Of all the news I read this weekend, here’s what most surprised me:
The precipitous drop in prices for recyclables makes the stock market’s performance seem almost enviable.
On the West Coast, for example, mixed paper is selling for $20 to $25 a ton, down from $105 in October, according to Official Board Markets, a newsletter that tracks paper prices. And recyclers say tin is worth about $5 a ton, down from $327 earlier this year. There is greater domestic demand for glass, so its price has not fallen as much.
Those numbers boggle me. Why have prices for used commodities dropped more than for the virgin ones? Anyone know?
Photo courtesy of Flickr user orphanjones under a Creative Commons license.
Matt the Engineer
My guess (and this is only a guess) is that this has more to do with goods we ship from China than used paper we ship to China. It’s terribly cost inefficient to make one-way trips with ships full of Chinese goods that we have such an appetite for. One way to increase the efficiency some is to find a good that China would want to buy from us – one such good is used paper. Then ships aren’t sailing across the ocean empty, they are filled with used materials that can be re-manufactured into new materials to sell back to us. Reduce the amount of goods that we buy from China, and you reduce the amount of paper that they want.This is actually how we ended up with brick-lined streets in Seattle – they were used as ballast for ships returning from San Francisco after delivering lumber.
Peterbart
There is a bit of a butterfly effect about all of this. A few thousand people in Nevada buy homes on ridiculously cheap credit. A few years later, housing prices plunge and suddenly many homeowners owe more on their mortgages than the houses are worth. The mortgage rates begin to rise (apparently, no one read the fine print) and homeowners begin to default. At the same time, we realize that the geniuses on Wall Street have bundled these mortgages into complex investment vehicles, and nobody knows what they are worth today or, even worse, what they will be worth tomorrow. Banks begin to fail. The economy craters. Commodity prices drop. And our little recycling centre on Galiano Island is unable to sell scrap metal anymore.
Alan Durning
Matt the Engineer,That’s a fascinating theory. Plausible, though I know far too little about secondary materials markets to say more. Commodity prices in general have tanked. The extra drop among recycled materials may have the explanation you suggest.What do other people think? Among our thousands of readers, surely somebody knows the truth.PeterBart,Well said!
Paul Birkeland
Here’s my hypothesis, though I haven’t the time to research and confirm it. I think two things are happening here, both having to do with the fact that used and virgin materials are still more or less two separate streams.When economies slow, it is very easy for a raw material supplier to reduce production. They in fact often anticipate slow downs and reduce production in advance. With used materials, it isn’t so easy. The source is not entirely under control. Imagine if Waste Management had written into their contract with the City of Seattle that if the economy slows, they will simply leave some recyclables at the curb. You can’t do that. There is no shut off valve on the stream of used materials. So they pile up, lowering the price.Secondly, I suspect that the market for virgin and used materials is not actually integrated either. There are many firms buying used materials. But many others who still don’t want to do so for whatever reason. So used materials can go down in price more than virgin materials because those selling the used material don’t really sell to the market for virgin materials. They are really two different markets, so their prices are not linearly connected. As I said, this is just my hypothesis and I haven’t done any research to confirm it.Two positive things here though. First, I’m grateful that the price of used materials (recyclables) CAN fall. For decades they were a niche market that never went high enough to have any room to fall. So that represents some progress. Second, with used material prices lower than virgin material prices, maybe the used material suppliers can make some converts.Paul Birkeland