As Joe Pickard, ISRI’s chief economist and director of commodities, will tell you, recyclers can be impacted by rising rates through a number of channels including: higher costs of doing business and securing capital; higher mortgage, auto, and other borrowing rates that can weigh on consumer purchasing (the average rate on a 30-year fixed mortgage climbed to 6.29% this week, the highest level since 2008 according to Freddie Mac); dollar strength that can weigh on commodity prices, incentivize imports, and weigh on export demand; and the elevated potential for recession in the U.S. and globally.
But at the E-Scrap Conference and Trade Show on Sept. 20, midway through the three-day event in New Orleans, he sounded several notes of guarded optimism at the opening panel, “The State of the Sector,” moderated by ISRI Electronics Division Chair Adam Shine, president of Sunnking. The session included presentations from Walter Alcorn, vice president of environmental affairs and industry sustainability at the Consumer Technology Association; and Craig Boswell, past Electronics Division chair and cofounder and president of HOBI International.
“Overall, I’ve seen much improvement in the availability of raw materials,” Pickard says. “However, trucking issues continued and production capacity with some industry remains tight. That’s a recurring theme that we hear across all the different sectors with respect to trucking but transportation more broadly. Lastly, demand is softening. However, we are continuing to produce to replenish inventory.”
According to Pickard, global electronics manufacturers recorded a fourth successive reduction in output levels in August. The contraction accelerated and was the strongest since June 2020. The seasonally adjusted New Orders Index slumped further below the 50.0 no-change mark in August, signaling a sharper deterioration in demand for electronic goods. At the same time, supply chain pressures have eased a bit, but the labor market remains tight.
“We have seen that across the base and precious metal spaces this year, gold prices are down between 8% and 9%, for the year to date,” Pickard explains. “With the exception of nickel, and palladium, all of the major precious and base metal prices have come under significant pressure this year, again, as the dollar appreciates, and as there’s concern about a slowing global economy, and more recently, significant concerns about how the COVID-induced shutdowns in China are affecting the property sector there.”
Stimulus measures from the U.S. government could provide relief for recyclers, including the $1.2 trillion infrastructure package that includes the RECYCLE Act; executive orders on clean energy industries and critical minerals; and the Inflation Reduction Act. Incentives for recycling and battery production, as well as North American sourcing of critical minerals, should give recyclers some openings.
“Looking forward, the Federal Reserve is only projecting 1.7% growth for the entirety of this year, given the fact that the economy contracted 1.6% in the first quarter and was down 0.6% in the second quarter,” Pickard explains. The 1.7% might be a little ambitious, he says. “I think if we get to plus 1% growth for this year, which would be about as good as we could hope for. They’re also projecting 1.7% growth into 2023. And then a slight uptake uptick, into 2022-24 at 1.9% growth.”
Pickard notes the central bank risks raising interest rates too aggressively while trying to balance the labor market, which will be slow to reflect the deterioration that’s already showing up in housing, retail pricing power, and economic conditions abroad.
Alcorn says recyclers and manufacturers are working together more than ever to ensure that their economic interests are compatible with new legislation, like California’s SB 1215 and AB 2440, which Gov. Gavin Newsom signed into law Sept. 16. AB 2440, the Responsible Battery Act of 2022, sunsets the existing Cell Phone Recycling Act of 2004 and the Rechargeable Battery Act of 2006, creating a singular extended producer responsibility (EPR) program for batteries within the state. SB 1215 expands the Electronic Waste Recycling Act of 2003 (EWRA) to include battery-embedded products and broadens the EWRA’s definition of manufacturers.
California’s e-materials collection is financed by an advanced recycling fee that consumers pay at the point of sale. “Fortunately, they put the implementation of the program six years out,” Alcorn says. “So, there’s going to be time to work through any details and make some adjustments along the way. We continue to work with our partners in the recycling industry and are very much open to new ideas and new approaches.”
Speaking of new approaches, Boswell discussed the concept of value-added information technology asset disposition or VITAD. “We’re really seeing a shift, a lot of external forces impacting the [recycling] industry that are changing our traditional base services: logistics, data security, recycling, reuse, reporting,” he explains. During the height of the pandemic, recyclers’ clients couldn’t get brand-new equipment or critical materials for manufacturing.
“They want us to reconfigure and redeploy assets, and they want us to re-provision cell phones, because they can’t get new phones, and redeploy those. This business is a supply side business. So, we say, ‘Sure, we’ll do those services for you,’” Boswell says. The trick for recyclers is figuring out how to monetize those services that customers were getting for free.
“To our benefit, in some ways, we’re being looked at as a value-added partner in their IT or telecommunication infrastructure. This is great for our industry,” Boswell continues. “We look to work with manufacturers, [add to] the sophistication of our services, and [grow] our understanding of data security and legal compliance. It gives our industry so much more traction. But again, it’s not free.”
Recyclers should expect a continued tight labor market, volatile commodities markets, continued inflation, and no quick fix, according to Pickard. “I think the seeds for improved economic conditions are already kind of in place,” he says. “We came out of a massive downturn in the economy because of the pandemic, where we lost more than 30% of non-farm payrolls in one quarter. It’s hard to recover quickly from that massive contraction.
“There are indications that supply chains are starting to get better, whether that’s on chips, on container traffic, where we’re seeing a little bit better container availability and pricing. As more people are coming into the labor force, that’s going to improve some of the supply chain constraints that we’ve seen, because part of that has been labor driven,” he says.
Photo courtesy of ISRI. Caption: Joe Pickard discusses economic indicators as CAT’s Walter Alcorn and HOBI’s Craig Boswell listen.
