Since last year, recycling redemption center operators like Armond Abramian have contended with falling prices of certain scrap plastics.
Market fluctuation is a normal part of the recycling business, of course, and the state’s recycling program is designed to help those companies pay the difference between their expenses and the sometimes-low return they get on the material. Recyclers say it’s essentially the only thing keeping their segment of the industry, which you normally see as kiosks near grocery stores, viable.
However, through what advocates call a bureaucratic flaw, Abramian and his compatriots have for years had to contend with payments that are sometimes wildly out of step with the contemporary price of that plastic.
“We’re losing close to 10 or 15% of revenue (for each transaction),” Abramian said of his business, Elysian Valley-based SoCal Recycling, so far this year. “We’re managing to stay open, but it’s definitely a struggle.”
A discretionary adjustment to those payments beginning April 1 was approved this month by the state, and while it represents a large step in the right direction, it still does not make up for prior losses from the program. Meanwhile, a bill proposed in the California Senate calls for tweaks to the calculation method of these payments that would rely on fresher prices from the scrap market.
“The formula is meant to pay the redemption centers for the work that they do,” said Susan Collins, president of the Container Recycling Institute in Culver City. “Everything sounds good so far, but what they do to figure out what scrap prices are is use old data.”
Making money
Recycling redemption centers have three principal revenue streams — California Refund Value, the value of the scrap itself and what’s called a processing payment.
The California Refund Value, or CRV, is the 5- or 10-cent deposit on aluminum, glass and plastic bottles that consumers get back when returning their bottles — a pass-through fund for redemption centers. The true revenue for redemption centers is when they sell the scrap material to processing centers, who pay both the market price for the scrap and a processing fee from the state for handling and transporting the material to begin with plus a small profit. That processing fee is designed to offset any gaps between what the business spends to handle the redeemed material and what the processing center pays for the scrap.
In simpler terms, as scrap prices go up, the processing payment goes down, and vice versa.
The state Department of Resources Recycling and Recovery, or CalRecycle, sets the processing payment per ton every Jan. 1, based on the most recent four-quarter average of scrap prices available — the prior Oct. 1-Sept. 30 year.
“They’re using a little bit older than last year’s data to make payments now to redemption centers, and prices do not remain stagnant,” Collins said. “They go up and down like crazy, and there can be a huge mismatch.”
CalRecycle does have the discretionary power to adjust those payments quarterly, and in fact it did so this month. The adjustment can be done if the prior January-December average price is more than 5% different from the initial October-September calculation.
However, the continued use of a long 12-month window leaves the processing payment for a volatilely priced material called PET plastic, or polyethylene terephthalate plastic, commonly used in water and soda bottles, vulnerable to being off-mark.
“I’ve been doing this for quite some time, and it’s been in this state for quite some time,” said Abramian, who started his business in 1998. “The processing payment is supposed to help our overall profit margin to stay afloat as a business, so when the scrap price drops from, say, 20 cents to 10 cents (per pound) and we lose 10 cents, theoretically the processing payment is supposed to pick up those 10 cents. But, since it’s based on data that is very old and doesn’t reflect the current state of the market, there’s always a lag in building that processing (payment) back up.”
Material change
This issue became magnified over the years as bottled water and soda became popular enough to overtake the consistently valuable aluminum as the primary redeemed material.
“It’s just kept growing and growing in popularity, which means that the economics of the redemption centers are dominated by PET,” Collins said. “With aluminum being a smaller percentage of their overall materials, they’re really vulnerable to economic changes with PET plastic recycling.”
The scrap value for a ton of PET plastic calculated at the start of the year was about $470, which generated a processing payment about $85 a ton.
However, high prices at the start of last year heavily skewed that calculation because there was a steep drop in prices, and scrap was selling for much less than $470 per ton in January.
When the latest 12-month data were considered, it resulted in an 18% drop in average price from before, to about $384 a ton. This makes the new processing payment about $171 a ton.
The change was large enough to address the gap now — in fact, a calculation by the independent Plastics Recycling Corporation of California has PET scrap selling at $395 per ton in the last month. But even the periods when processing payments more than make up for the revenue gaps don’t make up for when they fall short, Collins argued.
“They were overpaid last year, which still doesn’t make up for the years and years of underpayments,” she said. “It doesn’t make up for the fact that the underpayments were so bad that many small business owners went out of business through no fault of their own.”
The state has lost more than 500 redemption centers since 2016, and now has fewer than 1,300. Abramian’s business once had 50 staffed and automated sites in Los Angeles County. Now he has just three, plus a mobile truck he is using for a mobile recycling pilot program in Culver City.
Looking forward
Senate Bill 353, proposed by Napa Democrat Bill Dodd, would significantly narrow the calculation window of processing payments to the most recently available quarter. In other words, the Jan. 1 calculation would be based on the average prices from the preceding July-September quarter, the most recently available for the state.
CalRecycle would also be able to adjust payments similarly, so an adjustment beginning April 1 would use the prices from October-December.
The bill would also make the plastic containers 46 ounces or larger containing 100% fruit juice part of the CRV program.
Advocacy groups like the Container Recycling Institute welcome the proposed changes and have pushed them for years.
“It would bring the prices closer to today and make it more accurate so they centers wouldn’t swing back through these experiences of being wildly over- or under-paid,” she said.
