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HomeMy WebLinkAbout8A, Approve Contract with Eureka Recycling .. ~HIEES Request for Council Action Prepared By: James Lehnhoff, Community Development Director Council Meeting Date: June 29, 2009 Approve the June 29,2009, amendment to the Contract Agreement Between City of Arden Hills and Eureka Recycling for Recycling Services effective for the June 2009 services. Budgeted Amount: $118,677 Actual Amount: N/A Funding Source: Recycling Fund Recommendation: Approve the June 29, 2009, amendment to the Contract Agreement Between City of Arden Hills and Eureka Recycling for Recycling Services effective for the June 2009 services. Supporting Documents: 1. June 29, 2009, Memo to the City Council 2. Pages 7, 8, and 12 of the Contract Agreement between the City of Arden Hills and Eureka Recycling for Recycling Services 3. June 29, 2009, Contract Amendment 4. Recycling Articles (provided by Eureka Recycling) .. _"WLLS MEMORANDUM DATE: June 29, 2009 TO: Mayor & City Council FROM: James Lehnhoff, Community Development Director SUBJECT: Eureka Recycling Contract Amendment Action Reauest Approve the June 29, 2009, amendment to the Contract Agreement Between City of Arden Hills and Eureka Recycling for Recycling Services effective for the June 2009 services. Back2round During the March 30, 2009, regular meeting and the May 18, 2009, work session, the City Council provided guidance and directed staff to negotiate with Eureka Recycling to resolve a disagreement regarding the Payment Terms section of the contract (Section 6 of Attachment A). In sum, Eureka Recycling claimed that the City was responsible for the processing fees not covered by revenue while the City has maintained that the contract does not place the City responsible for the processing fees not covered by the revenue. If the processing fees were not covered, Eureka Recycling indicated they would consider removing paper from the recycling mix. The reports from the two previous City Council discussions describe the background of the disagreement in more detail. At the conclusion of the May 18, 2009, work session, the consensus of the Council was to authorize staff to renegotiate the payment terms section of the contract with direction to keep paper in the recycling mix and a desire to retain revenue share. The Council also allowed staff to consider options that included the City paying a renegotiated processing fee in addition to the standard base fee per household. Staffhas since met with representatives from Eureka Recycling and a contract amendment has been prepared for Council review (Attachment B). Eureka Recycling is aware that contract amendments require City Council approval. Eureka has provided articles regarding the state of the recycling program (Attachment C). Metro-inet\ardenhills \Admin \CouncillAgendas & Packet Information 12009\06-29-09 - Regular Meeting - Eureka Recycling Contract Amendment Page 1 of 5 Proposed Contract Amendment Chan!!es The proposed contract amendment would completely replace sections 6 and 25 of the existing contract (Attachment A). Section 6 addresses the payment terms and processing fees. The contract amendment includes additional materials in the revenue share formula and a structure processing fee. Section 25 addresses what occurs if market demand ceases for a particular material or if the processing fees become burdensome to the City. To help facilitate the review, the primary changes are outlined as follows: Section 6.1 Monthly Price per Residential Dwelling Unit · The existing contract includes provisions for an annual .increase to the price per residential dwelling unit based on the CPI for the Upper Midwest as determined by the Federal Reserve Bank of Minneapolis. The revised contract caps the annual increase to three percent or the CPI, whichever is less. The monthly price per residential dwelling unit increased from $2.95 in 2008 to $3.06 in 2009, which was a 3.7 percent change. 6.2.1 Material Sales Revenue Share and Processing Fees · The existing contract includes revenue share for only aluminum and paper. The contract amendment would extend that to include glass, steel, and three types of plastic. Paper has also been disaggregated into its four components. The additional materials were added so that the actual costs and revenue of each material could be tracked more accurately. Under the existing contract, the City does not receive revenue from these additional materials but does pay higher processing fees for aluminum and paper to cover the processing costs of these other materials. · The price per ton for aluminum in the existing contract is based on the American Metal Market (AMM). Eureka is requesting that this be changed to the actual price paid to Eureka in the local market. The AMM is based on Chicago prices, though Eureka is paid based on the local market. Based on a review of the local market prices since March 2008, the local market price is slightly less but there is not a significant difference. 6.2.2 Processing fees · The processing fee for all paper types has been reduced from $75/ton to $60/ton. · The processing fee for aluminum has been reduced from $150/ton to $90/ton. · The processing fee for glass, steel, and plastic have been set at $90/ton. · Residual materials, which are non-recyclable materials, are not subject to any costs or processing fees. The contract amendment specifically states a $0 cost to discourage Eureka from picking up unrecyclable materials and to focus on education. Metro-in et\ ardenh ills \Admin \ Council/Agendas & Packet Information /2009\06-29-09 - Regular Meeting - Eureka Recycling Contract Amendment Page 2 of5 6.2.3 Revenue and processing fee formula · Revenue is calculated by multiplying the tons of individual materials by the agreed upon price for that material. Total revenue is then calculated by adding all of the revenue together. Eureka is required to guarantee a minimum price of $O/ton. A price below $O/ton would mean that Eureka is paying someone to take a recyclable material. While this would be a rare occurrence, the City did not want to be responsible for paying prices above and beyond the processing fees and base monthly cost. If prices were to remain below $O/ton, Eureka would have the option of removing that material from the recycling mix since such a state would indicate there is no sustaining market for that material. · Processing fees are calculated based on the tons of material multiplied by the agreed upon processing fee for that material. Total processing fees are calculated by adding all of the processing fees together. · The revenue share split has not changed. If total revenue exceeds the total processing fees, the revenue is split 50/50. If revenue does not exceed