Waste Management sees recycled commodity prices rising 10% in 2022

Prices for recycled commodities will rise 10% on the year to $125/mt in 2022 on higher inflation costs and labor challenges, recycling firm Waste Management said Feb. 2 in a Q4 2021 earnings call.

This comes amid a firming premium of recycled petrochemicals over their virgin equivalents on the back of higher demand.

S&P Global Platts assessed recycled food-grade PET pellets FOB LA at an average premium of $302/mt over import prime PET resin DDP US West Coast in Q4 2021.

The $125/mt average recycled commodity price, above the estimated current value of $115/mt, means strong returns and payback periods of around six years, the company said in a statement accompanying its full-year 2021 report.

In Q4 2021, Waste Management reported $506 million in net income, up 15.5% from $438 million in the year-ago period. In 2021, Waste Management earned a total of $1.8 billion in net income, a 25% year-on-year increase.

"In recycling, each quarter of 2021 earned a spot amount of the five most profitable quarters of all time," said COO John Morris. "And we're anticipating an equally strong year in 2022."

However, operating expenses as a percentage of revenue were up 150 basis points at 63.2%, with 100 basis points accounting for commodity-driven impacts from recycling brokerage rebates and fuel prices. The remaining cost increases were related to higher labor and overtime costs as the company saw a record number of COVID-19-related absences in the quarter.

"And while the impacts of inflation and the tight labor market continue to put pressure on our metrics, there are positive trends in the fourth quarter results that position us well to deliver on our 2022 plan," said Morris.

Ambitious investment plans

North America's largest recycler intends to spend an incremental $550 million in capital expenditures on high-return growth projects in the recycling and renewable energy lines of business in 2022, with total capital spending expected to range between $1.95 billion to $2.05 billion in 2022, said the company's CEO James Fish.

Of those investments, $275 million will be directed towards MRF technology with incremental investments in 2023 through 2025 totaling approximately $525 million. These investments, Fish added, will help to expand the company's single-stream recycling footprint and accelerate the automation of the recycling process to improve product quality and reduce costs.

These planned automation advancements will help to improve labor efficiency in a tight market and mitigate inflation costs. Fish said between 5,000-7,000 positions will be replaced with automation technology over the next four years, adding that "these positions have become difficult to source and we expect that will continue to be the case."

The company's total planned investment in its recycling and renewable energy businesses should exceed $1.5 billion through 2025.

Waste Management saw stronger-than-expected volumes moving through the recycling system, with Q4 collection and disposal volumes growing by 2.8%. Total 2021 C&D volumes grew by 3%, while commercial volumes were up by 3.8%.

The company expects 2022 collection and disposal volumes to grow about 2%, and hopes to increase recycling volumes by more than 1.5 million mt, with commercial collection and MSW landfill sectors as leading contributors.