EPA/530/SW-149
APRIL 1975
mater- f ebroarv
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An environmental protection publication in the solid waste management
series (SW-149). Mention of commercial products does not constitute
endorsement by the U.S. Government. Editing and technical content of
this report were accomplished by the Resource Recovery Division of the
Office of Solid Waste Management Programs.
Single copies of this publication are available from Solid Waste
Management Information Materials Distribution, U.S. Environmental
Protection Agency, Cincinnati, Ohio 45268.
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RECYCLED MATERIALS MARKETS:
FEBRUARY 1975 - A SUMMARY
by Stephen A. Lingle51
This paper provides a brief review of the market demand for mate-
rials recovered from municipal solid waste. More comprehensive discussions
may be found in various EPA publications including both the First and
Second Reports to Congress on Resource Recovery and Source Reduction.
This paper briefly reviews market conditions during the 1973-1974 period
and describes factors underlying longer term trends in recycled materials
markets.
The Market Situation in January 1975
Recycled materials markets in the 1973-1974 period experienced both
the highest and lowest prices of several decades. Late 1973 and early
1974 was a period of rapidly increased demand for recycled materials and
record high prices. However, in late 1974, prices of many recycled
materials declined significantly, due to reduction in both domestic and
export demand. By January 1975, scrap steel, copper and aluminum prices
had dropped by approximately 50 percent, 60 percent, and 30 percent
respectively from their 1974 highs. Wastepaper prices were one-third to
one-fourth the levels of only a few months before. Many businesses,
cities, and charitable organizations were unable to sell some scrap
materials at all, particularly paper.
Causes of the Market Turnaround
The wastepaper market provides a good example of the nature of
markets for recycled materials and dramatically illustrates the market
turnarounds in 1973 and 1974.
The period January 1973 to March 1974 was a time of unprecedented
high demand for manufactured goods. This was essentially a material
shortage period. Almost all paper mills were operating at full capacity.
Virgin pulp capacity could not be expanded in the short term as this
requires substantial capital investment and construction. Therefore,
mafty paper mills that generally would use little or no wastepaper were
*Mr. Lingle is Chief of the Materials Recovery Branch, Resource
Recovery Division, Office of Solid Waste Management, U.S. Environmental
Protection Agency.
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bidding for wastepaper supplies. In addition, export demand for waste-
paper increased significantly during this period. The combination of
these two factors led to a sharp rise in wastepaper demand and prices.
By March 1974, four factors began operating that together brought
about a sharp curtailment in wastepaper consumption and decrease in
wastepaper prices.
1. Paper and paperboard consumption began leveling off, allowing
virgin pulping capacity to "catch-up". As a result, many virgin-oriented
mills dropped out of the wastepaper market.
2. Production levels in the paper industry declined due to the
general economic recession in the nation. This was especially significant
in the construction paper sector due to the decline in the housing
industry.
3. Wastepaper exports declined.
4. Inventories of wastepaper supplies had increased due to the
"demand pull" of previous months.
These factors in combination eventually resulted in the depressed
market conditions of late 1974-early 1975. The market situation will
probably improve in 1975, and prices and consumption will probably
settle out at pre-1973 levels by the end of the year. This increase and
decrease in prices and consumption is typical in the wastepaper industry.
Wastepaper is the last fiber to be used in times of shortage and the
first to be discontinued during cut-backs.
What is the Longer Term Trend?
Significantly, the recycling rate (domestic recycled material
consumption as a fraction of overall domestic material consumption) for
many secondary materials has declined for many years. The recycling
rate for paper declined from 35 percent in 1944 to approximately
19 percent at the end of 1974 (Figure 1).
The wide fluctuations that have occurred in wastepaper markets
since 1950 are illustrated by the wholesale price index shown in Figure 2.
Prices of other secondary materials show similar instability. Scrap
steel prices in 1974 are shown in Figure 3. It was the fluctuating
market demand, similar to that which occurred in 1973 and 1974, that
caused these price fluctuations. Since prices for virgin raw materials
have shown no similar fluctuations, this suggests that secondary materials
are used, to a significant degree, as commodities of last resort--phased
in or out with changes in capacity utilization and total production.
