc. Database of Materials Processing Facilities in the United States. Westport CT., 2015.

Paper Recycling

Global Paper and Board Production(Million Tonnes)

Chinese Production by Major Paper GradeMillion Tonnes

Grade 2002 2010 2016

Newsprint 1.85 4.30 3.97

Mechanical P&W 0.15 2.05 3.53

Woodfree P&W 10.85 20.52 27.18

Containerboard 10.85 37.50 57.20

Tissue Paper 2.73 5.25 8.54

Other P&B 11.41 23.49 30.80

Total P&B 37.83 93.10 131.22

The Change in North American RCP Consumption Over Time

Source: Numera Analytics

2x ONP 9x ONP

OCC Recovery Cost vs Price vs % Recovered

OCC Future Demand Trends• China’s huge appetite for OCC drives the world price

• Over the next five plus years, we may see unbleached kraft pulp be competitive with OCC especially at the top of the pricing cycles in China – but supply of the grade is limited and expensive

• An even more likely scenario is the use of additional virgin kraft pulp in place of some OCC in the US Southeast (expect kraft pulping/recovery system debottlenecking projects)

• New OCC based containerboard mill projects in Asia (including China), Europe, Middle East, and North America (newsprint, etc. machine conversions, SP Fiber Technologies is a good example)

Mixed Paper Market Issues

• Serious downside/bottom of the price cycle problems – over supply

• Quality – fiber length, mix, and non-paper contaminants: significant capital expenditures at the mill needed to use the grade and low yield

• Not a grade that was historically desirable to produce, but RMP changed that. Grade with a limited market – modern Chinese mills and our own Georgia Pratt Industries changed that– a purposefully produced grade now

ONP Supply/Demand Issues

• Downturn in global use of newsprint

• Merging with Mixed Paper – price and quality/fiber composition

• Supply short nature of the grade will keep bottom of the cycle prices higher than historical performance

• ONP is an uneconomical raw material for producing newsprint over ¾ of the pricing cycle

• Newsprint mill shutdowns over the last five years have been biased toward recycle

• Mechanical virgin pulp is far preferred to recycled (ONP) from both a cost (in the US, different in high electric cost regions – e.g. Europe) and quality standpoint

ONP Demand(continued)

• All new ONP demand growth is from cartonboard/boxboard where it is a minor part of the furnish (<20%) and is often obtained from Residential Mixed Paper

• But ONP is such a supply short grade and use in cartonboard/boxboard makes it unrecoverable for use in newsprint which causes the “bottom” of ONP market to be fairly high by historical metrics

• Clean, high quality #7/8 deinking ONP for newsprint/recycled mechanical fiber grades – becomes a specialty, at a premium price to regular ONP

US Printing/Writing Papers Supply

World Tissue vs Printing/Writing Production(Million Tonnes – Note: not all tissue is made from recycled fiber)

P&W Consumption Tissue Production

Major Recovered Paper Quality Issues

• Plastic film contamination of all grades

• Glass is a serious contaminant in both ONP and Mixed Paper and a costly item from a collection/processing /MRF equipment operating cost perspective

• Mixed collection leads to both higher non-paper and other fibers contamination

• OCC quality degradation from increasing recycled fiber based containerboard (short fibers) and more boxboard content

• Unbleachable fiber and other contaminants in ONP and high grades

Plastics RecyclingThis section comes largely courtesy of Moore Recycling Associates and specifically my colleague and plastic recycling expert, Patty Moore

PET

• Demand outpaces supply:US reclamation capacity growing

• Bale quality dropping:Inability to enforce bale specifications

• Thermoforms may provide relief:Issues need addressing Look-alike containers Size, shape Labels, inks, glues

HDPE Bottles

• Potential supply stagnant

• US supply vs reclamation capacity: in balance

• NHDPE bottles hit an all time high price in 2014

Resin SalesB lbs

Bottles Recycled

B lbs

Recycling Rate

2008 3.2 .94 29%

2009 3.4 .98 29%

2010 3.3 .98 30%

2011 3.2 .98 30%

2012 3.2 1.02 32%

2013 3.3 1.05 32%

Film & Bags

• Tremendous opportunity for growth• Commercial Collection is Key• Discourage Curbside

– MRF Difficulties– Low Value

Barriers to Overcome

• Most scrap plastic is sold on a spot-market basis: need reliable pricing index

• Lack of accepted standard terminology – but recent new ISRI specifications

Extended Producer Responsibility (EPR)

• To date in the US, mostly aimed at “special” recyclables – batteries, electronics, etc.

