Markets for Recyclables
Recycle Indiana knows that locating markets for recyclable materials is an essential part of closing the recycling loop and getting resources back into use. Before starting a recycling program, markets for recyclables must be secured. Ongoing collection programs will re-evaluate their markets periodically as contracts end and local recycling markets change. Businesses and industries generating recyclable scrap will continue to find other companies that reprocess it for recycling or use it as an input in another manufacturing process.
This site is meant to take the mystery out of marketing recyclables. It provides basic information on marketing recyclables and the contacts needed to find the local markets. The buyers themselves are the best source of information on current prices for recyclables and how to properly prepare recyclables for end-market.
Types of Buyers
Once recyclables are collected, they must be moved to a business that remanufactures them into a new product. End-users or manufacturers are the businesses that actually make the new product. There are three types of buyers who provide intermediate service to collect, process, and/or ultimately sell recyclables to end-markets. They are commonly categorized as collectors or haulers, processors or material recovery facilities (MRF), or brokers, although the exact terms may vary. For the purposes of the collectors, all of these are considered markets or buyers (although some recyclables may not have much monetary value).
- Collectors or haulers are typically businesses that have expanded their garbage operation to include the collection of recyclables from residents and/or businesses. Haulers most often charge for their collection service; some may pay small amounts for recyclables. Most will accept clean, unprocessed recyclables; either source-separated by the residents or commingled (mixed recyclables in a single bag or bin). These materials are marketed to an intermediate processor or to an end-use market.
- Processors (often called material recovery facilities – MRFs) generally accept and process recyclables from residential, business, or industrial sources. Processors typically sort materials by type and grade, and then bale, shred, or granulate them to create a marketable intermediate product. These buyers sell to brokers or end-use markets.
- Brokers buy and sell recyclable materials and often arrange to have them shipped from one location to another by haulers or processors. Some brokers provide processing services, while others purchase only processed recyclables. Brokers generally sell to end-use markets, and are often able to pay premium prices because they accumulate and sell large quantities of materials. They usually prefer to purchase trailer-load quantities of recyclables.
- End-users, or manufacturers, purchase recyclable materials from a number of sources and remanufacture those materials into new products. They generally deal only in trailer-load quantities, and usually purchase materials from regular suppliers (those able to provide consistent quality and quantity on a monthly basis). However, some specialized end-users, such as animal bedding manufacturers, often purchase smaller quantities.
Some general rules of thumb usually apply to these four types of buyers. Preparation and separation requirements are usually most flexible with haulers and become increasingly more stringent with processors, brokers, and end-users/manufacturers. Accordingly, prices offered are generally lowest with haulers, and increase with processors, brokers, and end-users/manufacturers. Service fees usually are higher for haulers and lower for manufacturers.
Before you begin contacting buyers, determine the quantity (tons/volume) and quality of recyclable material that you are planning to market.
If you are not able to exactly identify the recyclable, such as in the case of some industrial plastics, contact the potential buyers and discuss it with them. If the quantity generated is large enough, the buyer might ask that you send a sample. They will determine the exact material and whether they are willing to handle it. This is also true of scrap that is a mix of several different components.
Begin your contacts with the buyers that best match the type and quantity of material you are marketing. For example, small generators should focus on contacting small-volume purchasers. Contacts can be made by telephone, personal visits, or requesting written information or proposals from potential buyers. Due to the cyclical nature of business, always contact the buyer before shipping recyclables as materials accepted by the market can and do change to meet current market conditions.
Telephoning potential buyers allows for a quick exchange of information to assess compatibility between collector and market. Company visits can be a natural follow-up to a phone survey and provide more opportunity for questions to be answered. Written requests ask potential buyers to respond to a certain set of questions. Depending on the local legal requirements, communities can issue requests for expressions of interest, requests for proposals and/or requests for bids.
Before deciding which company or companies you will utilize to accept or purchase your recyclables, several criteria must be considered. The four most important are processing/quality requirements, transportation arrangements, company reputation, and price.
Processing requirements refers to the form in which the buyer will accept materials. Recyclables can be sent to market loose, baled, granulated, in a Gaylord box, crushed, or in other forms. The type and level of processing depends on the kind of recyclable material and the market requirements. Quality requirements define limitations on the amount of contaminants that can be present in the recyclable material. Acceptable levels of contamination are usually given as a percentage of the total weight of a load of materials. High levels of contamination can make the recyclables unmarketable.
