October 5th, 2010
By Jennifer Maule, Arizona State University A.S.U. School of Business, Intern for E.C.A.

The markets that thrive off of recyclable materials are highly dependent upon economic and social indicators. The volatility of the markets creates business environments that are extremely responsive to fluctuations in the supply and demand of such materials. Business relationships are another heavily relied on indicator, but is a topic saved for next month’s newsletter. However, to show the extreme importance of such relationships, a general overview of the social and economic factors that affect market prices follows.

Social Factors:

* The current amount of education and awareness being delivered to consumers can affect the market prices of recyclable materials. A large amount of people that are aware and educated in the benefits of recycling can create a positive affect on supply and demand. More people will be recycling and a higher awareness to buy goods made from recycled materials will occur. When the curves are positively moved together the market prices of materials are raised to a satisfactory level. When there are few educated and aware people, the supply and demand curves are affected negatively. A lesser amount of people will be recycling and a lower amount of goods made from recyclable materials will be demanded. Ultimately resulting in low prices, but also resulting in low market activity.

* The current political business atmospheres of trading nations can affect the supply and demand of recyclable materials. Take for an example; if the Chinese government were to become hostile towards its United States business partners, many of those partners would pull out their businesses. This can affect the supply of materials being exported from the United States to China, which will raise the Chinese market prices. Taking this example in its current standings, China is friendly towards the United States business culture, which has been creating a steady demand and supply of recyclables that keep the market prices at a relatively steady price.

* The type of press that the recyclable markets receive can create either cause a positive or negative outlook on recycling; resulting in market dependence on the opinion of the majority. An overall opinion that recycling is bad would negatively affect the supply of materials coming from the private sector to the markets. The demand of the goods that come from the re-processing of recyclable materials will also be negatively affected. Coupled together, the two negative effects in supply and demand will result in extremely low prices. When the overall opinion is that recycling is a necessary economic activity, the effects on supply and demand will be positive. The supply of materials from the private sector will increase lowering market prices; the demand for the goods of production will increase, resulting in a higher market price, but one that is satisfactory to the amount demanded.

Economic Factors:

* The current price of energy needed for all aspects involved in the transporting, re-processing, and production of finished goods affect the market prices of recyclable materials. An increase in energy prices will result in higher market prices intended to counter the loss of profit from higher supply chain costs. Likely, a decrease in energy prices would result in a higher demand for materials because more material per dollar can be purchased. Another factor to consider is the volatility of the plastic market prices because of the sectors dependence on petroleum, the main component of plastic. This high dependence on petroleum makes the plastics market very responsive to the fluctuations within oil and gas prices. All of the world’s economic activities are somehow impacted by the costs of energy; making energy prices an important market indicator.

* The price of technological needs through the entirety of the markets, have direct impact on the supply and demand. If the technological needs are expensive it will create a lesser demand for the materials. There will be fewer amounts of firms that could participate in the markets resulting in a smaller base of needs. A lower technological cost would result in just the opposite response.

* Exchange rates of trading nations are a major market indicator that can affect the flow of business coming in or going out of a nation. Let’s look at an example: Coming back to China, they purchase recyclable materials from many nations including the United States. Now if another major trading nation with China has an exchange rate that is lower than that of the United States, China will take its business to the other nation. The lack of export demand in the United States from China will result in the United States market prices falling. This can be related to the laws of supply and demand; if a sudden dramatic decrease in demand hits the United States market, the market prices will decrease in direct relation. On the other side of the spectrum, if the United States has the lowest exchange rate then more export demand will come from China. An increase in demand that will lead to higher prices that reach a level as to satisfy the demand and supply levels of recyclable materials.

In conclusion, the markets that are involved with recyclable materials are highly volatile and highly dependent upon the influences on the laws of supply and demand. The main idea that needs to be taken from this discussion is that there are many social and economic factors that can affect supply and demand of not only materials but also finished goods. Understanding these influences and what they do to the markets is a proper foundation for the continuing learning of how business relationships are a key necessity to the markets involved with recyclable materials.

For a more detailed understanding of the laws of supply and demand follow this link: www.investopedia.com/university/economics/economics3.asp