The relevance for MRF operators is that some companies, like newpaper
publishers such as times Mirror, are now buying this kind of insurance for
the pirce of newsprint. If the company's newsprint cost goes a certain
level above a standard industry index, the insurer will pay at least some
of the excess cost.
This, in essense, is another form of options hedging that is increasingly
being offered to MRF by firms like Enron to protect against wild market
swings in the price paid for scrap materials.
What piqued my interest is that the insurance industry is notorious for
offering high cost products. If they think that they can compete with the
options firms, does that say that the current terms being offered by option
traders to us are also at a hefty premium? Will the competition between
the two industry's for our business bring down the cost of commodity swing
protection?
These are the questions that we should begin finding answers to if a
significant number of programs are going to be in the market for some form
of insulation from commodity swings.
____________________________________
Peter Anderson
RecycleWorlds Consulting
4513 Vernon Blvd. Ste. 15
Madison, WI 53705-4964
Phone:(608) 231-1100/Fax: (608) 233-0011
E-mail:recycle@msn.fullfeed.com