the processing fees, the City would now be responsible for paying the gap between the revenue and the processing fee. 25.1 Lack of Adequate Market Demand · The City's goal was to retain the existing mix of recyclable materials; however, removing this section entirely could make it difficult if a market for a particular recyclable were to essentially disappear. With the City covering the renegotiated processing fees in the contract amendment, the recycling mix is protected unless market prices were to fall below $O/ton for a material. Therefore, the section now includes a definition for lack of market demand, which is a situation where the price for a material falls below $O/ton. Eureka must also provide financial information to the City justifying the removal of a material and attempt to find new markets for that material. Since the contract started in March 2008, none of the materials have fallen below a value of $O/ton based on the agreed upon pricing formula. If this situation were to occur, the City would have the option to agree to a cease in collection for the particular material or could pay the additional costs to keep the material in the collection mix. Eureka would be responsible for all effort and costs associated with educating the public on a change to the recycling mix. 25.2 Burdensome Processing Costs for the City · If the processing costs were to become burdensome to the City's budget for any reason, the City could have a material removed from the recycling mix. Eureka could continue to collect the material at their expense if they so choose. The City would be responsible for educating the residents under this circumstance. Metro-inet\ardenhills\Admin\CounciIIAgendas & Packet Information 12009\06-29-09 - Regular Meeting - Eureka Recycling Contract Amendment Page 3 of5 Previous Processin2 Fees From January to May 2009, the "gap" processing fees as calculated by Eureka totaled approximately $6,200. This gap represents the amount of processing fees that were not covered by revenue. Both parties have maintained their points of view on the processing fees in the existing contract throughout the discussions and continue to do so. However, to keep the discussion productive and moving toward a workable solution, both sides acknowledged the other's perspective on the processing fees and the reasons for those perspectives. Since the City and Eureka were focused on finding a workable solution moving forward, Eureka has agreed to not pursue the processing fees they calculated prior to June 1, 2009. The proposed contract amendment would apply to June services since that invoice would be received in mid-July. Recvclin2 Bud2et Impact The addition of processing fees in the renegotiated contract is likely to increase the cost to the 2009 recycling budget. The actual budget impact will depend on market prices in the remaining portion of2009. To help provide some context for the potential budget impact, the fees and revenues going back to the start of the contract in March 2008 were compared between the existing and proposed contract. For the sake of discussion and comparison, this analysis includes the processing fees calculated by Eureka in the existing contract. In 2008, the City collected approximately $16,800 in revenue share. If the renegotiated payment terms had been in place in 2008, the City would have collected approximately $18,200 or about eight percent more revenue. Due to the decline in market prices, the City has not received any revenue share in 2009. The processing fees calculated by Eureka for January to May 2009 were $6,200. Under the renegotiated contract, the processing fees would have been reduced to $3,700 for the same five month period, which is about a 40 percent reduction. Since the beginning of the contract, the City would have had net revenue of $10,600 under the existing contract. Based on the new terms, the City would have had net revenue of$14,500 to date. Contract Comparison: Revenue and Processing Fees Year Existing Contract* Renegotiated Contract Change 2008 $16,800 $18,200 8% 2009 -$6,200 -$3,700 -40% *assumes payment of processing fees for 2009 In May 2009, Eureka calculated $1,070 in processing fees under the existing contract. However, the City would have received $53 in revenue for May 2009 if the new terms had been in place. Metro-inet\ardenhills\Admin\CouncilIAgendas & Packet Information 12009\06-29-09 - Regular Meeting - Eureka Recycling Contract Amendment Page 4 of5 With the fluctuations in the recycling market, it is difficult to estimate the budget impact for the remaining portion of 2009. If prices stay at May 2009 levels, the City will not owe any processing fees for 2009. If the prices fall back to January 2009 levels, which were the lowest since the contract started, the processing fees could total in upwards of $9,800 for the remaining seven months of the year. The recycling budget is a self-funding enterprise fund. The revenue comes from the SCORE grant and from fees collected through a special assessment on the property taxes. The charge per household in 2009 was $32. Due to the lack of revenue share in 2009, the annual fee and SCORE grant are unlikely to cover the expense of the program this year. However, the fund balance is anticipated to be able cover the revenue shortfall in 2009, even if the processing fees were to total $9,800. Staffwill continue to monitor the budget and fund to determine how the monthly household fee for 2010 may have to change to cover the expense of the recycling program. Recommendation Staffrecommends approval of the June 29,2009, amendment to the Contract Agreement Between City of Arden Hills and Eureka Recycling for Recycling Services effective for the June 2009 services. This amendment reduces the processing fees per ton of material, but it brings plastic, glass, and steel into the mix as potential revenue generators. While these additional materials are subject to processing fees, these materials also spread the price risk across more materials since prices can fluctuate separately. Moreover, the revenue and processing fees can be tracked more accurately to each material. Since the revenue share portion has been retained, the City could still claim revenue share if prices stay high enough. A return to the revenue levels of2008 is, however, unlikely. With the City covering the portion of the processing fees not covered by revenue, the materials that are collected are unlikely to change. A material would only be removed if market prices became negative, which essentially means the material is considered garbage by the industry. This contract amendment does have concessions from both parties, but it does add cost to the recycling program. It must be noted that if the recycling market declines