Recycling Costs a Great Early Warning Indicator – Signals from the Frontline

February 18, 2009

in general

I received the following in an email from a colleague who’s been working in the brand and product development area for years. I found the “snippet” interesting as a another great little “signal” for something that is much broader and more dramatic. It’s what I call an upstream signal. One that tells you we really haven’t seen the worst of it.

I’m fairly certain the economy is headed for a much bumpier and perhaps disastrous ride for many companies. I think  the numbers she quoted to me are just the tip of the iceberg.

Recylables are piling up in storage buildings, in people’s backyards, and even on floating barges going nowhere, because the market for recycled raw materials has declined precipitously with the worldwide economy. As one expert put it, “When nobody is making nothing, they sure don’t need to make it with recycled materials.”

Recycled paper, that a year ago sold for $105/ton, is now fetching $20-25/ton. Tin has declined from $325/ton to $5/ton. The prices for recyclable plastic, cardboard, and other materials have experienced similar declines. For some recyclables, there is now essentially no market.

Cities are facing a quandary. Recycling programs that used to be profit generators have suddenly turned into expenses. Some small towns have suspended their programs, asking residents to stockpile recyclables in their backyards until the market turns, or simply send everything to the landfill because it is cheaper. Recycling companies are facing severe financial issues, with some saying that their income declined 90% in Q4 2008. They have stopped taking materials with weak demand, and they are limiting their total intake because they cannot afford storage fees. Some businesses that previously recycled because of the economic benefit are being put to the test: will they continue if it is only good for the planet and not good for the P&L too?

She then asked some questions focused on Recyclables. However, I think the issue is broader and the challenge to companies much more than recyclables.  A 40% drop in sales or value is easily likely (looks like it already happened in recycled materials) it’s a good upstream indicator of what is to come. It also means those holding current inventories of recycled materials will have huge financial write-downs coming.

I believe it is really a creative time to help companies think forward while taking radical action. Ex. What if the CEO asked. What would we have to do to reduce the real price by 25% on all our products? As a direct question it’s impossible for any CEO to ask this. Yet indirectly they probably should be.

Another signal. I read just yesterday about Apple’s troubles in sourcing components for it’s new iPhone. Probably some opportunities out there to use up some old inventories imaginatively….

{ 3 comments… read them below or add one }

Andrew February 19, 2009 at 6:30 am

Interesting, on the flipside – I have a friend that works for http://www.geepinc.com – a worldwide leader in recycling e-waste. They are booming. They refine computer/electronics down to plastic and precious metals, and turn waste plastics back into diesel fuel to run/heat the facility and its machines.

They are BOOMING… Perhaps the problem isn’t excess recyclables, but ‘collecting’ without refining to base material is a dying business.

Stuart February 19, 2009 at 9:30 am

Andrew,
Perfect example of one persons signal is another persons question. I presented one in isolation without context other than “general” and you have another example. It’s part of the fun that goes into creating scenarios which are only alternate futures that may or may not play out.

One comment I’d make about my recycled example is.. it is a now event. However, if you had been working in the recycling industry (for this type of recyclable) you probably could have seen this one coming for years just by looking at the amount of capacity that was being added. One industry’s early warning indicators are not the same as another. There are enough to know we are generally in trouble. As for your friend there’s plenty of downward pressure on commodity prices today.

It’s the old question…. what can we do? what should we do? what will we do? the “can” is way to limiting without a broader perspective.

Andrew February 19, 2009 at 9:41 am

Me too business never lasts beyond the initial upturn (in General), I agree with you. In Geep’s example, they are profitable by just handling difficult recycling for Dell, Acer etc.. the foresight to take the pieces and turn them into another business, is where they separate themselves from the me too’s..

Usually the ‘what can we do’ is limited by resourcefulness not resources..

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