Daily Speculations
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The Sun-Baked Speculator
Tom Ryan
6/11/2005
Coppering the Copper Market, by
Tom Ryan
Recently back from two days spent with Phelps Dodge at their annual confab. Two striking notes:
At the risk of sounding like the world-traveling investment biker, what all this means to me is that the next time copper dips down into the 70s or 80s, and the world is spiraling into recession and the doomsdayers are having their say, I am going to quit stock trading and load up on copper contracts and just roll roll roll them as I am convinced that the next major cyclical low in Cu is going to be substantially above the last (60s) simply because there is no new development being invested in during this cycle and without it, there is going to be a Talebian quality in the copper market of relying on ever increasingly deeper pits and higher risk production profiles which the companies are laying off onto certain insurers. As for the physical metal that is another story
Bingham and Grasberg both will wind down before end of decade and although they will switch to underground, the production won't be matched. In other words there is a natural decay in the future supply curve that is currently not being offset by new investment, I guess the incentives are just not high enough yet.
Jim Rogers responds:
Now this is a smart guy. Sounds like he has read or should read Adventure Capitalist and Hot Commodities.
There is a good chance this commodity bull market will be the biggest ever for a variety of reasons -- including his. The same thing is happening everywhere.
Kim Zussman comments:
Naive question about commodities: shouldn't there be differences in price behavior for those, such as metals, that don't disappear? Assuming a finite amount of oil and copper in the ground, even when most is extracted the oil is burned and gone but copper in some forms can be recycled.
Perhaps the rolling of contracts moots this.
In any case it might behoove investment types to visit a scrap yard. I wonder what might be extractable from that which is already above ground and whether (anecdotal) wealth of recyclable proprietors is diagnostic.
(Countless hours spent as a teen at Apex Electronics, an iconic 1970s San Fernando Valley, Calif., purveyor of unloved and discarded aerospace gears, gyros, transformers, etc. Their products were popular with studios making sci-fi flicks, but were also useful for making contraptions to impress your friends. Nothing was priced. I eventually figured out that the counter-man's ask was based on the look on my face. Never did find plutonium for July 4th, but then again it wasn't Russian surplus.)
The Senator explains:
The difference in commodities is between how natural resource commodities trade versus abstracts (man made) such as bonds, currencies, S&P 500 -- price structures (carrying charges) are different as are COT report data. And valuation models of naturals are different than the abstracts. You need to break commodities down into those two camps to understand (trade more profitably).
From the Webmistress:
(Lyrics in honor of Tom Ryan, to the tune of "Rawhide")
Roll 'em, roll 'em, roll 'em
Keep those contracts rollin'
Think of all that growth in
Shanghai
They'll all want copper
Copper's a whopper,
Ain't enough copper
Supply
Buy 'em up, roll 'em over,
Buy 'em low, sell 'em high,
Move 'em on, sell 'em off, Free Ride!
Buy 'em out, ride 'em in
Roll 'em over, let 'em out,
Cut 'em out, ride 'em in, Free Ride!
Free ride!
Free ride!
