Recycling Infrastructure Resilience: Strategic Investment in Diversified Waste Management Firms Amid Regional Downturns

The recycling industry is facing a prolonged period of volatility, with material recovery facility (MRF) commodity values plummeting in Q3 2025. According to the National Recycling Coalition's (NERC) MRF Commodity Values Survey, the average value of all commodities in the Northeastern U.S. dropped by 21.90% without residuals and 27.24% with residuals compared to the previous quarter. Single-stream systems, which dominate the region, saw even steeper declines-23.32% without residuals and 28.86% with residuals-while dual-stream and source-separated systems fared slightly better. Specific commodities like PET (down 60% to $125.58) and Natural HDPE (down 46% to $955.31) highlight the severity of the downturn. This collapse in pricing underscores the fragility of recycling infrastructure reliant on commodity markets, particularly for smaller MRFs and municipalities.

The Vulnerability of Smaller Operators

Smaller MRFs and municipalities, which often lack diversified revenue streams, are disproportionately exposed to these price swings. For instance, the NERC report notes that regional laws governing collection methods and beverage container deposits create uneven playing fields, with some states experiencing oversupply and others constrained by regulatory bottlenecks. When commodity prices fall, these operators face margin compression and rising operational costs, as they lack the scale to absorb losses or pivot to alternative revenue sources. Municipalities, in particular, are vulnerable because their budgets often depend on commodity sales to offset waste collection costs.

Diversified Giants: Waste Management and Republic Services

In contrast, large diversified firms like Waste Management (WM) and Republic Services (RSG) are better positioned to weather such downturns. Their business models, anchored in geographic diversification, landfill operations, and non-commodity revenue streams, provide a buffer against regional volatility.

Republic Services exemplifies this resilience. In Q3 2025, the company reported a 13.1% net income margin and $1.38 billion in adjusted EBITDA, despite a 0.3% revenue decline driven by volume pressures. Its strategic investments in renewable natural gas (RNG) projects and advanced recycling technologies-such as AI-powered sorting systems-have insulated it from commodity shocks. For example, RSG's new Polymer Centers convert recyclable plastics into resins, creating value even when raw material prices fall. Additionally, its $900 million acquisition spree in 2025, including Shamrock Environmental

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expanded its industrial waste and wastewater treatment capabilities, diversifying revenue beyond traditional recycling.

Waste Management has similarly leveraged diversification. In Q3 2025, the company generated $6.44 billion in revenue and a 26.7% operating margin, driven by a 6.0% core price increase and cost efficiencies from fleet automation and driver retention programs. Its acquisition of Stericycle added $110 million in adjusted EBITDA from healthcare waste services, a high-margin segment less sensitive to commodity cycles. While WM faced a $152 million impairment charge from the Natura PCR closure, spanning 10 RNG facilities and expanding renewable energy projects demonstrates a strategic shift toward non-commodity-driven growth.

Moreover, these firms are capitalizing on structural trends. The global push for circular economies and corporate sustainability commitments are driving demand for recycled materials, even as spot prices fluctuate. RSG's Polymer Centers and WM's RNG facilities align with these trends, positioning them to capture long-term value as recycling infrastructure evolves.

Hypothetical Market Scenarios and Investment Implications

Consider a hypothetical scenario where Northeastern MRF commodity values decline by an additional 10% in Q4 2025. Smaller operators would likely face liquidity crises, forcing them to either exit the market or seek partnerships with larger firms. In contrast, WM and RSG could absorb such shocks through their diversified revenue streams. For instance, RSG's 32.8% adjusted EBITDA margin in Q3 2025 and WM's 26.7% operating margin provide ample capacity to reinvest in innovation or return capital to shareholders.

Conclusion: A Case for Resilient Equities

The Q3 2025 NERC data underscores a critical inflection point for the recycling industry. While smaller MRFs and municipalities grapple with declining commodity values and rising costs, diversified leaders like WM and RSG are leveraging scale, innovation, and strategic acquisitions to build resilience. For investors, this divergence presents a compelling case to overweight equities in firms that can navigate near-term volatility while capitalizing on long-term structural shifts in waste management and recycling infrastructure.