As the global economy slows, Beijing's recyclers take a hit

When the global economy slows, Old Li is one of the first in Beijing to know about it.

As one of Beijing’s many street recyclers, Li makes his living going from door to door collecting household trash: anything from old furniture, to newspapers and scrap metal, before selling it on to scrap dealers. But the last few months have seen Li’s profits take a hit, as the price of key metals and other commodities have fallen amid a global economic slowdown.

Surveying a towering pile of mouldy newspapers and old magazines, Li strikes a hard bargain. “I can only give you 20 RMB (about $3 USD) for that,” he says. Just three months ago, he would have offered 32 RMB (about $5 USD), he said. “In the past few months, prices for recycled paper, copper and steel have all fallen by around a quarter,” he said.

Small-time recyclers like Li are the first to feel a drop in global demand. “Whether they know it or not, these recyclers profits are determined by commodity exchange prices in London,” Adam Minter, China correspondent for recycling industry magazine Scrapsaid. Copper prices began to fall this August, reaching their lowest level for a year this October, while steel prices recently hit a 10-month low. Why this is happening remains a mystery to Li “Don’t ask me to explain it!” he said.

Old Li is used to seasonal fluctuations in the market, as China’s commodity prices usually fall in Winter, after factories ship Christmas orders to customers in Europe and America. But this year, the price drop has come earlier than expected. “It’s a sign of a global slowdown,” Minter said, pointing to slower growth in China’s manufacturing output over the past few months, as well as the uncertain recovery in developed world economies.

The slowdown has reduced margins for Li, who says he now has to get buy on profits of just 1000 RMB a month, no easy feat in a city where inflation pushes up the cost of living by over 5% each month.

Sixty year old Li moved to Beijing from one of China’s poorest provinces, and has been pushing his trash-cart around the same streets for 10 years, where regular customers refer to him as “Old Li.” His 26 year old son is also a street recycler, earning enough to buy a truck to transport the Li family's trash to Beijing’s suburbs, where they sell it to scrap dealers. “Most of the recyclers in this area come from the same province, even the same village,” Li said. Local bonds can come in handy, and the recyclers share tip-offs about potential new hauls of scrap resulting from Beijing's many house demolitions “you need those connections to make the business work,” Li said.

Business isn't as bad as fall 2008, when the effects of the global financial crisis began to impact China. “That was the worst time ever for us recyclers,” Li said. Prices for most commodities were “down by more than half," he said. That was a disaster for China’s recycling market, who were partly rescued by a Chinese government stimulus package worth 1.2 trillion RMB, which boosted internal demand for materials. But China’s recycling firms should be better at coping with a downturn than they were in 2008, Minter explained. “These are much more efficient companies compared to three years ago,” he said.

The majority of Beijing’s recyclers come from China’s countryside, and have an escape route if prices continue to fall “[Recyclers] will most likely return to their homes in the country and sit it out,” Minter said. Old Li has a home in the countryside. “The land there belongs to me, and I can grow crops on it,” he said.

Old Li says he hasn’t heard about the G20 summit in Cannes. But his decision to return to his countryside home, or to continue searching for scrap on Beijing’s inner city streets, will be a solid indicator of whether efforts by world leaders to halt a global economic slowdown have been a success.

Picture: Wordpress.

This post was originally published on Smartplanet.com