Back at the end of the summer, Seattle'ês recyclers were riding high. Commodity prices for copper, tin, aluminum, and steel, even paper, were scraping the ceiling, driven by what seemed like an insatiable hunger from China and the rest of the Pacific Rim. Every commodity-laden container ship headed west across the Pacific meant bigger profits for Seattle Public Utilities (SPU), which manages the city'ês recycling program.
That was thanks to one of the recycling program'ês lesser-known roles — as an international commodities futures speculator. Under a 2001 contract, SPU paid the city'ês two waste haulers, Rabanco and Waste Management, a benchmark price to collect the program'ês recyclables — 80,000 tons last year. Then Rabanco processed the stuff and sold it on the world commodities market. If the going price for, say, mixed paper went higher than the benchmark price, Seattle got to deduct its share of the profit from the money it paid to Rabanco to collect the material. If it fell below the benchmark, Seattle added the difference to its collection fee. As commodity prices spiraled upwards through the spring and summer, Seattle'ês recycling program became a quiet little gold mine, and the city made millions.
But that, as they say, was then. 'êAbout a month ago,'ê says George Sidles, a strategic adviser for SPU'ês recycling program, 'êcommodity prices took one of the most dramatic downturns anyone had ever seen.'ê Sidles and Seattle'ês recycling staff watched in horror as the going price for paper, metal, and plastics fell off a cliff as the worldwide recession took hold. Copper, steel, and aluminum prices dropped by 75 percent in a month. Recycled plastic went down by two-thirds. Bailed paper — down more than 90 percent.
'êThere has certainly been volatility in these markets in the past,'ê says Rabanco'ês general manager, Pete Keller. 'êBut not this far; not this fast.'ê Like SPU, Rabanco, a unit of Allied Waste Services, had been making money on Seattle'ês recyclables up to September, Keller says. But those profits were all but erased after September'ês collapse, he says.
Sidles says even with the collapse of commodity prices SPU could end the year with $1 million to $2 million in profit left over from the boom times earlier in the year. But most of the profits will be gone, he admits, and things could get dicier next April when the City and Rabanco are scheduled to begin a new four-year contract. The numbers in the new contract will be updated from the old one, Sidles says, but the basics will stay the same: Seattle will pay Rabanco $27 a ton to process the city'ês recyclables and they both agree on a benchmark price for the commodities. Then they roll the dice on how much the commodities will fetch on the market.
Keller says he prefers to call the process 'êa revenue-sharing mechanism'ê instead of commodities speculation. 'êThere'ês a floor price we agree on,'ê he says. 'êAnd when certain indices are above that price, the City benefits. When they fall below, there'ês some protection for us.'ê
Unfortunately for SPU, the City negotiated its new contract with Rabanco a year ago, while the commodities market was heading up and benchmarks were set high. Since then, the market for Seattle'ês recyclables has gone totally dead. Early this year, says Sidles, China couldn'êt get enough of Seattle'ês recycled paper, using the fiber for feedstock for boxes for all those items that ended up back on the shelf here at Wal-Mart and Costco. Now, he says, 'êPeople who have traveled in China recently tell me they have a huge volume of paper inventory just sitting there.'ê
That means Seattle'ês recycling commodity speculators may have do some energetic backpedaling next year. 'êIf things get out of kilter,'ê Sidles says, 'êwe may see prices go up or down by a few million in cost to our ratepayers.'ê But with 160,000 single-family recyclers and 8,000 commercial customers, SPU spokesman Andy Ryan says, 'êwe don'êt see the exposure to ratepayers as significant.'ê
And Rabanco? 'êWe'êll still be here next year,'ê says Keller. 'êWhen you think in terms of who is more recession prone than us, we'êre probably better off than a guy selling cars.'ê