ISRI Roundtables: Seeing Red

Red metals traders have been getting used to some very high price points recently, but some in the market wonder whether fundamentals truly merit the $1.70 per pound pricing.

 

Commodities analyst Michelle Hovey of Refco LLC, Hudson, Ohio, told attendees of the 2005 ISRI (Institute of Scrap Recycling Industries Inc.) Commodities Roundtable Forum that while copper market fundamentals are strong, fundamentals do not necessarily determine how the market moves from day to day.

 

She noted that the morning of the Copper/Brass Roundtable, an upgrade in the strength of Hurricane Rita had caused copper prices to rise on the Comex exchange. “A lot of the funds are buying into that,” she said of financial fund managers who speculate on metals futures.

 

Comex copper prices have been rising as much as 10 cents over the Shanghai index price as the hurricane storm season has unfolded. “There’s no reason these prices should be this high,” said Hovey. “On the other side of the world, the Shanghai index doesn’t rise with this storm.”

Copper/Brass Roundtable panelist Allan Sabol of Colonial Metals Co., Columbia, Pa., likened such investing to “ambulance chasing.”

Sabol also wondered aloud whether the anticipated reconstruction boom will do little more than offset the post-hurricane decline in economic activity that has shut down thousands of businesses and business locations along the Gulf Coast. “All of that decline in economic activity, how is that good for copper?”

Rick Rifkin of OmniSource Corp., Fort Wayne, Ind., remarked that when the emotions of fund managers drive the market, pricing patterns tend to become a “self-fulfilling prophecy,” as managers follow one another into and out of the market.

He remarked, though, that after a disaster on the scale of Hurricane Katrina, “there is always commerce that is affected both negatively and positively.”

Hovey says she sees no end in sight to the practice of fund buyers who enter the commodity markets to “buy on the rumor and sell on the news” as a way of predicting market supply, demand and pricing.

The ISRI 2005 Commodities Roundtable Forum was held in suburban Chicago from Sept. 20 to Sept. 22. Some 600 brokers, traders, processors and suppliers gathered for the educational and networking event.