So, remember all those posts I had back in the spring about peak oil, peak travel, peak globalization, peak food, peak population, peak suburbia, et cetera?
Yeah, about that.
Let the record show that I have no idea what I'm talking about.
The big trend at the beginning of the year was that the base price of all kinds of raw commodities -- fuel (oil), food (milk, corn...), building materials (steel, cement) -- where in tandem hitting historic all time highs, with all kinds of nasty secondary effects. Americans lost interest in
big, expensive SUVs, and started
taking mass transit to work. People in places like Haiti had
food riots. Shipping costs started to become prohibitively expensive, threatening
globalization itself.
Now, things have gone in completely the opposite direction, less than six months later.
JEREMY HOBSON: The Baltic Dry Index measures the price of hauling sea freight. It hit an all-time high in May, and it's fallen 85 percent since then. Part of the reason is a drop in Chinese demand for raw materials like iron ore and coal, which make up a significant portion of worldwide dry shipping. But, says Douglas Mavrinac, the head of Shipping Research for Jeffries and Company...
DOUGLAS MAVRINAC: A significant portion of that decline has to do with the credit crisis, and banks aren't issuing letters of credit to companies to facilitate global trade.
Just like other industries, sea trade relies on a constant flow of money from banks -- loans for the producers of commodities, which have seen their value drop dramatically in recent months and loans for the shippers themselves.
Got that? Fallen 85% since May.
And that's not even taking the effect of
Somali piracy into account.
At the same time, there's
a shortage of shipping containers that is holding back the shipping business as well, and while I'm not totally clear on how the container shortage jibes with the plummeting cost of freight, it looks like the same root cause might hold sway: the credit crunch.
But hold that thought, let's take a few more examples.
At the municipal recycling center in Branford, Conn., residents drop off all kinds of items: cans, plastic, paper, cardboard. So far this year, Branford — a town of 29,000 on Long Island Sound — has earned about $93,000 from selling recyclables. But solid waste manager Peg Hall says Branford soon may have to pay to dispose of certain items, such as mixed paper.
In the past, Branford has sold much of its paper to an intermediary that sells to China mills, which recycle it into packaging and cardboard boxes. But the economic slowdown has lowered demand for packaging, says Scott Taylor, a vice president at America Chung Nam, the world's largest exporter of recycled paper.
Taylor, who is based in Jersey City, N.J., says America Chung Nam was buying 400,000 to 500,000 tons of mixed paper a month this summer, when "you could get $70, $80, $90" for a ton. But prices collapsed in October, he says. As of late November, a recycling company had to pay $5 to $10 a ton for its removal.
[....]
DeVivo points to a mountain of paper. A few months ago, it was worth $56,000, he says. Now, "I can't sell that for the life of me. I have to pay a paper mill to take it away."
This summer, the plastic used to make water and soda bottles — polyethylene terephthalate, or PET — sold for $300 a ton. Now it's down to $20. Tin is way down, too.
Got that? Communities were making money from recycling a few months ago. Not a lot -- maybe enough to pay the wages for 2 or 3 people operating a garbage truck all year -- but in the black at least. Now, they have to pay someone to take it away, and while it's still cheaper than just throwing it all in a landfill, it's not much cheaper, and that could change too.
Finally, consider gasoline. Last summer, it
rose above $4/gallon in most of the country. Around here, it went well above $4.50/gallon for the "cheap" grade, and pushed $5/gallon for the premium grades. [The photo is of a marine gas pump, which always runs more expensive than automotive gas, but not that much more expensive.]
Why?
That pesky credit crunch again.
And
just as before, the best updated overview of the credit crunch is
another scary episode of
This American Life. They aren't really talking about what's happening to the commodities markets that I'm mentioning here, because all of this is in a way aftershocks from what's happening -- or not happening -- in the world of high finance.
The way I've been thinking about it, which may or may not be on the right track, is like pulling a slingshot until it snaps. The spring & summer were the pull back, the financial collapse back in September was the snap, and now we're seeing the broken rubber bands laying flaccidly on the ground, unable to propel anything any more.
What will fix this? How long will it take? I'm not going to hazard a guess, other than to fear that it could be a long, long time.
Recent Comments