Scraponomics Episode 85: How Micro Events Can Have Macro Effects

Jun 18, 2015, 03:15 PM

“It has been said that something as small as the flutter of a butterfly’s wing can ultimately cause a typhoon halfway around the world.” — The Butterfly Effect of Chaos Theory

For the past couple of weeks, we’ve talked about the possible reasons for the downturn in the market for ferrous iron, like the strength of the US Dollar and China’s housing bubble. Today, let’s discuss one event that poured salt on the wounds of an already hurting scrap-recycling industry: the Longshoremen Union labor dispute.

Please note, I’m not making the case for or against the labor dispute. I’m simply illustrating how it affected the world of scrap.

It seems like a small event in the grand scheme of things, doesn’t it? How could one labor strike on the west coast of the US affect global economics? When the Longshoremen Union decided to go on strike against the Pacific Maritime Association, many cargo ships on the west coast waited to be loaded or unloaded. This drastically affected a lot of industries, including the scrap industry. But why?

Well, it’s one thing to sell your inventory. It’s another to ship it out. Because the scrap industry is market-driven, it’s a good practice to ship inventory as soon as you sell it. In this case, there were a lot of containers full of scrap iron, for example, that were sold in January (at January’s ferrous prices), and ready to be shipped to mills all over the world to be re-melted. Unfortunately, they didn’t go out until February, after the market had already dropped by almost 50%. As a result, a lot of scrap-processors were adversely affected. Friedland was actually OK, given that we only have one location, but we still felt the global economic effects on the industry as a whole.

It’s weird, but true and important, nonetheless, how seemingly micro events can have macro effects.

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