The Market is crashing! Breathe. It will be OK.
Our industry is going through some turbulent times. Stop…take a deep breath, it will all be OK.
If you made it through this week, you no doubt had some sort of panic attack. If you watch CNBC, it was caused by the nonstop coverage of the stock market volatility caused by China’s economic slowdown and the drop in oil prices. If you are busy buying or selling plastic scrap, you probably realized that orders slowed down significantly while prices took a hard turn downward.
Trust me, it will all be OK.
At BlackBridge, when markets correct, we turn inward and focus on our core competency, which is outstanding customer service. As a brokerage, our job is to make sure that our customers / vendors are well diversified in a way that helps soften the blow of a market correction or downturn. We look at our job in a similar way that a financial adviser looks at a mutual fund. A mutual fund is a basket of selected stocks that allow any individual investor to diversify their assets in a simplified way. We explain to our customers that when they work with BlackBridge, we bring the same level of diversification to their scrap portfolio that a mutual fund brings to the stock market. Any facility that produces a steady stream of recyclables needs to be properly exposed to both the domestic and export markets. That is our speciality.
Oil or China, your pick
Is the price of oil driving the price of scrap plastic down? Or is the overall economic slowdown in China causing the scrap plastic export market to dry up? Our opinion is that it’s a combination of both of these driving forces, along with other factors, with an unhealthy dose of media hysteria as an added kick. When everyone talks about how bad the market is, people begin to panic. However, the oil market is already finding a bottom, and other countries are starting to see opportunity in the supply of scrap plastic that China would normally purchase.
Is there too much supply of scrap plastic?
As the price of a commodity drops, vendors begin to panic and begin offloading their scrap in fire sales, because they are afraid that if they don’t sell now, they may be forced to sell at a lower price in the future. This is an understandable position, and one that we advise our clients to take in a falling market, but it is also contributing to the rapid decline in prices. Fire sales cause a rapid increase in supply, which does nothing but further tip the supply / demand scale, resulting in further price declines. As the supply of cheap plastic rapidly increases, like we saw this week in Curbside PET Bottles, end users take in too much material too quickly, forcing them to drop out of the market earlier than expected. End users run out of storage space and leave the market too early, which leaves a lot of supply on the table. This drop in demand, combined with increased supply, drives the price even lower.
What is the answer? How do we get through this?
Every new market correction or temporary media panic requires us to step back and have a healthy sense of historical perspective. The truth is, we’ve all seen this before. Whether it was the Green Fence or the Great Recession of 2008, the market has seen rapid contraction before. Markets are efficient and when prices get very low, new buyers enter the market. Our opinion is that we may see prices slide a little longer but the bottom isn’t far away. Hang in there!
Earlier, we spoke about core competency. Our opinion is that MRF’s should focus on quality. In a contraction, customers will be looking for deals and the not so honest end users may be looking to exploit downgrades as a way of driving the price down further. Your material needs to stand out from the pack if you want to get the highest price. Turn inward and ask yourself if your company is operating at peak efficiency. Are there projects or practices that you have been wanting to implement that could improve efficiency and quality? Now is the time to make those changes. Often when the outside world is panicking, that’s the best time to calmly look inward and do the quiet work of improving your internal operations.
Brokerages should also focus on quality. At BlackBridge we have implemented a morning brainstorm that allows our entire team to come up with new ways to help our vendors. We have doubled down on customer service and are spending twice as much time on the phone (not e-mail) with our clients. Personal engagement is valuable in times like these because it allows us to learn of any explicit needs that we may help with. We have navigated through these storms before and we can coach you through it to the best of our ability.
Just remember, this is a market, and markets MOVE. When prices fall quickly, it becomes a buying opportunity. When the opportunity becomes too good to pass up, demand will increase as buyers come back into the market. This increased demand will move prices up again. It may not happen overnight, but there is no doubt that it will happen.
If you’d like to discuss the market or find ways that BlackBridge can help you diversify your exposure, my direct line is 800–449–5084 x101. I am available between 9am–5pm EST, and we’ll make sure to take care of you.
Are your customers and trading partners staying calm, or freaking out? How has the economic volatility affected your scrap plastic trading business? Let us know your thoughts on the market, and what issues you are facing in the comment section below, and we’ll do our best to address each need personally.