Thursday, February 26, 2015

Material Recycling Businesses’ Returns and Prices

The annual and 10-K reports of approximately 35 companies, who indicate material recycling processes as an important part of their businesses, were examined for returns (gross profits or operating income) on the recycling processes.  In order to find returns on a company's recycling business (process) in its reports, the company must be either solely a recycling business or must report recycling as one of the reporting segments of the company.  Of the approximately 35 company reports examined, only 1 company is strictly a recycling business and only 8 companies have a reporting segment that is a strictly recycling business.  For the other companies, no return data is available on their recycling processes.

Materials recycled by the approximately 35 companies include one or more of the following:  plastics; paper; textiles; basic chemicals; catalysts (palladium,  platinum, and rhodium); ferrous and non ferrous metals; aluminum; rare earths; glass; rubber (tires); lead (batteries); concrete/cement; and asphalt.

Based on this report examination, here are some conclusions that I have reached about recycling businesses:

1.  For those companies that report on returns of their recycling businesses, the returns are very low.  Gross profits or operating incomes for the businesses that had such reporting average about 4% of sales for recent years reported on.   This, I believe, is a low percentage and generally reflects a not-very-profitable, satisfactory business.
2.  Few companies provide financial reporting on their recycling processes, probably because a recycling business is prone to low returns (based on conclusion 1 above) and/or the business has other attributes that prevent the business from being separated out as a reporting segment.
3.  Based on these poor return results, even though it is generally recognized that recycling produces materials at lower  energy costs than producing virgin materials from naturally occurring resources, the prices that companies would have to charge for the recycled materials to compete with the virgin material are too low to gain reasonably good returns on the recycled material.  In other words, the recycling process, likely for various reasons, is still more costly than producing the materials from naturally occurring resources.

4.  That few companies report separately on recycling processes (businesses) and for those that do, the returns are poor, suggest societal policy implications.  It seems to me that such implications include a less than optimal efficient and effective recycling of material of interest; a result that is not in society’s best interest. 

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