The council is investigating the development of an "inert" material recovery facility, which would accept bulk waste dropped off by the public or picked up in scheduled kerbside collections, as well as commercial, industrial, construction and demolition waste, all of which are dumped in landfill.

It comes after Newcastle councillors voted in December 2023 to rescind a $56.7 million tender for the design and construction of the city's first material recovery facility capable of processing up to 85,000 tonnes per annum of "yellow lid" recyclables including glass, plastic, metal and paper.

The council accepted the tender from Central Coast-based iQRenew in May 2023.

City of Newcastle said in January 2024 despite the best efforts of both parties, there were "outstanding commercial, technical and contractual" issues with the project, with separate tender prices for earthworks coming in $10 million higher than a pre-tender estimate of $4 million.

Despite the tender being rescinded, a development application for the project is still being assessed by the Hunter and Central Coast Regional Planning Panel.

However the Newcastle Herald understands the council would be unlikely to build both material recovery facilities due to the cost.

Another material recovery facility is also being planned in the region by Hunter Resource Recovery on behalf of Cessnock, Lake Macquarie, Maitland and Singleton councils.

Newcastle's recycled materials are currently transported to iQRenew's Central Coast hub for processing. That contract is set to run out in November and the council is now calling for tenders for a long-term recyclables processing contract.

The council's managing director waste services Michael Allaway said the contract's upcoming expiration meant it was an appropriate time to test the market in this space.

"With the current recyclables processing contract due to expire towards the end of this year, we're moving forward with a tender process," he said.

"This will allow us to assess the potential to secure an arrangement that provides certainty around cost, resource recovery and commodity market exposures.

"We also have the option to extend our current contract with iQRenew for another 12 months should that prove more favourable."

An inert material recovery facility is expected to be cheaper than the $56.7 million recyclables facility, and the council said it would also increase Newcastle's waste recovery rate.

"The establishment of an Inert MRF will divert a significant amount of waste from being disposed of in landfill at Summerhill," Mr Allaway said.

The state government has set a target of an 80 per cent average recovery rate from all waste streams by 2030.

Newcastle's current recovery rate is about 40 per cent, which the council hopes to increase with the creation of a food organics processing facility.