An End to Volatility?

THINK OF COMMODITIES — old newspapers, pork bellies, used aluminum cans, cotton or old corrugated boxes (occ). All of those share a common trait: Their prices rise and fall based on economic and other factors. Price volatility has long been the bane and glory of recycling, creating challenges for curbside programs as managers vainly try to predict revenues. Meanwhile, entrepreneurs with nerves of steel ride the roller coaster of risk.

Many of us remember all too well the extraordinary spike in recovered paper prices 10 years ago that was followed by a plunge into an abyss of depressed prices. As Recycling Times noted in November 1995, “in less than six months, the market for OCC fell from more than $200 per ton to $30 per ton and lower.” Other wastepaper grades were also hard hit by a combination of an economic slowdown and excessive mill inventory. The latter was caused by panic buying earlier in the year when prices were high. Paper recycling experts bravely predicted higher prices by the second quarter of 1996, but they didn't predict that price volatility would go away.

In fact, a 2001 commodity price volatility study by a group of North Carolina State University economists concluded that paper recyclables have greater price fluctuations than other commodities studied. Plastic bottles also had high price volatility, while aluminum cans and glass had much more stable price predictability. [The study, “An Assessment of Price Volatility in Recyclables Markets and Market Mechanisms to Stabilize Prices” is available from the Environmental Research and Education Foundation, www.erefdn.org/reportsmarkets.html. Beware, it's written by economists.]

Price volatility has long plagued municipal recycling programs. Public officials often found their budgets and program revenues at the short end of down markets. Hauling companies that also were recycling companies found themselves in the same fix. Whether they were answering to taxpayers or to stockholders, none were happy about the impact of volatile markets on their bottom line.

So what to make of the quiet, steady markets that seem to have taken over paper recycling? At this year's WasteExpo, David Friedman of Friedman Recycling, an Arizona-based recycling company, noted the reduction in recovered paper price volatility over the past year and a half. He predicted that recycling companies that could make five years' worth of profits in one year (and suffer through four years of drought) would have to adjust to a steadier, more predictable revenue stream. Most importantly, he urged recyclers to make money on a day-to-day basis and not wait for the up-cycle.

Will we see an end to price volatility? No. While some recyclables, glass in particular, have shown little price movement, we can always expect prices to go up and down in a market economy. We are likely to see hills and valleys, not the roller coaster ups and downs of the past. This is especially important for paper because, with all due respect to the other curbside recyclables, paper remains the most important material in a municipal or commercial recycling program. Strong paper markets can make or break the economics of these programs.

Have we entered the promised land? Not yet, but I'll be happy to settle for some calm, steady markets and a renewed focus on efficient collection and processing.

The columnist is state programs director for the Environmental Industry Associations, Washington, D.C.

Opinions in this column do not necessarily reflect those of the NSWMA or the EIA. E-mail the author at: [email protected].