Efforts to meet processing and quality requirements should be built into the collection program as much as possible. Quality control requires education, worker training, system reorganization and/or community participation (depending on the type of program). Maintaining high quality standards is essential to many recycling markets. Processing may require adequate storage space and/or processing equipment. Processing and quality requirements may differ between buyers of the same material. Recycling organizers should plan the collection program and choose markets with these issues in mind.
As market competition increases, those recycling programs able to effectively and regularly meet buyers’ processing and quality requirements will be assured a more secure market.
Transportation arrangements that must be considered include determining who is responsible for transporting materials from your location to the market, the quantity of recyclables that constitutes a "full load" and who pays for the transportation service.
If the buyer will provide the vehicle to collect your recyclables, is it important to clarify who pays for the hauling, what tonnage is required and who loads the collection truck. Failure to clarify details beforehand can result in unexpected expense. If the buyer does not provide the transportation service, recycling planners must make arrangements with an alternative service.
Common industry terms associated with transportation of recyclables are "FOB seller’s dock" and "FOB buyer’s dock." These terms refer to who provides and pays for hauling recyclables. "FOB" stands for "free on board." If a buyer says transportation is FOB seller’s dock, it means the buyer will pay for hauling; FOB buyer’s dock means the seller must pay for hauling.
You should carefully examine the reputation of each company when selecting a buyer. Request that potential buyers provide several references to contact. Ask questions about the buyer’s track record for providing prompt pick-up and payment, adherence to signed contracts, length of time in business, and financial viability. It is also very important to have assurance that materials are actually going to recycling and are not being landfilled or incinerated, especially if you are dealing with an intermediate company rather than an end-use market.
Price offered or service fee assessed by a potential buyer should be considered in relation to the criteria discussed above. Purchase price should not be the most important or only criterion when choosing a market. Recyclable materials are like any other commodity: they are subject to inevitable fluctuations in supply and demand. Successful planners need to prepare a strategy for dealing with unavoidable downturns in the market. It is also important to understand that some commodities will be purchased and others will cost you to recycle. In those instances, seek to locate a market that charges a fee competitive with disposal.
Potential buyers generally provide price, or a range of prices, in dollars per net short ton (metric), which is equal to 2000 pounds. An exception to this rule is ferrous metal, which is often measured in gross long ton (English), equal to 2,240 pounds. It is important to understand what a buyer purchase offer includes.
When choosing a buyer, balance company reputation, processing/quality requirements and transportation costs with the market price and the specific strengths and limitations of your program.
Contracting with Buyers
Once a buyer has been selected for a single material or numerous recyclables, an agreement is commonly negotiated so that each party (the seller and buyer) knows what is expected. While many sellers and buyers have done business with a "handshake agreement," a written buyer/seller agreement is recommended to protect the relationship of the buyer as competition for markets continues to escalate. If only a handshake agreement is available, the seller should be confident of the buyer’s references and reputation.
Written agreements offered by buyers include letters of intent to purchase material and formal contracts. Provision of written agreements may include some or all of the following:
- tonnage/volume requirements per day, week, or month
- assurances that materials are recycled and not landfilled or incinerated
- provision for delivery or pick-up
- termination provisions
- length of commitment
- pricing basis
- penalty clause for lack of required tonnage/volume
- conditions for renegotiation
Communities and business can individually market the recyclable material they collect. Buyers, however, are usually most interested in large communities and businesses that generate relatively large quantities of material in a small geographic area. Buyers are often less enthusiastic about dealing with rural communities or small businesses because they typically spend more money on transportation and education of local program employees while receiving less material. Smaller communities and businesses can attract more secure markets by marketing their recyclables jointly through a cooperative marketing organization.
"Master" contracts or agreements can be developed between markets and the group of communities/or business that form the cooperative organization. Cooperatives can also share education programs, transportation and storage. Organization staff saves participants’ time and money by arranging contracts, handling bookkeeping duties and maintaining current information on markets. If a full-blown cooperative is not possible, it might still be beneficial for small communities and business to work together on cooperative storage, transportation and/or education.
When assessing markets, remember that over the long run, the ability to move materials to a buyer on a regular basis will be more important to the success of the program than the price paid. Developing a relationship with a buyer who will attempt to provide a market for steady customers during poor market conditions is essential to the success of a program. Some communities and business jump from buyer to buyer, depending on which company is giving the best price at the time. Although this method might increase revenues in the short run, a program with no loyalty to its buyer can expect no loyalty in return from its buyer during hard times. For the marketing of most commodities, communities and businesses are better served by establishing long-term relationships with reputable buyers. However, programs should maintain information about alternative markets for each recyclable in case the primary market is unable to accept certain materials.