Editor’s analysis: Are bullet prices heralding a recession?


An editorial analysis examines whether recyclables prices can predict a broader recession in the US economy. | Adison pangchai/Shutterstock

Forget looking into crystal balls or reading tea leaves. Maybe we should check out the mystical table of recyclables prices.

Some people with decades of experience in the recycling market have told me that the prices of recyclables offer clues to the trajectory of the economy.

Why is that? Recovered raw materials are used in construction products (HDPE in pipes), to make other goods (PET in carpets) or to package products (old corrugated boxes into new boxes). These are products that are generally used more when times are good.

“If the prices for these go down, that certainly means negative things for the economy,” said Chaz Miller, who does analysis of recycling markets after a career at the US EPA and several groups in the US. waste and recycling industry.

Recyclables may be trying to tell us something

First, let’s take a closer look at recent price activity. In short, it’s been a roller coaster ride with drops pushing your stomach down your throat.

Note: All figures below were provided by RecyclingMarkets.net, which has surveyed recycling companies to track bale prices for decades. Figures are US averages.

A year ago, in September 2021, the price of old corrugated containers (OCC) was around $171 per ton. It slowly slipped over the following months, but in July 2022 it was still hovering around $130 per ton. Then it fell off a cliff, falling to $114 in August and $78 in September.

Robert Boulanger, owner of RecyclingMarkets.net and a longtime observer of North American price trends, told me the last time he saw such a steep drop was before the 2008-2009 recession.

He recently gave me some numbers to illustrate: In September and October 2008, OCC was at $110 and $103, respectively. Then, in November 2008, as world leaders tried to avert a crisis in the banking and real estate market that would eventually drag us into recession, the price of OCC plunged to $23 a ton. And that’s where he stayed for a while. Boulanger noted that it took over a year for OCC price to recover to anything approaching that September 2008 level.

If consumers are worried about their financial future, they will slow down on discretionary spending, which means stores won’t sell as much, which means they expect in the coming months that they will need less of boxes, which means that box makers don’t need as much OCC in the short term, which means less demand for bullets, which puts downward pressure on prices.

The same general dynamic is played with copper. This is why the metal is nicknamed “Dr. Copper– it is used in so many different products that the price of copper provides insight into the health of the whole economy. On that note, the doctor needs a doctor, because the copper took a dive from this summer. In early June, the metal was trading on the London Metal Exchange for around $4.40 a pound, and at the end of last week it was hovering around $3.30.

HDPE and reclaimed color PET also serve as examples of how material pricing relates to broader economic trends.

Advanced Drainage Systems (ADS), a huge manufacturer of pipes, septic systems, and other construction-type products, consumes a good portion of all colored HDPE bales generated by MRFs in the United States.

A year ago, color HDPE was 58 cents per pound. The price then slipped to around 29 cents in June. Since then – yes, you guessed it – it has crashed to today’s 6 cents. Boulanger said a similar thing happened at the start of the Great Recession: color HDPE was 35 cents in October 2008, only to crash to less than 7 cents the following month.

Meanwhile, PET is used to make carpets, fibers for clothing, strapping, and food and beverage packaging. Recently, carpet management group Carpet America Recovery Effort (CARE) noted that carpet sales in California have declined, which is one of the reasons why it asks consumers to pay significantly higher fees from 2023 to cover carpet collection and recycling. If fewer homes are being built because mortgage rates are rising or people are worried about their future incomes, then fewer new carpets are being bought and carpet makers like Mohawk that use a lot of RPET in the carpet surface fiber consume fewer bullets.

In fact, Mohawk addressed some of these dynamics in its publication of results at the end of July, noting that “as residential carpet volumes have declined due to easing markets and inventory reductions, we are aligning capacity with demand.” The company noted that in the second quarter, major retailers all significantly reduced orders for carpet products “to reduce inventory as their sales forecasts weaken.”

As recently as May, RecyclingMarkets.net pegged RPET bales at nearly 40 cents a pound. The price is now below 8 cents. In October 2008, bales of PET were selling for 17 cents per pound. The following month they fell to 4 cents, and it took almost a year and a half for the price to recover.

Why nothing – including the argument above – is as simple as it seems

Ok, everything I said above comes with some important caveats.

First, Miller, who produces in-depth market reports for the Northeast Recycling Council (NERC), pointed out that the recovery in commodity prices is affected by a number of factors. For example, PET values ​​are affected by seasonal markets, with demand being high during the hot summer months when we are on the go and buying bottled water and sodas.

The OCC and paper markets are in a similar boat. Traditionally, the demand for fiber decreases in November and December, as box makers have already purchased their raw material and produced the boxes needed for the holiday season.

Still, Miller has some concerns. Purchasing agents place orders based on expected demand for their products a month or two in advance, he noted. “If they pull out of the market, that’s their way of saying they won’t sell as much.”

Joe Pickard is the chief economist at the Institute of Scrap Recycling Industries (ISRI), and he recently made a presentation at an ISRI press briefing. I asked Pickard what recycled material prices mean for our near economic future. This was just after he had finished going through a significant list of macroeconomic indicators, including logistics costs, interest rates, currency valuations, geopolitical uncertainty and more.

He acknowledged that many journalists see copper as an economic indicator, but he also said the relationship doesn’t go that far. “I think there’s probably a little too much focus on commodity price volatility, especially these days, as an indicator of a recession,” he said.

And he usually doesn’t place too much emphasis on looking at a particular product as an indicator of an impending recession.

He then pointed out that we live in wacky economic times (my words, not his) in the wake of COVID. Unemployment is low and the labor market continues to create jobs. At the same time, as the $18 sandwich (with tip) I just bought for lunch just pointed out, inflation is high.

“There are some real bright spots in the economy, and I think the volatility we’re seeing in some of the prices these days has more to do with global economic jitters, in addition to rising interest rates. “, noted Pickard.

Of course, there are indicators that we are already in a recession. Feds with calculators estimated that the US economy contracted in the first and second quarters, matching a long-standing informal definition of a recession as two consecutive quarters of declining economic activity , according to a AP News Explainer from two weeks ago.

If so, the mystical price of recyclable commodities may not signal that we are headed for recession as much as it warns that we are destined for tougher times than we are now.

Jared Paben is associate editor of Plastics Recycling Update and can be reached at [email protected]

A version of this story appeared in Resource Recycling on October 3.

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