Recycling is a hot topic.
Link to RE TECH
As the circular economy gains traction, consumers and businesses alike are becoming more focused on their environmental impact. They’re going green.
This movement has opened the door for opportunity. To meet the growing demand, waste management companies are pouring time, attention, and resources into opening material recycling facilities (MRFs).
You may be one of them.
The good news: the recycling industry is profitable and growing. If you can get in on this emerging sector, and set your operations up the right way, there’s business to be done.
At the same time, opening an MRF is a major investment. Capital intensive and full of potential pitfalls when pivoting from waste management.
So today, let’s look at five key factors to consider before opening an MRF.
1. Materials
First, consistency is vital.
In order to justify expansion from traditional waste management, there needs to be a steady flow of materials. If you don’t have the input, you can’t produce the output.
Start with inbound tonnage. But don’t stop there. Consistency is also about sustaining high quality commodities in tons per hour (tph), and, ultimately, tons per year (tpy). Make sure you’re looking at not just flow amount, but also high-quality processing.
Here, there are several variables to look at.
Which type of MRF operation?
When it comes to materials, choosing the type of MRF to operate is a critical decision. In short, the two main types of MRFs process consumer recyclables or construction and demolition (C&D) recyclables.
Consumer recyclables are more common and deal in smaller debris (think curbside recycling programs). Whereas C&D debris tends to be bulky, filling landfills quickly. The advantage for C&D MRFs comes into play in geographic areas where land is scarce and alternatives to landfills are in high demand.
One callout for C&D MRFs is that each state sets its own quality standards, and regulations vary widely. If C&Ds are on your radar, do your homework.
Will you use single-stream or dual-stream?
Something’s got to give. If you’re designing a consumer recyclables system, you’ll have to make the choice between a single-stream and dual-stream system. Or, more accurately, between prioritizing the customer participation or operational efficiency.
Single-stream systems are easier on customers but require more upfront sorting and usually process a greater mix of materials. While dual-stream systems are easier on the backend because fibers and containers are processed on different lines from the start, freeing up manual labor and processing capacity.
Ultimately, this decision should align with your business strategy, metrics, and overall business plan.
What’s your material mix?
Not all materials are equal.
Glass, for example, often requires special equipment and more maintenance from damage. It can also cause challenges for single-stream systems and lead to slowdowns. Contaminants, like resins, must also be factored into the output quality.
Lastly, as we’ve seen in recent months, commodity pricing can fluctuate. The pandemic, the war in Ukraine and the recession all sent ripples through the commodities market, causing headaches for recycling facilities’ cash flows and operations.
Planning is the best way to achieve consistency. And it starts in the ideation phase of an MRF operation build.
2. Equipment and Facilities
With your material mix and flow on paper, it’s time to look at building out your MRF. That means equipment and facilities. Setting up the operations to power your recycling business.
Unlike landfills, MRFs pre-sort, sort (sometimes more than once) and process recyclables according to their commodity type and quality standards. These higher touch recycling systems require more manual labor and specialized equipment. Which can lead to increased costs as compared to traditional landfill operations.
There are two routes you can take when it comes to your operations. One has more manual sorting methods, and the other has more technologically advanced systems. The latter include equipment like specialized screens, eddy current separation, optical sorting equipment, and more. All of which carry higher price tags and should be factored into the investment.
Will you use your existing facility or build a new one? Will you purchase equipment new or used? Will you invest in high-end technology or deploy more manual labor?
All these decisions factor into your costs and planning.
Let’s look at the question of equipment, for example. Used equipment comes at a lower price tag upfront. But it may lead to increased maintenance costs and quality inconsistency in the end recyclable. New equipment needs less servicing downtime and less manual oversight. It comes down to which is a higher priority for you.
Lead times also factor into purchasing new equipment. It’s important to remember these can vary. Over the last two years, we’ve seen lead times increase with demand and labor shortages.
As you can see, equipment and facilities choices are filled with variables. And, ultimately, these decisions could make or break your success.
3. Contracts
Contracts play a critical role in the success, or failure, of MRFs.
If you’re collecting or accepting C&D materials, for example, there has to be a market for them. And not just today, but well into the future. Your business and revenue model depend on it.
Contracts, then, are an important part of your business structure. And they can be complicated. Terms often include processing charges, revenue sharing, material value determination, the acceptable material mix, to name a few. Understanding how each of these elements impacts the business will help determine your revenue potential and your revenue split.