more significantly than it did in the first part of2009, the additional materials could increase the overall processing fee costs to the City. Attachment A. Pages 7, 8, and 12 of the Contract Agreement between the City of Arden Hills and Eureka Recycling for Recycling Services B. June 29, 2009, Contract Amendment C. Recycling Articles (provided by Eureka Recycling) Metro-inet\ardenhills \Admin \CouncillAgendas & Packet Information 12009\06-29-09 - Regular Meeting - Eureka Recycling Contract Amendment Page 5 of5 Attachment A Pages 7, 8, and 12 of the Contract Agreement between the City of Arden Hills and Eureka Recycling for Recycling Services June 29, 2009, City Council Meeting Attachment B June 29, 2009, City Council Meeting June 29, 2009, Contract Amendment Proposal FIRST CONTRACT AMENDMENT BETWEEN CITY OF ARDEN HILLS AND EUREKA RECYCLING FOR RECYCLING SERVICES 1.0 PARTIES. This Contract Amendment is dated the 29th day of June, 2009, and is entered into by and between the City of Arden Hills, 1245 West Highway 96, Arden Hills, Minnesota 55112 (the "City"), a Minnesota Statutory city, and the Neighborhood Recycling Corporation, Inc. (D/B/A "Eureka Recycling"), a Minnesota non-profit corporation, with its current local place of business at 2828 Kennedy Street NE, Minneapolis, Minnesota 55413 ("Contractor"). 2.0 RECITALS. A. The City and Contractor are parties to the Contract Agreement Between City of Arden Hills and Eureka Recycling for Recycling Services dated January 7, 2008 ("Contract"). B. The Parties wish to amend Sections 6 and 25 of the Contract hereinafter specified. 3.0 TERMS AND CONDITIONS. In consideration of the undertakings herein expressed, the City and Contractor agree as follows: A. Section 6 and its subdivisions of the Contract are hereby amended in its entirety to read as follows: 6. Payment Terms The Contractor will invoice the City of Arden Hills on a monthly basis and the City will pay the contractor no later than net 30 days of receipt of the invoice. The billing system will include the following elements: 6.1 Monthly Price per Residential Dwelling Unit City agrees to pay Contractor $2.95 per residential dwelling unit per month in 2008 for weekly curbside collection and marketing of recyclables. For 2008, the City certifies that there are 2,560 curbside units that will receive service. The City win notify the Contractor by February 1 of each year what the certified number of curbside units will be for the subsequent year. The City agrees that the price per residential dwelling unit will increase each year by the Consumer Price Index for the Upper Midwest as determjned by the Federal Reserve Bank of Minneapolis or by three (3) percent, whichever is less. The price change shall go 1 into effect on March 1 of each year. The City will notify the Contractor by the last week of December what the compensation rate will be for the subsequent contract year. 6.2 Materials Sales Revenue Share and Processing Fees 6.2.1 Recyclable material prices Each month the Contractor shall calculate the revenue share for all commodities. Those calculations shall be included as part of the Contractor's report to the City. Contractor shall use the following indices in determining the prices of the recyclable materials: A. Paper grades including newsprint and inserts, magazines, catalogs, and mixed mail shall be: · The Official Board Markets (OBM) Yellow Sheet, Chicago region for Old Newspapers (ONP) # 8, high side of range. B. Old Corrugated Cardboard shall be: · The Official Board Markets (OBM) Yellow Sheet, Chicago region for OCC #11, high side of range. C. Old Boxboard shall be: · The Official Board Markets (OBM) Yellow Sheet, Chicago region.for Mixed Paper #1, high side of range. D. Telephone books and Wet Strength Cardboard shall be: · Market price paid by Contractor's designated customer. E. Aluminum shall be: · Average market price during that month paid by Contractor's designated customer. F . Each: clear glass, brown glass, green/blue glass: and mixed glass shall be: · The aggregate market price paid by Anchor Glass Corporation's Shakopee, Minnesota plant, and/or the Market price paid or charged by end market, averaged based on the facility percentage composition of each type of glass in the stream as reflected in the annual composition study, less shipping costs to transport materials to market. G. Steel shall be: 2 · Average market price during that month paid by Contractor's designated customer. H. Each plastic: PET, HOPE-natural, HOPE-colored shall be: · Market price paid by Contractor's designated customer. 6.2.2 Processing fees The processing fee for all paper grades shall be $60.00 per ton, which includes materials A, B, C, and D in section 6.2.1. The processing fee for all Aluminum, Glass, Steel, and Plastic materials shall be $90.00 per ton, which includes materials E, F, G, and H in section 6.2.1. There shall be no processing fee for residual materials. 6.2.3 Revenue and processing fee formula RevenuewiU be calculated by multiplying the tons of individual material collected by the agreed upon material price as described in section 6.2.1. Total Revenue will be calculated by adding all of the revenue generated for each of the materials collected and processed. Contractor shall guarantee a minimum price on all materials of $0.00 per ton. If a particular material price is negative, a price of $0.00 per ton shall be used. Processing fees shall apply to materials with prices of less than $0.00 per ton. Processing fees will be calculated by multiplying the tons of individual material collected by the agreed upon processing fee for each material type as described in section 6.2.2. Total Processing Fees will be calculated by adding all of the processing fees generated for each of the materials collected and processed. Revenue share received by the City will be calculated by subtracting the Total Processing Fees from the Total Revenues. If the remainder is positive, that number represents the revenue that shall be split between the City and the Contractor SO/50. If the remainder is negative, that number represents the amount of processing fees not covered by that month's revenue and will be paid in full by the City. 6.2.4 Price reporting The contractor shall provide copies of the OBM Market index with each monthly statement formateriaJs A, 8, and C in section 6.2.1. 