Achieving A Balance

People dealing directly with commodities quickly learn the frustrating nature of their moving prices. Economist Adam Smith developed the notion of an “invisible hand” that lowered or lifted pricing in response to the commodity’s supply and demand.

C&D recyclers—even those new to the industry—are already familiar with commodity pricing, certainly at the gas pump if not from their backgrounds in other recycling markets or in the concrete, aggregates or forest products industries.

The good news for many C&D recyclers is that the products they create from the C&D debris stream are increasingly becoming commodities that have a recognized value and fill a need in several end markets. The bad news, perhaps, is the same: that these processed materials have become commodities. They are thus now subject to oversupply or glut conditions that can cause prices to drop and producers to be stuck with overpriced inventory.

On the concrete crushing side of the C&D industry, there are operators expressing concerns about market saturation. There are too many crushers operating in a given market region, this argument goes, resulting in lowered secondary aggregates prices and too much crushed product resting on the ground with nowhere to go.

This doesn’t seem to be a widespread phenomenon, and should not be as long as construction activity remains strong and sources of secondary aggregates remain closer to construction project activity than increasingly distant quarries.

But Adam Smith referred to his market manipulator as an invisible hand for good reason. The forces that cause supply, demand and pricing to shift suddenly do not announce themselves with a flourish beforehand, but rather lurk unseen, waiting to quietly persuade buyers to demand more or less. Suppliers must then react independently to figure out how to produce and price a commodity that will be accepted by the buyers.

For secondary aggregates makers, that means that the desirable market conditions of unquenchable demand cannot go on uninterrupted. It is too early to say whether a more troubling stretch is just around the corner—that’s for the “invisible hand” to decide.

While the short-term offers uncertainty, secondary aggregates producers can take comfort in a long-term reality that works in their favor: rock that is quarried from beneath the Earth may be abundant, but it is not infinite.

The circumstances that have made concrete and asphalt crushing economically favorable in the 1990s will persist as a long-term trend: quarries in metropolitan areas are moving further onto the edges of those metro areas, making their products more expensive to ship to urban and suburban construction sites. Resource depletion is not a pleasant thing to contemplate, but it does mean that sustainable practices such as concrete and asphalt recycling have an undeniable place in the economy of the future.

In the meantime, however, transportation costs and the level of construction activity will continue to be the largest present-day factors determining the pricing and demand of commodities such as crushed concrete and asphalt.

And for those trying to produce and sell these commodities, they will be the forces moving the invisible hand that causes prices to rise and fall.