This is particularly true of materials recycled from post-consumer
waste. The scrap generated in manufacturing and converting plants is
recycled at a relatively consistent rate due to its purity and proximate
point of generation. Demand fluctuations thus impact most significantly
on efforts to recover materials from post-consumer solid waste.
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What Causes Fluctuations and Long-Term Declines in Waste Materials Markets?
The paper industry again provides an example of the basic factors
influencing waste materials markets.
There is a historical orientation in the paper industry (and in
other industries) to the use of virgin resources. While this can be
attributed to a variety of factors, the vertical integration of the
industry into timber production (or mining for metal consuming industries)
is a key one. This has given the raw material user industries the
ability to control a stable and predictable raw material supply while
profiting from the use of that material. In addition, tax benefits
provided as capital gain allowances (or depletion allowances for minerals)
subsidize the use of virgin materials.
These factors combine to create a user market which favors virgin
materials rather than recycled materials. EPA presently has underway a
study of the economics of wastepaper versus virgin fiber use in the
paper industry. Table 1 shows estimates of total process cost and
return on investment for "virgin" and "recycled" paper mills.
These data show that in a predominant number of cases, the return
on investment of mills using virgin resources is greater than that of
recycled fiber mills. Even in cases where the return is nearly equivalent,
it is likely that the virgin mill will continue to predominate due to
vertical integration, industry experience, and more stable raw material
prices.
While these economic comparisons are generalizations which cannot
be representative of each specific mill situation, the data are generally
consistent with an industry situation which finds marginal units of
waste material use above the 20 percent level to be economically unattractive.
The fact that there are not large differences in economic attractiveness
in many cases suggests that for many products the economic balance could
be relatively easily shifted.
Prognosis for the Future
The weak and erratic performance of recycled materials markets
is not likely to improve unless existing mills permanently increase
their use of waste materials or new mills designed to use waste materials
are constructed.
It is difficult to foresee any normal market forces at present
which will cause this to happen to a significant degree. Possible
decreased availability (and increased price) of virgin materials in the
future would move the markets in this direction, but the time frame or
severity of such conditions is unknown at present.
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TABLE 1
COMPARATIVE ECONOMICS OF PRODUCING PRODUCTS
FROM VIRGIN AND SECONDARY FIBER
($ per Metric Ton)
% of
Product Industry
Outcut
LINERBOARD 20
100% Virgin
100% Secondary
80% Virgin; 20% Secondary
CORRUGATED MEDIUM 9
85% Virgin; 15% Secondary
100% Secondary
53% Virgin, 48% Secondary
NEWSPRINT 61
100% Virgin
100% Secondary
67% Virgin; 33% Secondary
BOXBOARD 1 5
100% Virgin
100% Secondary
TISSUE 6
100% Virgin
100% Secondary
67% Virgin; 33% Secondary
PRINTING PAPER 22
(Bond Type)
100% Virgin
100% Secondary
67% Virgin; 22% Secondary
(Book Type)
100% Virgin
100% Secondary
50% Virgin; 50% Secondary
(Groundwood Type)
100% Virgin
100% Secondary
67% Virgin; 33% Secondary
Total
Del i vered
Cost
137
169
140
146
157
148
204
194
200
249
203
257
393
288
315
422
343
323
439
367
269
324
269
Return on
Fixed Capital
17.9
8.7
17.6
13.7
11.8
12.7
6.2
10.6
7.4
11.32
9.32
*
*
*
22.5
4.2
20.5
21.8
1.6
19.0
6.3
Negative
6.3
Approximately 70 percent of the newsprint consumed in the U.S. is imported.
2There is a large differential in selling price due to strength and weight
characteristics.
*Data not available.
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Increasing costs of waste collection and disposal to cities also
suggest a greater attractiveness of resource recovery. Unfortunately,
these costs (or cost savings due to resource recovery) are not fully
realized by the industries that must use these materials, and these
costs are largely not factored into the economics of industry recycling.
Significant changes in waste materials markets appear unlikely at
this time in the absence of external forces.
Federal measures which might be appropriate to stimulate waste mate-
rial use (such as tax credits to industry for use of recycled materials
or charges to industry for use of virgin materials) are currently being
investigated by EPA.
yol!74
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