3 For commodities where revenue is based on Market pricing, the Contractor shall provide copies of Load Verification Forms detailing the amount of material sold, the vendor, and the price paid. The Load Verification Forms shall be included with the Contractor's report to the City. Market pricing is applied to recyclable materials 0, E, F, G, and H in section 6.2.1. The Contractor shall provide a detailed explanation of how each material is calculated to determine material tonnage estimates. B. Section 25 of the Contract is hereby amended in its entirety to read as follows: 25. Changing Market Demand 25.1 lack of Adequate Market Demand If the Contractor determines that there is no market for a particular recyclable or that the market has become economically unfeasible, the Contractor shall immediately give written notice to the City. Said notice shall include information demonstrating the effort the Contractor has made to find market sources and the financial information justifying the conclusion that the market is economically unfeasible. Economic unfeasibility is defined as a market in which market value received for a material are less than zero (0). Upon receipt of said notice, the Contractor and the City shall have 30 days to attempt to find a feasible market. During this period, the Contractor shall continue to pick up the particular recyclable. If the Contractor or the City is not able to find a market within 30 days, the City has the option to: a) Require the Contractor to continue to collect the particular recyclable. In such case, the City would pay the Contractor, as additional compensation, the tipping fee at the Newport RDF plant or a mutually agreeable alternative site. The Contractor is required to keep accurate records of said fees and provide the City receipts of payment. b) Notify the Contractor to cease collection of the particular recyclable until a feasible market is located, either by the Contractor or by the City. The Contractor would then be responsible for the cost of printing and distributing educational materials explaining the market situation to residents. 4 25.2 Burdensome Processing Fees to the City If, at its sole discretion, the City determines that processing fees have become burdensome for a particular recyclable, the City shall immediately give written notice to the Contractor. Upon receipt of said notice, the Contractor and the City shall have 30 days to negotiate a contract amendment that results in: a) The removal of the processing fees for the particular recyclable. b) The removal of the particular recyclable from collection. The City would then be responsible for the cost of printing and distributing educational materials explaining the market situation to residents. If a contract amendment is not negotiated within this 30 day period, the Contractor shan be responsible for all processing fees and tipping fees. IN WITNESS WHEREOF, the parties have hereunto set their hands. The Neighborhood Recycling Corporation, Inc. (0/81 A "Eureka Recycling): City of Arden Hills By Chief Executive Officer By Ron Moorse, City Administrator By Chief Operating Officer By Stan Harpstead, Mayor 5 Attachment C Recycling Articles (provided by Eureka Recycling) June 29, 2009, City Council Meeting Sunday, April 26, 2001909 Volume 21, Issue 16 Abitibi Bowater files for bankruptcy protection from creditors By Tom Klein Newsprint giant Abitibi Bowater Inc. has filed for bankruptcy protection in a bid to free itself from crippling debt and restructure its business. Court orders for protection from creditors were granted in the United States and Canada last week. While the orders provide a reprieve for Abitibi, anxiety remains high over the future of the company, which operates a pulp and paper mill in Fort Frances, Ontario. Abitibi Bowater owns about 43 percent of North American newsprint capacity and employs about 10,000 Canadians, primarily in Quebec and Ontario. Company officials maintain that Abitibi Bowater can still have a bright future. "The steps we are taking and the vote of confidence given to us by our restructuring financial partners will enable us to protect the value of the business for our many loyal employees, customers, suppliers and other stakeholders," said Abitibi CEO and President David Paterson in a release. Paterson had sought to refinance debt to reduce borrowing costs that reached $203 million in last year's second quarter. Deadlines for interest payments were extended repeatedly in recent months. Fort Frances Mayor Roy Avis said he's worried about the viability of his community with one of its largest employers in the midst of a major restructuring. The mill in Fort Frances employs about 600 people. "I do have tremendous concerns because there are so many unknowns we'll be walking through," he told the Fort Frances Times. Although he's had no meetings with Abitibi officials, he expressed hope that the company will work with the community "to develop a path on which we can help everybody get through these difficult economic times." Jim Cumming, publisher of the Fort Frances Times, said Abitibi's troubles reflect a nationwide crisis in the forest industry, which has too much capacity on line for diminished demand. "We're down to 30 percent of our paper usage than we were using a decade ago," he said. Avrin Lazar, president and chief executive officer of the Forest Products Association of Canada, pins much of the blame on government inaction. "Actual regulatory change, tax change that reduces the cost of doing business in Canada is rare," he told the Vancouver Sun. Canadian mills now face another obstacle with the United States offering $6 billion or more in tax credits to the U.S. pulp and paper industry in the form of a black liquor subsidy. The move will cut production costs for American producers and threatens the existence of Canadian pulp mills and the sawmills that supply them with wood chips. Cummings said a restructuring of Abitibi could also impact pension holders. Pensioners are unsecured creditors and secured creditors get a bigger percentage of what is owed them, according to Concordia University finance professor Lawrence Kryzanowski. "I would think that it will mean some decrease in pensions for current and future retirees," he told the Vancouver Sun. Cumming said there is some reason for optimism that the Fort Frances mill would survive a restructuring. The company recently invested $80 million in improvements in the mill and the mill, which produces paper for books, has been profitable. Even so, union workers may find themselves back at the bargaining table as a result of restructuring. Although the courts can not order unions to renegotiate contracts, Cumming said the company may argue that new labor agreements are essential to the company's survival. "It could come down to keeping a job for less payor not having a job at all," he said. How long the restructuring process will take is not known. "Weare going to work on putting together a plan that has to be accepted by creditors and both the courts in the U.S. and Canada," said company spokesman Seth Kursman. "We believe that we have a strong portfolio of assets, an incredible