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High anxiety.

The 1970s pop song "Anticipation" noted that the waiting game can be excruciating. Although songwriter Carly Simon was not alluding to the commodities markets when she penned the tune, sellers and buyers of scrap materials find themselves in a similarly breathless situation with current markets.

While lofty scrap metal and paper prices can bring great benefits, companies along all points of the recycling chain can also find themselves behaving defensively in a high-stakes market.

Among the defense mechanisms often cited is one that many managers might also consider a best practice: keeping inventory moving through the system as quickly as possible.

Perhaps they are simply not admitting to it, but very few recyclers seem willing to speculate on scrap values rising when copper is trading in the $2.50-to-$3 per pound range or ferrous scrap is being purchased for $300 per ton.

For the most part, the production woe facing metals recyclers is a lack of inventory, not a lack of space.

As paper recyclers have enjoyed a bump up in values in the first quarter of 2007, they too have been experiencing the pressure to move material into the market while prices are favorable.

Prices that have been stable-to-soaring (depending on the secondary commodity) for the past three years have yielded comfortable margins and the necessary confidence for recyclers to invest in processing equipment and other capital improvements.

But even during a boom market like the current one, veteran recyclers always retain a nagging thought: Commodities pricing is cyclical.

Market fundamentals offer many reasonable scenarios that would have this boom extending for many more years. After all, it is unprecedented in human history that some 2.4 billion people in two nations (China and India alone--not even considering other parts of the developing world) are moving from agrarian to industrial or post-industrial society.

But whether it is cynicism or simply practicality, recyclers remain keenly aware that behind every silver lining lurks a black cloud. Throughout the current boom, concerns about unsound lending practices in East Asia serve as a background story of the economic boom there.

China has swiftly emerged as the sponge that soaks up the supply of scrap. A sudden downturn in its economy is universally regarded as a final buzzer that can bring the current boom market to a halt.

As recyclers prepare to convene for the ISRI Convention in mid-April, they will certainly be pleased with recent market conditions. At the same time, they will be aware of and braced for those conditions to change.
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Title Annotation:EDITOR'S FOCUS
Author:Taylor, Brian
Publication:Recycling Today
Date:Apr 1, 2007
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