Householders who sort bottles and newspapers into coloured bins may not know the waste is likely to go into fast growing stockpiles because prices for used plastic, cardboard, paper and many scrap metals have fallen by up to 75 per cent since October.

This has made it cheaper in some regions to send sorted rubbish to landfill rather than recycling stations, industry sources have told the Herald.

Councils are calling for an overhaul of the recycling system and federal regulations that would ease the load by forcing companies to use less packaging.

"This crisis has highlighted the weakness in the system, with communities already carrying the burden of recycling costs," said the president of the NSW Local Government Association, Genia McCaffery.

China's thirst for recyclable waste, which has helped sustain the industry for years, has dried up. But the chairman of an environment organisation in Sydney, Do Something, said Australia needed to wean itself off dependence on China.

"To do that, we need to boost our local recycling markets as much as possible," said Jon Dee. "It's vital that householders and businesses continue to recycle their waste. From a climate change point of view, we can't afford to start sending recyclable waste to landfill."

Visy Industries has about one third of the kerbside recycling market in NSW, and its main plant at Smithfield is bulging at the seams with compacted cubes of cardboard, aluminium, plastic and steel. The company was not stockpiling but simply "moving materials as slowly as we can", a Visy spokesman, Lee Smith, said.

Asked whether councils would soon have to stop kerbside recycling and simply dump materials in landfill, Mr Smith said: "I think it's possible."

But having a backlog of materials on site poses its own risks. When the Herald visited the Visy plant, a stack of 600-kilogram cardboard bales toppled over, missing an employee by 30 centimetres.

The day before, rival recycling firm Amcor had a fire at its Matraville paper storage plant. An Amcor spokesman said the blaze was "completely unrelated to stockpiling, and just a coincidence".

A spokesman for the federal Environment Minister, Peter Garrett, said the Government was developing a national waste policy to solve the problem.