Skip to main content

Renewed talk of a metals bubble

There is renewed talk of a possible bubble in the industrial metals market, as Bloomberg.com reports in their May 7 piece, "Metals Bubble Poised to Burst on Increasing Supplies".

Here's an excerpt from that article:

Copper, nickel and lead, the best performing commodities in the past four months, may be the worst by year-end.

On Wall Street, the chorus is getting louder that rising metal supplies are outpacing demand. From Goldman Sachs Group Inc. to JPMorgan Chase & Co. to Societe Generale, there are warnings of a mania that is showing all the signs of a climax.

``This is a real bubble,'' says metals trader David Threlkeld, who first got the world's attention in 1996 when he showed that Sumitomo Corp.'s copper hoarding would lead to a market collapse. Once again, ``we have an enormous amount of unsold copper,'' says Threlkeld, president of Resolved Inc. in Scottsdale, Arizona.

The metals bears are convinced that consumption may drop partly because China, the biggest user, is attempting to reduce investment through interest-rate increases and lending curbs after the economy expanded 11.1 percent in the first quarter.

It seems that, once again, a chorus has gone up among investors and analysts who warn metals prices are overextended and due to fall within "x" number of months.

We heard this refrain around this time last year, but many of the individual commodities have continued to march higher in price.

Copper prices plunged from their highs near $4 a lb. last spring, but have stage an impressive comeback since bottoming out in February. Meanwhile, metals such as nickel, lead, and tin have all gone to set new highs.

Still, many investors, even noted commodity bulls like Jim Rogers, remain wary of the action in the metals markets (while recently admitting that they have missed the recent spectacular gains in metals like Nickel). Will further upwards movement confound the metal bears?

Bloomberg picks up on that note:

To be sure, many of the bears were wrong so far this year. An investor who acted on the advice of JPMorgan, the third- largest U.S. bank, missed gains of 67 percent for nickel, 30 percent for copper and 41 percent for lead, the best-performing commodities in the 26-member UBS Bloomberg CMCI Index.

That compares with a 6.2 percent increase for the Standard & Poor's 500 Index and 2 percent for U.S. Treasuries, according to Merrill Lynch & Co. indexes.

``We're sticking to our guns'' because ``prices are unsustainable,'' said London-based Jon Bergtheil, head of global metals strategy at the bank, on May 2. Nickel may average $35,328 a ton in 2007, down from $51,600, because stainless steelmakers might buy less in the second half, he said.

Bergtheil in February said that nickel would decline 25 percent in 2007. The metal, used to make stainless steel, has since gained 40 percent.

Who can tell for sure when prices for industrial metals will reverse course? In the meantime, check the fundamentals and the technicals, and see Zeal LLC's article series on base metals for more info.

Popular posts from this blog

Seth Klarman: Margin of Safety (pdf)

Welcome, readers! Signup for free email updates at the Finance Trends Newsletter . Update: PDF links removed due to DMCA notice. Please see our extensive Klarman book notes below. New visitors, please check the Finance Trends home page for all new posts. Here's something for anyone who has been trying to get a look at Seth Klarman's now famous, and out of print, 1991 investment book, Margin of Safety .  My knowledge of value investing is pretty much limited to what I've read in Ben Graham's The Intelligent Investor (the book which originally popularized the investment concept of a "Margin of Safety"), so check out the wisdom from Seth Klarman and other investing greats in our related posts below. You can also go straight to Ronald Redfield's Margin of Safety book notes .    Related posts: 1. Seth Klarman interviews and Margin of Safety notes     2. Seth Klarman: Lessons from 2008 3. Investing Lessons from Sir John Templeton 4.

Clean Money - John Rubino: Book review

Clean Money by John Rubino 274 pages. Hoboken, New Jersey John Wiley & Sons. 2009. 1st Edition. The bouyant stock market environment of the past several years is gone, and the financial wreckage of 2008 is still sharp in our minds as a new year starts to unfold. Given the recent across-the-board-declines in global stock markets (and most asset classes) that have left many investors shell-shocked, you might wonder if there is any good reason to consider the merits of a hot new investment theme, such as clean energy. However, we shouldn't be too hasty to write off all future stock investments. After all, the market declines of 2008 may continue into 2009, but they may also leave interesting investment opportunities in their wake. Which brings us to the subject of this review. John Rubino, author and editor of GreenStockInvesting.com , recently released a new book on renewable energy and clean-tech investing entitled, Clean Money: Picking Winners in the Green Tech Boom . In Clean

Slate profiles Victor Niederhoffer

Slate's recent profile of writer/speculator, Vic Niederhoffer has been getting some attention from traders and finance types in recent days. I thought we'd take a look at it here too, to offer up some possible educational value from Vic's experiences with trading and loss. Here's an excerpt from Slate's profile of Victor Niederhoffer : " I've enjoyed getting your e-mails. It sounds like you've thought a lot about being wrong. Well, the reason you contacted me, to call a spade a spade, is that I'm sort of infamous for having made a big, notorious, terrible error not once but twice in my market career. Let's talk about those errors. The first was your investment in the Thai baht, which pretty much wiped you out when the Thai stock market crashed in 1997. I made so many errors there it's pathetic. I made one of my favorite errors: "The mouse with one hole is quickly cornered." That is key. There are certain decisions you make in li