Managing Commodity Risk in the Waste Management Sector

Waste commodity prices fluctuate frequently resulting in waste management and recycling companies struggling to accurately project revenues related to commodities and plan accordingly. Inherent risk in the commodity market and lack of a cohesive business plan can severely reduce available cash to spend on equipment, facilities, and workforce improvements stunting business growth and sustained innovation. Risk mitigation is a critical part of any business dealing with commodities markets and strong relationships with stakeholders can be instrumental in weathering fluctuations in the sector.

The Commodity Risk Situation

Commodity pricing is dependent on supply and demand and the continued growth in recycling can lead to decline in demand for raw materials. As environmental services firms flood markets with goods to sell to processing plants, market value of those materials will decline. In 2015, the U.S. Environmental Protection Agency performed a study on historic costs of commodities across a variety of sectors. While significant annual fluctuations were common in the study, the average cost of commodities declined per ton over the research period. The study showed that HDPE, PET, and aluminum cans experiences major price increases in 1995 and 2011 but declined quickly from 1995 to 1996 and again in 2008 to 2009. These rapid changes, while difficult to project, must be accounted for in waste management and environmental serviced business models. Another example of commodity pricing disturbance came in January 2018 when China banned the importing of 24 types of recyclables and sole waste from North America resulting in lower commodity prices throughout 2018.

Responding to Commodity Risk

Preparing for cost fluctuations is a part of every business but especially critical when working with commodities. Many recycling companies have been able to survive by strengthening their positions in the broad waste management landscape.

Public interest in recycling has led to significant investment from public and private partners. Building relationships with key stakeholders will allow for less volatile recycling commodities and clearer paths to offtake.

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