Circular File: No End to Volatility

They're back! After four years of good prices for recyclables, lower prices have hit paper and metal recycling markets hard. The bulls aren't running in recycling markets any longer.

Paper and other recyclables are still moving, albeit at dramatically lower prices. End markets will take advantage of tightened demand and enforce quality specifications more stringently. Once again, we are reminded that recyclables are a commodity whose value rises and falls in response to the strength of the economy.

During the last four years, we enjoyed relatively stable markets and higher than normal prices. These strong markets helped make recycling a normal part of life in our homes and our businesses.

These latest price plunges are a reflection of the highly unsettled state of the world economy. Market softness began in mid-summer when Chinese buyers cut back on purchases. Chinese factories were shutting down to create clean air in Beijing for the Olympics, so they didn't need as many raw materials.

As it turned out, not all of those factories reopened after the Olympics. Industrial production in other countries had also fallen off. The demand for all raw materials is down dramatically.

Fortunately, we haven't yet seen the complete collapse in prices that occurred in the mid-90s after prices for paper recyclables first skyrocketed then plummeted (or at least we haven't as of this writing). Nonetheless, markets are sliding. The good news is that fewer recyclables are being stolen.

What self-respecting thief is going to waste his time stealing old corrugated containers or stripping copper wiring from utility poles? The bad news is that municipal and commercial recycling programs will find themselves earning less revenue than expected. They will be forced to make hard choices about program priorities. Collecting new materials for recycling will be harder to justify until prices firm up.

Experienced recyclers aren't surprised. They know that recyclables are among the most volatile of commodities. In fact, a study conducted earlier this decade determined that paper recyclables were subject to greater price fluctuations than agricultural and raw material commodities, such as pork bellies and pulp. Markets for other recyclables, especially glass, aren't as volatile, but are still likely to rise and fall.

As a result, recyclers tended to be people who were comfortable with risk and volatility. They accepted the reality that they were likely to lose money every couple of years when prices fell. They built these downturns into their business plans and learned how to ride out the storm. Down markets, like up markets, were part of the business. The risks and rewards caused by market fluctuations made recycling challenging and profitable for these entrepreneurs.

Three years ago I wrote a column, "An End to Volatility," which looked at the sudden loss of volatility in markets. I had the good sense not to predict an end to price volatility. But I had the bad sense to predict that we probably wouldn't see the rollercoaster ups and downs of past markets. I won't make that mistake again.

Eventually the market will cure itself, and prices will rise again. When they do, we need to remember that what goes up comes down, again and again and again.

Chaz Miller is state programs director for the Environmental Industry Associations, Washington, D.C.

Opinions in this column do not necessarily reflect those of the National Solid Wastes Management Association or the Environmental Industry Associations. E-mail the author at [email protected].

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