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

Forget looking into crystal balls or reading tea leaves. Perhaps we should consult the table of prices for recyclable materials.

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. And the clues don’t just come from Dr. Copper, the metal that has long been an indicator of economic health.

The recovered raw materials are used in construction products (polyethylene in pipes), to manufacture other goods (PET plastic in carpets) or to package products (cardboard boxes in new boxes). And copper, which is recovered from electronics, is used in a wide variety of products, making it a good indicator of demand across all industries.

All of the above products 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.

Copper, nicknamed “Dr. Copper” because it’s used in so many different products that its price is indicative of the entire economy, needs its own doctor after its health prices drop 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 $3.50 (which is actually better than the 3 .30 dollars per pound which it reached at the end of September).

And the trend is not limited to just one non-ferrous metal.

A year ago, in September 2021, a bale of recovered cardboard cost around $171 per ton. The national average price per ton slowly slid over the following months, but as of July 2022 it was still hovering around $130 per ton. Then it fell off a cliff, falling to $114 in August, $78 in September and $40 this month, according to RecyclingMarkets.net

Robert Boulanger, owner of RecyclingMarkets.net and longtime observer of price trends in North America, told me the last time he saw such a steep drop was before the 2008-2009 recession. .
He recently gave me some illustrative numbers: In September and October 2008, a ton of old corrugated containers traded 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 plunged to $23 a ton. And that’s where he stayed for a while. Boulanger noted that it took more than a year for the price of scrap corrugated boxes to recover to something 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 box makers don’t need as much recovered fiber raw material in the short term, which means less demand for bales, which puts downward pressure on prices.

High-density polyethylene (HDPE) and reclaimed color PET also serve as examples of how material pricing relates to broader economic trends. For readers unfamiliar with curbside plastics, an orange Tide detergent bottle is a classic example of colored HDPE, and clear water and soda bottles are prime examples of residential PET.

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

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 6.41 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 it is asking consumers to pay significantly higher fees from from 2023 to cover the collection and recycling of carpets. If fewer homes are being built because mortgage rates are rising or people are worried about their future incomes, fewer new carpets are being purchased and carpet manufacturers such as Mohawk who use a lot of RPET in carpet surface fiber consume fewer bullets.

In fact, Mohawk referenced some of these dynamics in its late July earnings release, noting that “as residential carpet volumes 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 recovered PET bales at nearly 40 cents a pound. The price is now 8.5 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 markets for old corrugated boxes and mixed paper 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 recently bought for lunch 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 an AP News explainer from two weeks ago.

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

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

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

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