The emphasis on recycling has never been stronger than the present. The recycling sector has grown significantly in size over the years and is only likely to grow even stronger driven by material efficiency, resource conservation and government policies where applicable. Companies such as Unilever are actively promoting recycling by launching longer life steel packaging to replace plastic for some of their deodorant product lines. Similarly, P&G’s metallic containers for its shampoos and detergents. Metals have a strong advantage relative to other materials especially plastics in their innate ease of recycling. Metallic products can be re-used several times before the end of its useful life. Even after the useful life, it may be recycled back into the production system to be re-born as a new product and so-on.
Recyclability means reduced need for mining the earth to obtain raw materials such as iron ore and bauxite to produce steel and aluminum respectively. Thus, saving significant energy and carbon emissions in extraction and processing of such raw materials. The Bureau of International Recycling estimates a CO2 savings of over 92% for aluminum and over 58% for steel. In addition to energy savings and reducing carbon footprint, recycling also enables conservation of vital resources such as land and water.
Metals recycling segment is large but fragmented
The USA is a leading contributor to the world’s scrap material reservoir, particularly in the light of its long history of industrialization. The industrialization over the course of time led to a significant accumulation of scrap material be it metal, plastic, paper etc. It is no surprise that the USA is a leading exporter of scrap material to the world. It has exported and continues to export such scrap materials to over 100 countries including China. A study conducted by the Institute of Scrap Recycling Industries (ISRI) estimates the US recycling industry generates over $110 billion/year in economic activity accounting for over 500,000 jobs directly and indirectly. The metals recycling segment, broadly categorized as ferrous and non ferrous, accounts for a significantly large share of this activity.
The metals recycling segment is highly fragmented with a complex network of participants starting from collection of end-of-life product – be it a can of soda or an automobile or even a toaster – through to segregating and processing and, finally preparing for re-use and/ or recycling. The operators vary in their specialization and the revenues of the companies range from <$50m to >$5bn with a significant majority being the middle market companies. The size of operations determines the degree of investment in PPE, technology, skilled workforce, management expertise and others. While the larger ones may have better access to key resources, the middle market companies compete hard for resources particularly skilled workforce, management expertise and logistics.
Management expertise is particularly important in order to interpret and develop strategies to meet the regulatory requirements and any legislation related to meeting recycling targets. Also, to maintain the quality of the product output, strategies for treating toxic materials and ensuring a safe and healthy operating environment among others.
Logistics and supply chain also play a large role in the success of the recycling companies. With the USA processing over 60 million tonnes of recycled metal, there is a significant movement of materials and hence the demand for logistics and transportation. While recycling companies may have own fleet of trucks etc., there are challenges associated with recruiting truck operators. This may be particularly hard on the middle markets operating on tighter budgets relative to the larger established players. Strengthening and even scaling up middle market companies is perhaps key in order to accomplish recycling goals. Most importantly, it leverages the vast resources of scrap material within the country. The industry could benefit from innovative business models such as, but not limited to, collection and recycling of used packaging products. Startups such as TerraCycle have come up with innovative ideas in collecting and ensuring re-use of metallic containers among others.
Middle market opportunities to explore
So, are there any opportunities for the middle market companies in the evolving landscape of the recycling industry? Key questions to answer include:
- What is the current capability of the middle market companies and their core competencies?
- What are the key constraints?
- How to strengthen and enhance their operating capability?
- Any innovative business models?
- Role of technology in enhancing collection, operating efficiency of the process, product quality and thus improve recycling rates?
- Can the US recycling industry be a technology leader in recycling of metals?
- Can these companies become major players in the global metals recycling market?
Vijay Thangavelu is the founder of VT Advisory, a London based strategy consulting firm specializing in the metals sector. Vijay has more than 20 years of experience in operational and consulting roles – advising clients in Europe, N. America, CIS, Middle east and Asia. He has provided expert technical and commercial advice to operators and financial institutions as part of business and market strategy development, M&A and debt restructuring among others. Vijay has a Bachelor’s degree in Mechanical Engineering and postgraduate qualifications from Harvard University and London School of Economics and Political Science.