Six authorities have told BBC Wales a meltdown in waste markets has hit their budgets.
Pembrokeshire council has seen the price it gets for steel drop by 88% over the year - while Flintshire has seen the price for plastics halved.
Experts say a slump in oil prices, cheap steel imports, and China's economic slowdown are to blame.
"We try to play the markets as best we can," Harvey Mitchell, the waste services manager for Flintshire, said.
"It makes it difficult when we do have a drop in issues we can't control, such as the global price of oil, or when larger countries flood the European market with steel."
Flintshire has been celebrating a record year for recycling household waste - up to 58% of everything thrown away now ends up at its waste recover facility in Buckley.
"But while we've seen an increase in the amount of material we've collected, we've actually seen a drop in the income because of the market prices," Mr Mitchell said.
Recycled waste netted the council £537,000 in revenue in 2015/16, but this represented a drop of 45% in the expected income - more than £400,000 in lost cash.
The pattern has been repeated in Pembrokeshire, where £360,000 has been wiped off the council's expected income, while four other councils saw a combined drop of £335,000.
"This is an issue which is impacting upon Wales as a whole, not just Pembrokeshire," a council official there said.
"Fortunately quotes for the coming months are starting to look more positive with prices starting to increase."
The impact on most of the other Welsh councils which responded to BBC Wales has been minimal, as they said are tied into long term contracts dealing with their recycling services.
But one academic expert said authorities and the public in Wales will need to refocus as they face ever increasing targets on recycling.
By 2025 Welsh authorities are being asked to recycle 70% of waste - by 2050, it should be 100%.
"Waste prevention is what this is all about," Rebecca Colley-Jones, from Bangor University's Sustainability Lab, said.
"It's about buying smartly, being able to think about what you do with it so it can be reused, because reuse is a form of waste prevention.
"Together we can provide solutions for the future."

For almost 60 years Tom Bravin dressed up as Father Christmas to distribute presents to over 4,500 underprivileged children around the city.
The former RAF communications worker shunned praise and kept his identity a secret, calling himself Mr X.
Friends and family have vowed to carry on Mr Bravin's work in his memory.
When the strain of personally delivering so many gifts became too much for him, Mr Bravin recruited "Santa's Little Helpers", who in turn were sworn to secrecy.
Mr Bravin's son Terry said: "What a legacy he's left us - I am really proud of him.
"We have got a team of people to make sure his appeal is still going."
Neighbour Kat Thomas added: "What a kind heart. He brought so much joy to so many children and I will continue to support this cause as long as it is running."

The 29-year-old pedestrian was struck by a silver Renault Clio on the B2173 Maidstone Road, near the junction with Hockenden Lane, just after 22:00 GMT.
He was pronounced dead at the scene and his next of kin have been informed, Kent Police said.
The driver of the car was injured. Witnesses are being urged to come forward.

White, 26, has 22 international caps and will join the Premiership club from French Top 14 side Montpellier.
He has also previously played Super Rugby in his homeland for Brumbies.
"When a player of Nic's quality becomes available, and he shows an interest in coming to the club, you have to act quickly," said Exeter boss Rob Baxter.
Back row Freeman, also 26, started the Championship campaign as a vice-captain at Jersey, but has been promoted to skipper since an injury to Pierce Phillips.
"I personally think he's one of the stand-out contributors in the back row in the Championship, and he potentially fills a slot in a Premiership side," Baxter added.
A collapse in the global price paid for recycled waste has cost Welsh councils more than £1m in lost income.
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