For example, MRF operators often aim for anchor supply contracts with larger material suppliers. The most common type of anchor contracts exists between MRFs and municipalities. This provides a guaranteed base of material flow, as well as revenue. Any additional materials from other sources just add to the revenue stream.
In this type of contract, there are fixed processing fees high enough to cover all facility operating expenses. And a bonus is modest positive EBITDA generation without commodity contribution.
This contract structure insulates MRFs from commodity price swings. The tradeoff is sharing the commodity upside with the supplier. But it allows for more aggressive debt financing to construct the facility and more stable profitability.
Consider the partners you’ve worked with in the past, and contracts that have been in place. Now identify the types of provisions you need to include to keep your business humming along.
4. Financing
Are you interested in learning more about Lead Recycling Plant? Contact us today to secure an expert consultation!
Every capital-intensive operation requires financing.
Financing provides flexibility, better cash flow and liquidity. It also allows the business to conserve capital and weather market fluctuations.
When considering financing applications, there are four key factors to focus on.
First, the source of funds. Traditional bank financing tends to require more equity at lower rates. Whereas private lenders have higher risk tolerance and are willing to accept less equity at higher rates. Explore all your options and consider which type of financing best aligns with your business goals.
Second, repayment terms. The loan should amortize before the end of the useful life of the facility or equipment. Otherwise, additional investment may be required before the loan is paid off.
Third, security of the loan. The financier can take a security interest on just the MRF facility or on the business as an entity. Further, a bank may require additional collateral or pledges, like a personal or corporate guarantee. Make sure you’re comfortable with the amount of personal or business risk you’re taking.
Fourth, covenants. With financing comes conditions. The financier may require certain financial or operational covenants as a condition of the loan. Be sure you’re willing to / can meet these conditions before partnering with a financier.
Prior to seeking financing, you must begin by developing a sound business plan for your investment in an MRF. Include a conservative, multi-year projection model showing the investment profitability will repay the loan within a five- to seven-year timeframe, targeting less than a five-year ROI.
Build your case for material volumes, consistency, quality and contractual supply. Keep in mind to sensitize your model for inflation and down-turns in commodity prices and/or volumes. Understanding the impact of each decision will set up your MRF for the best financing terms.
Based on Comerica’s expertise in the industry, we can offer competitive terms, flexible to the needs of the company, and in some cases, provide 100% financing on investments.
5. Success
When due diligence is done properly, MRFs have a proven track record of success.
Let’s look at one example.
Comerica has a customer that is a privately held, family-owned company operating in the South Atlantic region. This company chose to specialize in waste hauling, recycling and disposal.
Throughout the journey, Comerica’s Treasury Management solutions optimized the company’s working capital, improving their cashflow and paying vendors more efficiently, while implementing the essential controls to address fraud concerns.
Comerica’s Environmental Services Department (ESD) provided credit solutions that enabled the customer to execute its business plan by providing financing for the development of their transfer stations, material recycling facilities and building out their hauling division.
Through the company’s partnership with Comerica, the company achieved its 5-year business plan in less than 24 months:
The Bottom Line
Still thinking about whether to open an MRF?
This article highlights critical frameworks for due diligence and essential questions you’ll need to ask to move your business into the green (both environmentally and financially). By considering these factors upfront, you can set yourself up for long-term success with a thriving MRF business.
It’s a big decision and an even bigger commitment. Make sure you have the right partners to help you achieve your business goals.
Comerica understands the waste management industry. Over 50% of Comerica’s Environmental Services customers operate MRFs. When it comes to financing and planning, our advisors specialize in designing flexible capex financing solutions, optimizing acquisition funding and other tailored solutions to help waste management businesses succeed.
Next Steps
Everyone is looking to get 1% better every day! If the scrap metal recycling program you have at your fabrication shop, plant or warehouse hasn’t been revised in years now is a good time to review the processes in place that make for a scrap metal recycling program that is optimized for success.
Here are the Top 5 things to review to make sure you have the best scrap metal recycling program possible.
Your production changes as your customer’s needs change, and often times scrap programs don’t keep up with all of the changes. What once made sense to sort and segregate may not make sense anymore and in some cases while throwing metal all together used to be a good plan, it may not be the most efficient way to run the program.
