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Lisa McKenna June 27, 2013
 

Lisa McKenna

 

The recycling economy has had its share of challenges in recent months, with pricing for some secondary commodities showing quite a slide and, at the same time, traders of secondary commodities complaining about a perceived decline in supply. It is an unfortunate predicament that runs counter to the textbook charts illustrating what is supposed to be an equilibrium between supply and demand.

For instance, the U.S. price of shredded scrap dropped about 5 percent in June of 2013 compared with the same month last year. That price was already down 14 percent from 2011, showing once again that the road back from late 2008 has been a long one. The paper market also displayed what now looks like a double dip in terms of prices, but its volatility has generally been less pronounced. Faring best of all have been the plastics markets, having experienced a significant drop that lasted most of 2009, but the market has regained its strength since then.

From these examples I will argue that as painful as these gyrations have been, it may indicate that commodities markets in the recycling industry have returned to a sense of value. Even prior to 2008, the speculative nature of the metals market was helping to push prices to record highs. Now it seems traders and investors are more risk-averse, and the market is able once again to dictate what these materials are truly worth.

Perhaps that is how the plastics market avoided some of the volatility evident in other secondary commodities. Plastic doesn’t bring the bling of the metals markets, but it’s backed by that other hot commodity, petroleum. And as far as I can tell, there aren’t very many EFTs (exchange traded funds) focusing on secondary plastics.

This return to value seems to be spreading to the companies that are trading and processing secondary commodities. One example is Constellium, the Amsterdam-based aluminium company that is the subject of our cover story, “Clear Skies,” written by Editor Brian Taylor. The aluminium industry has been fraught with overcapacity and subsequent cutbacks in recent years. However Constellium, a relative newcomer to the market, has worked to develop a niche by focusing on aerospace.

Strength in aerospace is also one of the suggested panaceas for the stainless steel market, as explained in “Silver Linings Order Book,” a feature story on that recycling sector also written by Brian Taylor.

Emerging geographic markets are another source of strength for recyclers. A notable one is Brazil, which will host the World Cup next year and the Olympics in 2016. You can find out more about this nation’s long-term prospects in the feature story, “Betting on Brazil.”

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