resource of people, and if you look at what makes up Abitibi Bowater today, this company can have a very bright future. " Newspapers fold as readers defect and economy sours STORY HIGHLIGHTS NEW: Charlotte Observer announces it will cut staff by nearly 15 percent Ann Arbor (Michigan) News announces it will shut down in July After 138 years, the Tucson Citizen will fold if it doesn't find a buyer soon Two-newspaper towns may be extinct by the end of this year, some experts say By Stephanie Chen (CNN) -- The Rocky Mountain News, gone, The Seattle Post-Intelligencer, gone. The Seattle PLcom website will be run out of the same iconic headquarters in downtown Seattle. The chain that owns the Los Angeles Times and the Chicago Tribune is in bankruptcy, Other papers, large and small, are teetering on the brink, On Monday, the Ann Arbor (Michigan) News announced that it will publish its last edition in July. Taking its place will be a Web site called AnnArbor.com, Three other Michigan newspapers announced Monday they are reducing their publications to three days a week. The Flint Journal, The Saginaw News and The Bay City Times will publish print editions on Thursdays, Fridays and Sundays, according to the mlive,com Web site, as research shows those are the highest readership days for newspapers. And the Charlotte Observer announced Monday it will cut its staff by 14.6 percent and reduce the pay of most of the employees it keeps. The situation now looks grim for The Tucson Citizen, In the past 25 years, circulation at Arizona's oldest newspaper has dwindled from 65,000 to 17,000, The Gannett Co, paper could fold if a buyer can't be found, At least 120 newspapers in the U.S, have shut down since January 2008, according to Paper Cuts, a Web site tracking the newspaper industry. More than 21,000 jobs at 67 newspapers have vaporized in that time, according to the site. More bad news could be coming this week as newspapers struggle to meet challenges posed by changing reader habits, a shifting advertising market, an anemic economy, and the newspaper industry's own early strategic errors. Amid the decline comes concern over who, if anyone, can assume newspapers' traditional role as a watchdog, For more than 200 years, that role has been an integral part of American democracy. "I know it sounds somewhat cliche, but when you have competition with [the Arizona] Star, it makes both entities better," said Jennifer Boice, an editor who has devoted more than 25 years of her life to the Tucson Citizen. Competition naturally breeds better journalism is the credo of many newspaper veterans, And better journalism means an engaged and informed public, "The winner is the community," Boice said, "They get better information quicker and more of it." Despite arguments like Boice's, newspapers are losing their relevance in the lives of a majority of Americans, particularly younger readers. Many industry analysts agree many more papers will soon become extinct. Most two-newspaper towns will likely disappear, perhaps by the end of 2009, some experts say. Among the next newspapers to go, experts say, are major metropolitan dailies relying on an expensive business model that requires costly newsprint consumption and gas-guzzling deliveries, The quirky San Francisco Chronicle is reported to be circling the drain, If it were to close, San Francisco would be the first big U.S. city without a major daily paper. The Atlanta Journal-Constitution and the Boston Globe are bleeding about $1 million a week, according to a media report issued by the Pew Center for Excellence in Journalism, Experts say more big-city papers are expected to follow the example of Gannett's Detroit Free Press, which started cutting back on print edition delivery in December. The challenges facing newspapers long predate the worst economic slump since the Great Depression. Daily subscriptions per household began a steady decline in the 1920s, yet the newspaper industry adapted and thrived despite competition from radio and television, But easily accessible, high-speed Internet connections and smart phones have dramatically shifted the way people get their news. Ironically, news is still in strong demand. It's abundant, accessible and usually free on the Web. The outlook is so grim that the American Society of Newspaper Editors, a membership organization for daily newspaper editors, canceled its annual convention in April after deciding that "the challenges editors face at their newspapers demand their full attention," To understand the financial crises plaguing the industry, one need look no further than the Tucson Citizen's parent company, Gannett, which reduced its work force by 10 percent only to see advertising and profits continue to plummet. Things are no better at competitor McClatchy Co. The company eliminated 1,600 jobs companywide last week. McClatchy stock is trading for less than $1 a share compared with $70 a share five years ago. The industry's advertising revenue in 2008 was $38 billion, a staggering 23 percent drop from $49.5 billion the year before. Print media companies are failing to achieve market expectations each quarter, scaring away investors, venture capitalists and potential buyers in droves. Still, a few deals have been struck. This week, a private equity firm in California purchased the San Diego Union-Tribune -- where advertising revenue has fallen 40 percent since 2006 -- for an undisclosed price. "We think that the revenues from newspaper companies have been insufficient to cover their cost," explained Mike Simonton, an analyst at Fitch Ratings, who issued a negative outlook on the industry. "At that point they will need to tap into external financing to continue operations, and we believe external financing will be prohibitively expensive or not even available at all." Job cuts are keeping many newspapers on life support. Paul Gillin, a social media consultant, said such losses are to be expected for an industry that has failed to adapt to the influx of online publishing tools and social networking sites. "Information has become democratized today," said Gillin, who has predicted print newspapers will disappear by 2015. "You get a lot of advice from your friends, blogs and multiple media sources. Who reads just one newspaper?" Some of the biggest threats to newspaper profits have come from Web sites like Craigslist and Monster.com, online advertising venues that are chipping away at newspapers' classified ad sections. Newspaper classified ad expenditures tumbled nearly 17 percent in 2007, according to the Newspaper Association of America. The recession is affecting auto dealerships, real estate companies and other local businesses, accelerating the advertising downturn. Many newspaper experts expect national