The key to understanding all of this is a clear pricing formula based on the metal you are running. Often times this information is on a purchasing manager’s desk and that information may not make it to the shop foreman responsible for the scrap metal program. Knowing how much A36, AR 400 or any of the alloys in between that you are running can make a huge difference in maximizing the revenue for your scrap. If one machine is dedicated to one alloy or one process a customized plan to maximize revenue for that dump hopper may be the way to go. Is your stainless steel 304, 316 or even 310 or Inconel? The pricing by grade varies so much that it certainly makes sense to sort these grades and having that understanding and communication with your scrap metal partner is crucial to making as much money as possible on your program.
On a metals assessment this is one of the first things Sahd Metal Recycling’s team will look for.
Many customers have too much going on to get into the details of scrap metal pricing, but understanding the categories of the formulas and how the formulas are derived can make you a more knowledgeable customer and can help you make decisions on when to best sell your metal.
Our scrap metal formulas are based on indexes provided by Fastmarkets and Metal Exchange Direct. Fastmarkets publishes a certified mill order price per month for steel and one that updates weekly for stainless steel. We find these categories to be the most effective and responsive to real world trends. For copper and aluminum based metals we use Comex and London Metal Exchanges, with information from Metal Exchange Direct. We are happy to give our customers access to this information at any time as we want them to know the value of their metal before they sell it to us.
Our team also sends out a monthly update with an overview on the overall scrap metal market and specific pricing for each alloy you produce in your plant that we can identify with an appropriate formula.
The market will bounce from day to day and month to month, but if you have an established formula price tied to a percentage of the market you will always know where you stand during the fluctuations. For example if your yellow brass is priced at 60% of the Copper LME it will be 2.40 per pound when copper is at $4.00 per pound and 1.20 per pound when copper is at $2.00 per pound. The key is that the formula percentage is consistent as the market ebbs and flows, protecting you from not knowing the level your metal will be priced at when you sell your material.
The reason the Sahd Metal Recycling team values metal assessments so much is because we like to give our customers the greatest value for their metal. If your team is too busy to sort metals or if the price difference doesn’t make that process worth it we can work with you on giving you value for your mixed loads that we sort!
Many customers just don’t know this possibility exists, that a company will pay them for the materials in the dumpster if easy sorting can be achieved. Our team of experts can come out and assess whether an extra dumpster, self-dumping container or other resource can be deployed to pay the premium price to have the material sorted. If this is not optimal, as we mentioned we can sort and give credit for higher dollar items in the load.
To know this of course you need proper load for load ticketing with prompt payment. Many customers unfortunately need to wait for the money for their scrap—ours are paid promptly and given itemized tickets showing the contents of the container and the value for each material type.
A couple days, a week? We’ve heard even longer time periods for customers waiting to get their dumpsters swapped. Plant managers and shop supervisors never have enough space! If they do find more, they will use it quickly! Whether it’s a finished product that is yet to ship, a reorganization for a new machine or an optimized shop process to eliminate bottlenecks, there is little to no room on the shop floor or often even in the parking lot.
With space at a premium you need a scrap metal partner who values quick and reliable service. It is so important to everything we do, so much so that we live by a 24 hour turnaround guarantee that we deliver to our customers. While that is the standard, we strive for a much higher level of service and often our customers see us within a few hours of notifying us they need service.
Whether it is a rolloff container, skid or gaylord pickup or small container stakebody run, you can count on us to show up quickly to get the scrap metal out of your way so you can focus on production and having a lean shop floor. If this is not a priority often organizations will suffer from extended lead times, increased risk of trips, falls and other worker’s compensation injuries and a general lower level of performance.
Drivers, owners and managers are all accessible to our customers, because we know service is important and with so many items on your mind you may forget about a paving project, service before a holiday, storm or even a corporate visit! Because you have your relationship with our team we are invested in your success, and we know how important reliable service plays into that success!
Our customers have multiple streams of data in their businesses and there is no reason scrap metal should not be one of the data sets that is considered when running your organization.
Our team reports on each load and sends out monthly reports stating totals for each pickup that comes with payment. In addition, we produce an annual report with totals by alloy and a sustainability report which highlights your scrap metal by commodity and the CO2 offset of the metal recycled and not dug into the ground for.
How can this reporting help your team? First scrap volumes can often be a sign of unoptimized program nesting on lasers, too many mistakes which could point to a programming or mechanical error and a problem with inventory management if too many whole lengths are scrapped. Companies that measure scrap volume often see better material utilization rates and are often places where the continuous improvement philosophy leads to accelerated growth and better ideas.
Want more information on Low-Temperature Pyrolysis Furnace? Feel free to contact us.