• Many believe it is the future of recycling• Some retailers/consumer product producers are the strong

supporters of EPR as the magic bullet• Strong pushback from packaging producers • Existing recycling infrastructure providers also are generally

opponents• Traction in Europe & Canada• Likelihood of broad adoptions in the US?• Source of state and local funding for recycling programs –

important factor

39

Source: Product Stewardship Institute (PSI)

Organics Recycling

This section comes largely courtesy of Kessler Consulting, Inc. of Florida and specifically my long term colleague and organics recycling expert,

Peter Engel

Organics Recycling

• A large part of the waste stream

• Yard waste recycling came on quickly early in the 1980s

• Food waste recycling is the new frontier

• Anaerobic digestion – an old idea, gaining again? Has a long history of application to biosolids.

Recovery of Organics

Source: EPA MSW in the U.S., 2012

• Food scrap recovery is next frontier for meeting high diversion goals

• Food scrap recovery mandates / disposal bans• Collection and processing infrastructure are

immature and not well integrated• Organics recycling facility capacity insufficient to

meet demand• Organics recycling facility regulations are

inconsistent and not standardized

Food Scrap RecoveryPoised for Growth & Facing Challenges

• Renewal energy from organics• One of the earliest demonstrations of this

technology applied to MSW took place in south Florida – Refcom – 1970s

• Standardized designs and multiple vendors for high solids digesters

• Business models include diverse product stream: digestate, bio-gas, electricity, heat. Energy recovery essential to financial viability

• Manure digesters support farm economies and nutrient management

Anaerobic Digestion Comes of Age

Future Trends

Overall and the “Drivers”

• US MSW recovery rates are expected to grow only slowly: no return to the fast gains of the mid 1980’s through early 2000’s

• Legislative initiatives will only occur at the state level and be limited, focused on special materials/situations

• Disposal costs, much like recovery rates are expected to increase only modestly

• Global end use markets for recyclables will expand slowly and adjust to accommodate to the available supply

Disposal

• Waste to Energy growth will be limited as it has been for almost twenty years now

• Pay As You Throw/volume based disposal approaches will grow slowly

• We will continue to rely on landfills as the primary means of disposal after recovery of recyclable materials

• Mixed Waste Processing and conversion of major parts of MSW to fuel substances or other useful materials after removal of some recyclables may play a role.

Processing Facilities

• They will continue to increase in size, feature more sophisticated equipment, and continue the positive trend of operating more like manufacturing facilities

• Single stream facilities are here to stay

• Increased emphasis on incoming material quality and decreasing MRF residue (the current level at many programs is unacceptable)

• The jury is out on Mixed Waste Processing Facilities: if they can’t produce usable recycled commodities, they won’t happen

Producing Paper & Board Using Recycled Fibers

• For the last several decades, recycled fiber has had a distinct cost advantage over virgin fibers for the production of newsprint, away from home tissue products, containerboard, and recycle paperboard. But not for printing/writing grades and high end packaging.

• Increasing recovered paper costs over the next ten years may change the cost advantage dynamic:• Higher commodity cycle costs• Lower quality, shorter fibers and non-fiber

contaminants - lower yields, higher processing costs

Plastics

• PET prices will be depressed for the next year (or so) due to an over supply of virgin resin

• All recycled plastics including mixed resin rigid plastic will increasingly be sold to domestic buyers (rather than exported) who will further sort it. Bales will increasingly be priced based on yield so quality suppliers will get more for their plastic bales than those of lower quality.

• Design for recyclability will become increasingly more important

• Film, bag and wrap collection will continue to grow quickly

EPR and Organics

• EPR– Strong interest from retailers/consumer product interests

– Implementation in Canada & Europe

– But how well will it fly in the US?

– Funding source for local government recycling programs

• Organics– Food scrap recovery programs will expand

– The favorable economics of anaerobic digestion will drive expansion

– A major challenge will be the impact of contamination in source separated organics or organics recovery facilities, and the issues related with biodegradable plastics both in the organics and recycling stream.

– Compost production and use will become increasingly specialized to address specific market needs

Quality• By 2010, recyclables quality had fallen to the lowest acceptable level

– inevitable outcome of higher recovery rates

• The inverse relationship of quality and price of recyclable commodities

• Domestic manufacturers have had trouble using the lowest quality material for quite some time – new overseas capacity provided demand (especially China)

• China’s Green Fence – set the “new” bottom: largest impact – mixed plastics and Mixed Paper

• Quality initiatives by a number of organizations – Recycling Partnership, NW&RA, AF&PA, Waste Mgt, etc.

• Generator education and incoming quality to the processing facility

End Markets

• Global– Demand for recyclable raw materials will grow to meet the growing supply

• US – Manufacturing industry doing well, slow but steady increase in the use of

recyclables: but varies by material

• India– On a percentage basis, strong growth in recyclable demand– But starting from a low base and will the country be able to sustain growth as

China has?

• China– Overcapacity/low operating rates in recyclables end user capacity– Will domestic packaging demand increase to absorb capacity? History tells us

it will!

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