How Low Did They Go?

Michael Fickes

The Dow Jones Industrial Average (DJIA) plunged from 14,164 in October 2007 to 8,776 at the end of last year. The carnage destroyed 34 percent of the wealth held by the Dow's 30 major corporations. In 2009, more financial losses moved the DJIA down another couple thousand points.

Panic ensued in many markets. According to the “2008 Commodity Market Wrap-Up,” published annually by the Institute of Scrap Recycling Industries (ISRI), fear and shock drove the commodity markets down throughout most of 2008. By and large, the slide has continued into 2009. “We haven't seen anything quite like this collapse,” says Bob Garino, director of commodities at ISRI and a co-author of the “Market Wrap-Up.”

Prices for recycled metals, paper and plastic fell like lead balloons. Contributing to the collapse was the behavior of large, still emerging global economic forces like China, which is a major buyer of U.S. commodities.

“Before the 2008 Olympics in Beijing, China ramped up purchases,” says Chaz Miller, state programs director for the National Solid Wastes Management Association (NSWMA). “A month before the Olympics, they shut down factories across the country and stopped buying. After the Olympics, the Chinese did not resume buying. They had built up plenty of inventory.”

At the end of September 2008, metal prices started to fall. By the end of October, paper joined in and in December, plastic prices hit the skids. Thankfully for recyclers, glass prices have remained relatively stable over the last year. “Demand for glass continues to be extremely strong globally,” says Curt Bucey, president and chief operating officer of Houston-based Strategic Materials Inc.

Bucey declined to quote prices for cullet, noting that unlike other commodities, glass is priced regionally and the numbers vary widely across the country.

Crushed Metals

Unless you've been trading commodities, you can't really understand what the market has been like without reviewing actual prices. The market for metals has been crushed. Here's an overview:

Aluminum: According to ISRI's “2008 Commodity Market Wrap-Up,” prices reported by the London Metal Exchange peaked in July of 2008 at $1.42 per pound. By the end of the year, aluminum had lost more than 50 percent of its value, plummeting to $0.65 per pound. “The bottom of the cycle came in February 2009 when the price fell to $0.58 per pound,” says Greg Wittbecker, director of corporate metal recycling strategy with New York City-based Alcoa. “In July prices rallied and went up to about $0.83 per ton.

Iron and steel: According to ISRI's “Market Wrap-Up,” the China effect pushed the price of No. 1 heavy melting steel, the benchmark commodity, to a peak of $523.36 per gross ton in July of 2008, about 40 percent higher than the 2007 average of $355.64. “The July 2008 price was also much higher than previous plateaus, which ranged from $150 to $200,” says Bill Heenan, president of the Steel Recycling Institute in Pittsburgh.

The price tumbled to $449.17 per gross ton in August 2008. Then the bottom fell out as the price swooned to $100.50 per gross ton in November. In December, the price rebounded slightly to $185.17 per gross ton. “Prices have continued to rebound slightly,” Heenan says. “So there might be a light at the end of the tunnel. We're just hoping the light doesn't turn out to be a speeding locomotive.”

Paper Tiger

During the economic meltdown, the prices of the three major grades of paper — old corrugated containers (OCC), mixed paper and old newspaper pulp (ONP) — fell to shocking lows. According to Bill Moore, president of Moore & Associates, an Atlanta-based paper-recycling consultancy, OCC prices peaked in the second quarter of 2008 at $130 per ton. During the third quarter, prices inched down a few dollars. Then came the fourth quarter plunge to $65 per ton. By the end of 2009's first quarter, OCC was selling for $36 a ton.

Mixed paper followed suit. From a peak of $89 per ton in the second quarter of 2008, prices declined ever so slightly in the third quarter. By the end of 2008, though, it was going for $48 per ton. Prices bottomed out in the first quarter of 2009 at $15 per ton.

ONP prices moved differently. Unlike the other grades, ONP prices rose in the third quarter of 2008 to $134 per ton. The decline began in the fourth quarter, and the deep plunge occurred in the first quarter of 2009, when prices collapsed to $32 per ton. Moore attributes the different ONP pattern to the troubled newspaper industry.

Each category began what may turn into a sustained recovery in the second quarter of 2009. OCC bumped up to $52 per ton, mixed paper to $29 per ton, and ONP to $57 per ton. “Going forward, we expect a reasonably healthy recovery,” Moore says. “By the end of July, we had seen about five months of steady upward movement in prices.”

Plastic Prices

The markets for polyethylene terephthalate (PET) and high-density polyethylene (HDPE) containers also have taken some hits during the last year. The PET market seems to have suffered the least. “Critical market conditions lasted only about six weeks,” says Mike Schedler, director of technology with the National Association for PET Container Resources (NAPCOR). “Then everything floated back up to historical price levels, about 12 cents per pound, which is where the price is today.”

The HDPE market proved more volatile. HDPE natural plastic prices reached a high of 48 cents per pound last fall and collapsed to 12 cents per pound on the East Coast and 14 cents per pound on the West Coast at the end of 2008, according to Tamsin Ettefagh, vice president with Envision Plastics, a Reidsville, N.C.-based HDPE reprocessor.

Mixed color HDPE, which generally keeps to lower price points than the natural material, rose to a high of 37 cents per pound in the fall and dropped to 9 cents per pound in December. “By July, the average prices had rebounded to 24 cents per pound for natural and 13 cents for mixed color,” Ettefagh says. “The East and West Coast prices were virtually even.”

Ettefagh points out that low prices make it difficult for recycled HDPE to compete with virgin HDPE. During the collapse, virgin prices had fallen into the low 50-cent range. So a processor would pay 24 cents per pound for recycled HDPE, spend another 25 cents per pound to process the material into resin and pay several cents a pound in shipping costs. Add it all up, and suddenly 50-cent per pound virgin material costs less.

Going forward, a consensus sees a reasonably healthy recovery in commodity prices. “As of July, we had seen about four to five months of steady upward movement in prices,” Moore says. “We expect that to continue. It will take a while to get back up to the lofty prices of 2008. When we get there, the market will begin looking for a reason to correct. That's how cyclical markets like ours function.”

Michael Fickes is a Westminster, Md.-based contributing writer.

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