Lordy Be They're Screwing Up The Scrap Metal Market

Because they don't understand the economics, of course they don't

The government is being insane here:

Shoppers face a £1 billion “toaster tax” under plans for a new set of net zero rules, retailers and Conservative MPs have warned.

The Department for Environment, Food and Rural Affairs (Defra) has unveiled plans to require larger shops to “take back” used electrical items such as toasters for recycling, even if the items were bought elsewhere.

The plans would also see online and high street retailers required to provide a “free of charge collection on delivery service” under which they would have to take away a customer’s old appliance, such as a washing machine, television or fridge, if they were delivering a new one.

That’s not the right way to do it. As the same newspaper, on the same day, runs this story:

“This is where the magic happens,” says Harry Taroni, as he flashes a grin to the camera following him.

The 20-something metals trader bounds over to piles of discarded washing machines, cookers and other household appliances being unloaded from white vans in his family’s scrapyard in Birmingham, where they are known locally as the “scrap kings”.

Every day, the Taroni clan haggles over a steady stream of catalytic converters, brake discs and machine motors, as well as other items supplied by a colourful mix of “tatters” – Midlands slang for the crews who comb the streets looking for discarded metals.

We already have a system of dealing with end of life metals containing products. Scrap metals dealers. So, a grand new system drawn up on a blank sheet of paper by ignorants is not the way to do it. But, obviously, that’s what government is now doing. This is not a grand advertisement for government as a way of getting things done.

Now, it is possible that it’s possible to make this all work better. But as with the Nordhaus prescription about climate change and, to a lesser extent about the Stern one, the way to make markets work better is to work with the grain of markets. See what’s there, see what’s not - quite and wholly - going on and go from there. Fill in that gap.

Now, true, scrappies are distressingly likely to wear sheepskin car coats, possibly drive a Jaguar Mk II and some of them might even be of Traveller or Gypsy extraction. Tsk.

But we’d remind of the Mayor of Most in Czechia. He was being browbeaten by the central authorities for not setting up an environmental recycling scheme. His speech to his constituents was simple enough - why bother, we’ve already got Gypsies. He continues to be elected down the decades.

It can indeed be true that we require a recycling scheme. Even that the one we’ve got requires tightening up. But any recycling scheme that works, works.

If we desire some tightening up - the crucial thing is to understand the economics of scrap. Which is that the value, per piece, rises the more pieces you have. In this it is entirely unlike, actually an inversion, of normal pricing.

We all know that stuff’s cheaper wholesale than retail. A container of computers is cheaper per computer than the one computer off the shop shelf. But you do have to take 10,000 of them at a time. A bushel of apples is cheaper per apple than the one bought alone from Pret. Obvious, innit?

Scrap - but always - works the other way around. One catalytic converter is worth some amount for the platinum, palladium and rhodium in that ceramic honeycomb. This is why they get stolen, because there’s value there. But the process is that each one needs to be stripped, steel (and a part of it will be nickel steel, higher value) and that honeycomb separated. You keep doing this until you’ve a couple of tonnes of the honeycomb (500 to 4,000 cats) which you can then send to the platinum refiner like Johnson Matthey. The value of each cat rises as you bulk up from one to 100 to that 4,000 that can be the final part of the scrap process. This is also true of steel - we’re trying to get to a 50 tonne charge we can put into a furnace. Of copper, we want tonnes at a time etc.

The value of each piece rises as it is aggregated with more pieces. This means that a major part of the cost is the collection process - we can also run that the other way around, it is the costs of the collection of dispersed items that makes the values rise through aggregation.

This isn’t good nor bad it just is. This is also how scrap yards make their money, that difference in value between retail scrap and wholesale - that rising value from retail to wholesale. Obviously, must be, they’re making a living out of aggregation, therefore aggregation must add value. A scrap yard is, really, the opposite of the retail distribution system.

OK. So we think that our scrap system isn’t working well enough. So, what should we do? Obviously, increase the incentive to do that aggregation which produces the value add.

On Thursday, a kilo of steel from bike frames or washing machines fetched about 18p (£180 per tonne), while brake discs are valued at 28p per kilo and car batteries about 58p, notes Hayley, Harry’s older sister.

Other finds are worth even more. Copper stripped out of cabling – known as “dry bright” to scrappers – is particularly sought-after, fetching £6 per kilo (or a whopping £6,000 per tonne).

We don’t need to worry about prices once aggregated at retail level - they’re already positive. But we might need to push up the incentive to those tatters who bring in to aggregate at that retail level. Because, you know, we might have an absence of tatters.

OK, stick a deposit on everything we think should be recycled, a deposit that is paid out - cash - to those who bring in something to be recycled. Job’s a good ‘un. The deposit needs to be high enough to attract Bob a Job week Cub Scouts and too low to attract thieves. So, tens of pennies to low single digit pounds on bigger equipment. And we’re done and dusted.

Rather than, say, insisting that every retailer in the country then sets up another and parallel to the extant one collection system. That’s just crass idiocy.

The most contentious proposal is for “retailers with a turnover of over £100k of electrical sales each year to provide free takeback of unwanted electrical equipment in store without the need to purchase a new item”.

That’s worse, obviously, that’s crass moronity. Because you’ve now created a valley of death for any growing business. Someone doing a bit of light retailing of electronics cannot grow their business past that £100k level because suddenly they face that cliff edge of having to take back. Something which only someone doing tens of millions to hundreds of millions of trade can afford to do.

Far better to energise the tatters to do it for the whole country.

So, the method decided upon by government is at least crass stupidity and edges, at times, to crass moronity. Welcome to the way we are governed, welcome to the State We’re In.

But, yes, it gets worse. For there’s also this:

Ms Dickinson said: “We think [the bill would be] in the hundreds of millions of pounds plus, and could be £1 billion or more.” The cost would be borne by retailers rather than funded by revenue already raised via business rates and council tax.

OK, so let’s just pretend that’s a £billion. A positive number at least.

So, why are we trying to recycle? To save resources of course. Resources are those scarce economic goods like capital, labour, land and - if we want to go that far - precious mineral resources like iron, steel, copper and lead and so on. But they’re all scarce resources. So, saving resources is about minimising the usage of, minimising the non-reuse of as well, each and all of them. We’ve even a way of calculating this - price.

Something that costs more to do is using more resources than something that is cheaper to do. Because we’ve always got to pay to use scarce economic resources therefore something that uses more resources is more expensive - or, something that is more expensive is using more resources.

So, here’s an insistence that we should save resources by spending an extra £billion on using resources.

We’re fucked if we’re ruled by cretins like this, aren’t we?