publications such as the Wall Street Journal, USA Today, The Washington Post and The New York Times to survive. They say the largest papers could even benefit from industry woes and grab market share because of their wide penetration. In the meantime, these papers are facing a harsh economy. At The Washington Post, owned by Washington Post Co., earnings plunged 77 percent in the fourth quarter of 2008. The newspaper was saved by the parent company's Kaplan educational division, which raked in more than half the company's revenue that year. The future offers the industry little comfort, with studies showing newspapers have lost a generation of young readers. A Pew Research Center report this month found only one-third of Americans polled say they would "miss" the newspaper a lot if it were no longer around. adminlOl 125 February, 200904:58 Aluminum prices fell 55 percent (from $3,380 to $1,465 per metric ton, or from $1.53 per pound to 66 cents per pound) from mid-July to late October. In just those three months, prices lost five years of gains. Prices have fallen like a rock because demand has plummeted (greatly influenced by fear and risk aversion), causing the biggest annual visible surplus on record. Prices are trading below average output cash costs ($1,550 per metric ton, or 70 cents per pound), even taking into account much lower energy and raw material prices that have resulted from the global recession. We estimate that approximately 75 percent of global aluminum output is losing money on a cash basis (This does not take into account sustaining capital costs, depreciation nor return on capitaL). Practically all output is in the red if we consider the full cost of producing aluminum. In this context, we expect prices to fall further in the next weeks, as public inventories keep growing given that output continues to lack the flexibility and speed to adjust to depressed demand. We see $1,300 per metric ton (or 60 cents per pound) as probable in the first quarter of 2009. HiTTiNG BOTTOM Nevertheless, when we hit bottom-We believe it probably will be between the first and third quarter of 2009-we could see a "V" type violent bounce in demand and price for a number of reasons, including the historical dislocation of demand VS. its own 10 term trend; the sharp distortion of prices vs. output costs; the unprecedented and aggressive stimulus programs authorities around the globe have introduced on the fiscal, monetary and financial fronts; and the lagged but still significant aluminum output curtailments and expansion deferrals that have taken place in the fourth quarter of 2008. The consensus view is similar, forecasting a "V" bounce in prices starting in the second half of 2009. The bottom line is: Conditions are not present for a sustainable price bounce yet (prices will continue to stay low and to trend downward), but conditions are already present for a potential violent upward move later in 2009. The main reason behind the plummeting prices has been the sharpest contraction in global demand that the aluminum market ever has experienced in a six-month period. We estimate that global demand has contracted more than 25 percent from May 2008 through December 2008. Aluminum demand from the United States and Europe is down approximately 40 percent from its peak in the second quarter of 2008. DEMAND DOVVNTURN Plummeting demand, in turn, has caused the industry's biggest oversupply in spite of the fact that 4.4 million tons per year, or 11.5 percent of global capacity, have been curtailed (70 percent in China and 30 percent in the West) in a context where approximately 70 percent of global aluminum output is unprofitable. Every day LME (London Metal Exchange) warehouses report higher aluminum inventories. Visible aluminum inventories have increased from 3.7 weeks of consumption in the third quarter of 2008 to more than five weeks in the middle of the fourth quarter. We expected to close the year with a visible surplus of close to 1.8 million tons, the highest ever in a single year. Demand has been hit so .much that supply can't catch up yet and will probably not catch up until demand bounces. Still, we expect another important round of aluminum output cuts in China and the West to start soon given intense economic losses that later will help prices bounce with the same violence. What's behind the sharp contraction in demand? The main factor behind plummeting demand has been the unprecedented increase in risk aversion and fear that the global financial crisis unleashed in early September 2008 (as measured by the VIX (Volatility Index). Just to give you an idea, at the peak of uncertainty after the terrorist attacks of Sept. 11,2001, the VIX index increased from 20 to 40, but in less than two months, it came back to normal levels of below 30. Well, the VIX index skyrocketed from 20 in early September of 2008 to a record high of 90 by mid-October. NO CONF~DENCE Collapsing confidence caused credit to dry and market participants to suspend purchases of all types of items, especially demand for big-ticket items that can be intensive in aluminum, such as autos and machinery. Additionally, the entire aluminum supply chain started to destock as much as possible, resulting in a further intensification in the fall in aluminum demand. U.S. aluminum demand from the transportation sector was down 40 percent in November vs. July, while demand from the construction sector was 34 percent lower and electrical sector demand was down by 13 percent We believe that confidence is today the most important variable to follow because demand will continue to trend along with this variable. If demand is to bounce, it will have to be preceded by a sharp fall in fear and a return to normal levels of confidence. If confidence is indeed restored, we believe a subsequent sharp bounce in demand will follow. As of early January, the VIX was trading around 43, a sharp improvement relative to November and October, for which the VIX was in the range of 80. Government actions have so far stabilized fear at lower levels. Still, there is a long road ahead of us in order to reach normal levels (below 30 as indicated by theVIX). How long will this take? Nobody knows with certainty, but the popular consensus has that happening sometime in the first half of 2009. SHORT STAY Speculation continues to playa role in the aluminum market. Sophisticated speculators are as active today in commodities markets as they were before the sharp downtrend in prices started. They have passed from having long positions in metals such as aluminum (betting that prices will increase) to deep short positions (betting pries will fall). Many funds have profited greatly from plummeting prices because they have positioned themselves on the right