Editor's Letter

A Trial by Fire

The last year was undoubtedly a challenging one for many recycling business owners. During the first quarter of 2009, the recycling industry nearly fell off the proverbial cliff.

While to some this may sound like an exaggeration, I can say that in talking to many recyclers at the beginning of 2009, many companies, both large and small, questioned whether they would survive the business climate.

The market had totally collapsed. Prices fell to zero because no one was buying material. Offshore orders were cancelled in transit, leaving shippers with orphaned loads. It was as if the whole market just seized up.

The immediate reaction of many recyclers was to cut staff, in some cases significantly. Plants were closed, machines were idled and downtime was taken.

Operating rates, which topped 90 percent in some industries, dropped by 50 percent almost overnight. Things looked bleak.

Fast forward one year. Prices are fairly strong. Orders are coming in for most recyclables, although generation is modest. The mood in the market, perhaps the best indicator, is much better. Despite these improvements, caution signs remain.

While prices for many recyclables have climbed significantly since their fall in the fourth quarter of 2008, many recyclers and analysts look at the market fundamentals and see disparity. The overall economy may be improving, but it is far from healthy. The automobile and housing industries, markets that affect demand for and generation of many recyclables, continue to struggle. Inventory levels for many primary metals are high, potentially a source of downward pressure on pricing. Also giving pause to many recyclers is the unemployment rate, which was at 10 percent at the close of 2009.

These factors have kept recyclers from being overly confident about the strength of secondary commodities markets heading into 2010, leaving many to adopt a wait-and-see attitude for the time being.

A number of questions remain regarding the larger economy. When will the manufacturing side come back? Can the domestic auto industry rebound and start producing a growing number of automobiles? What happens if China decides to withdraw from the market for any length of time? When will the various stimulus packages interjected into the U.S. economy kick in? These macroeconomic questions continue to cloud the recycling industry, putting a damper on secondary markets.

Even though these macroeconomic challenges remain, for those recycling companies that survived the ferocious decline last year, everything seems a bit easier heading into 2010.

What does it all mean? Likely that uncertainty will continue to reign through 2010.