Editor’s Focus

Attendees of the ISRI Mega Roundtables have the opportunity to walk away with a variety of new information, whether gathered from the formal presentations, the question and answer sessions afterward, or from a conversation in the hallway or lobby of the O’Hare Marriott.

This year’s Roundtables were no different, and information garnered there will appear throughout the pages of this issue of Recycling Today. Some of the information can be statistical, some can be anecdotal and a great deal more can best be labeled as opinion. And then there are times when a statistic can lead people to form opinions.

Certainly a statistic in that category may have been one brought to the attention of attendees by James Southwood of Commodity Metals Management Co., Pittsburgh, who made a presentation and forecast at the Aluminum Roundtable. According to Southwood, four years ago, just 15% of the transactions taking place on the London Metals Exchange (LME) were made by investors who had no desire to actually hold the commodity in inventory or consume it to make products. Two years ago, that number had jumped to 35% of all transactions, and today the number is closer to 50%.

Southwood is not the first person to point out this trend, and there have been others in the metals industry who have expressed concern about this change in the LME landscape. Is it important? In the traditional trading market, after all, speculation has always been considered a part of the picture. Morty Schwarz of Trademet Inc., Scottsdale, Ariz., who presented at the Lead and Zinc Roundtable, listed four influencing factors in the direction of the zinc industry: supply and demand, institutional investing, inventories, and sentiment.

What might be worrying some in the metals industry is that if 50% of trades are being conducted by institutional investors or speculators—based on their sentiments—it could cause actual supply, demand and inventory issues to become increasingly less relevant. One has to wonder about the difficulty of planning, forecasting, operating and maintaining margins in an industry that begins to disregard supply and demand in its pricing structure. (Many in the industry will be quick to say it’s difficult enough as it is.)

The counter-argument might be that operating in an economy based on sentiment is nothing new—a significant number of Americans already do so as their company’s net worth changes every working day at 4 p.m. when the stock markets close.

Will speculators and investors who are similarly “buying shares” in the metal of their choice provide a true gauge of the worth of that commodity? And in trying, will they be prone to creating bubbles and troughs that will cause too much grief for too many well-run companies? Waiting for the answers to those questions is what is causing a certain number of ulcers in the metals industry.  

Aside: Detlef Mueller, president of U.S. Ferrous Trading Inc., Greenwich, Conn., noted that Russian exporters have been marketing many ferrous shipments as 70/30, with the larger share consisting of number one heavy melt. “But lately the quality is going down,” he told Ferrous Roundtable attendees. “They are learning fast,” he then quipped.