side. Speculators simply benefit greatly from sharp and clear trends such as this one. Our contacts in the hedge fund community confirm they have been short for some time now. A recent survey made by a prestigious European bank also shows that funds haven't change their appetite for commodities at all and that they plan to invest close to 10 percent of their portfolios in them as a way to have exposure to emerging markets' growth and to enhance diversification. We believe funds will continue to cause volatility and will probably provide important ammunition for a bounce in prices as sharp as the fall we have experienced. They just need evidence that demand has bottomed to switch positions. We are not there yet. BOUNCING BACK We see factors in place that could result in a potentially frightening bounce in demand and prices ahead. For instance, authorities around the globe are taking unprecedented actions on the fiscal, monetary and financial fronts to restore confidence and growth in the worldwide economy. If indeed confidence is restored (and we need to see that), we will then face the most accommodative environment for demand since the Great Depression. AdditionallYJ a real long- term demand boom mainly from emerging countries, including China, India, Brazil, Russia, Middle East, remains unchanged in our opinion. We also must see insufficient aluminum supply and constrained capacity adjust to the upside to produce a bounce. Output cuts today equal 15 percent of global production in 2007 and will be greater than 20 percent by the time demand bounces. Additionally, the financial crisis has stopped and postponed numerous aluminum expansion projects. When demand bounces, it will bounce considerably in a context of a really restrained and damaged supply. Re-stocking needs in the entire supply chain will intensify the bounce in demand once confidence is restored. Finally, we see China buying between 0.8 and 1.2 million tons of aluminum in 2009 for state and provincial reserves. This amount by itself is enough to reduce to less than half even the most pessimistic 2009 market surplus. Nevertheless, a number of key unknowns persist. For instance, how effective the fiscal, financial and monetary actions taken by authorities will be to foster confidence remains to be seen. The extent of the damage to the structure of the global economy also must be determined. Also unknown are the timing and magnitude of the possible bounce in demand, China's aluminum industry policies and the precise price at the bottom ($1,425, $1,300 or $1,000). Although there is potential for a scary bounce in demand and prices between the second and third quarters of 2009, we need to be pragmatic and realize we still have a big global financial/confidence problem. We need tangible evidence to call an official end to this crisis of confidence and we don't have that yet. Meanwhile, the trend in prices is officially downward. Regardless of the precise time and level of the bottom, today's LME aluminum prices seem tremendously cheap under almost every measurement. Even the most bearish analysts expect higher prices than the LME forward curve is offering for the 2009-2011 period. Buying at these levels implies locking in at 40 percent below last year's price average, which is at the lowest level since 2003, and below the average cash cost of producing aluminum at a time when supply has been curtailed considerably (though not sufficiently) and when demand potentially faces the strongest underlying outlook ever given its sharp deviation vs. its own long-term trend and the unprecedented global monetary and fiscal stimuli. Still, be aware that we don't have enough conditions to call for a bottom and that, technically speaking, we are still heading toward $1,425 per metric ton (65 cents per pound) and probably lower Future of Recycling After the Market's Precipitous Plunge? By Joe P. Hasler Published on: January 13, 2009 For much of this decade, the value of recycled goods climbed steadily, reaching record highs in mid 2008. But when the American economy collapsed, followed by international markets, demand for recyclables withered. For processors now sitting on mounds of material, the uestion looms: When will E~:~:~~.!:!n bounce back? ~:~~~~~iif:frrfj~~~~~~~~M; (Photograph by Rebecca Emery/Getty Images) Just a few months ago, recycled materials were moving around the globe and trading But when the global economy began its death spiral in September, it took recycling industry down with it. Now, recyclers across the country are struggling to cope with what Jerry Powell, editor of Resource Recycling magazine, estimates is a two-thirds to three-quarters drop in value for recycled materials. A litany of economic factors led to the downturn. Plastics, for example, lost value as the price of the petroleum used to create them dropped from $147 a barrel in July to around $40 today. According to the Maine Resource Recovery Center, the price of recycled polyethylene terephthalate (PET) plastics subsequently plummeted from $396 per ton in June to $176 per ton in December. Declining car sales also reduced the demand for plastics and metals, which are used by the automotive industry. And once people stopped buying other products, manufacturers in China no longer accepted America's recyclables-particularly paper for all that packaging. In June, Maine's newsprint sold for $121 per ton; by December that number had dropped to $21 per ton. "We're just getting whacked by the economy," Powell says. How Should Recyclers Respond to Market Crash? Current worldwide economic woes have directly impacted the recycling chain from consumer to processor across the nation and in Pennsylvania. Despite the state of the recycling marketplace, recycling program managers are encouraged to remain calm and resist the temptation to make wholesale changes to local programs. PROP offers the following thoughts on weathering the current storm. What happened? . A slumping global economy has resulted in a slowdown in the production of goods (cars, carpets, appliances. . .). This has decreased the demand for recycled materials and created a surplus of materials available for purchase. . In addition to the slumping economy in the United States, issues of high transportation prices and over-production overseas have resulted in a drastic reduction in the need to export recycled materials, further increasing the amount of materials available domestically. How do we weather the storm? . Don't over react or vanic. - Review collection and processing programs for increased efficiency. To rapidly eliminate a collection route or collection of a specific commodity will only prove confusing to your customers. Consider the impact to performance grant awards, program goals, and the additional costs of disposal in lieu of recycling ifportions of a collection program are eliminated. · Focus on quality. - Now more than ever - QUALITY COUNTS! Know your purchaser's and mill's specifications to include out throws and prohibitives. The consistent delivery of good materials to a processor and buyer builds a positive relationship. · To shiv or To store. - Slow demand can result in a large inventory of materials (baled, piled, loose) awaiting processing or shipment. Some items are sensitive to light and/or moisture, such as Newsprint and Plastics and require protection for storage. Temporary storage trailers and contracted warehouse space are other options but each has a cost of space, handling (double handling), and the need for additional material handling equipment requirements. Check local zoning requirements or codes for onsite or offsite storage requirements for compliance. What should the public do? . The general public should not let these bad economic times and market situations undermine their commitment to recycling. . Most local programs will continue to collect the same materials with the confidence that markets will again rebound and our recyclable materials will find a home. What are others saying? . Other states and organizations have weighed in on these issues and offer their insights, observations and advice. A rough spot for recycling David Joles, Star Tribune Picture Caption: Corrugated cardboard sits 3Dfeet high at Waste Management's recyclingfacility in northeast Minneapolis, waitingfor prices to rise. Prices for paper, metals and plastic have plummeted, forcing recycling firms to make adjustments to weather the market. By Star Tribune Last update: December 13, 2008 - 9:44 PM Aisles where forklifts once shuttled are packed tight with baled cardboard and paper. A mountain of cardboard 30 feet high sits in the middle of a concrete tipping floor. Mike Lunow, manager of Waste Management's recycling plant in northeast Minneapolis, is running out of storage space. He has stockpiled 1,400 bales of paper -- all that he can handle without creating safety or fire hazards -- and has shipped more to a warehouse. The scene is typical across the country, where the market has plunged for wastepaper, aluminum, plastic and other products, leaving them worth only a small fraction of what they sold for just two months ago. "This is a big dramatic downturn," said Susan Young, director of solid waste and recycling services for the city of Minneapolis. "We all got used to China buying everything they could get their hands on." China and India have virtually stopped buying scrap steel, copper, used paper and other products because of the recession. U.S. manufacturers that use recycled materials in car parts, packaging, insulation and other products also don't need as much because U.S. consumers are buying fewer vehicles, appliances and new homes. The result is a huge backup in recycled materials nationally -- and much lower prices for the bales of paper and compacted cubes of plastic and aluminum that firms such as Waste Management, Minnesota's largest recycler, can process and sell. "We continue to encourage people to recycle at high levels, and hopefully the market will come around," said Waste Management spokeswoman Julie Ketchum. "We're waiting it out with everyone else, with the national economy the way it is. " The company does not intend to increase recycling fees for residences, Ketchum said, but it has raised rates for some of its commercial accounts, which include grocery stores, shopping malls and other businesses. Market fell faster, steeper Recycling has had its ups and downs, including a rough spot in 1997. But nothing this dramatic has occurred since the 1970s, said David Hopkins, a professor at the University of Minnesota's Carlson School of Management. "This is probably a larger swing in terms of the speed of it happening, and the severity of it," he said. Wastepaper was selling for $100 to $120 per ton in October, Hopkins said. In only six weeks it has dropped to $15 to $25 per ton. Copper, steel and other metals have dropped by about 80 percent, aluminum cans by about 50 percent, and some plastics by more than 90 percent, Hopkins said. Minnesota may be better off than some states because its recycling programs have developed many local markets, such as plastic lumber manufacturers and glass container firms, said Wayne Gjerde of the Minnesota Pollution Control Agency (MPCA). Coastal states, on the other hand, tend to ship more of their recyclables abroad and now have few alternatives, he said. Gjerde, the state's recycling market development director, knows one thing that won't happen in Minnesota, regardless of how bad the markets get. "No one can landfill material that is collected for recycling," he said. "That is against state law." Minneapolis is in relatively good shape. Young said its recycling program requires residents to sort materials into separate compartments for paper, plastic, glass, aluminum and other items. That makes the recycling streams "cleaner," with fewer contaminants, she said, and desirable even in a slow market. Because prices are lower, the city won't make as much money this year from selling recyclables to manufacturers, Young said. But it won't lose money either because some of the contracts set floor price levels for the materials. Everybody's watching For Eureka Recycling, which serves St. Paul, Maplewood, Roseville, Lauderdale, Arden Hills, St. Louis Park and many private companies, it now costs almost as much to collect and process paper as it makes selling it. As a result, said CEO Susan Hubbard, the nonprofit recycling company has met with its customers in recent weeks. None plans to drop materials now being picked up, she said, but all are watching the markets closely. If low prices persist, some cities may dip into reserve funds that they established with $5 million in profits that Eureka returned to them in recent years when commodity prices were high, Hubbard said. Otherwise, they may need to raise fees, she said. "We can't sustain and support recycling at any cost," said Hubbard. "It's going to take everyone pulling together. " The true value of recycling goes far beyond market prices, said Mark Rust, solid waste planner for the MPCA. Recycling contributes $3 billion to the state's economy and sustains 20,000 jobs, he said. Its environmental benefits include less mining and timber harvesting, less water and energy use, and fewer global-warming emissions. To consider dismantling any recycling programs on the basis of a few weeks of low prices would be a huge miscalculation, he said. "The sky is definitely not falling," said Rust. "It's a cyclical thing and a testament to just how mainstream recycling has become."