Commodities Bubble

[rogercbryan]

Commodities Bubble

This has been brought up in previous threads. I just wanted to see if anyone else deals in commodities such as salvage metals. I’ve seen such a significant run-up in scrap prices lately that I fear the bubble is getting near. I know some say that global demand is fueling this run up, but I’m beginning to think there may be some speculation going on.

Here is a list of scrap car prices in the DC market:
Direct Auction
Dec 07 $100 $100
Jan 08 $100 $125
Feb 08 $125 $125
Mar 08 $175 $150
Apr 08 $200 $200
May 08 $275 $450

Here is a list of scrap car prices in the Cleveland market:
Direct Auction
Dec 07 $100 $185
Jan 08 $100 $185
Feb 08 $125 $200
Mar 08 $150 $230
Apr 08 $200 $300
May 08 $225 $525

I can’t complain because I’m making a killing right now but I’m struggling to find a proper position to take in order to be ahead of the bubble. I’ve now lived through the dot com bubble and the credit bubble which makes me fear that the commodities bubble is next. I’m trying to be smart enough to give this real thought now.

Any opinions or advice would be greatly appreciated!

*Whats the best way to get a chart to look good in a post?

[jasaunders]

I don't think metal demand has gone up 450% in 6 months, its just not likely. Speculation probably plays a large role. You would be wise to hedge against further increases by taking positions in the futures or options markets if it would affect your business.

[JLeezer]

*Whats the best way to get a chart to look good in a post?

Since HTML is turned off, I'd say make it in your choice of spreadsheet apps and then screenshot it and post it as an image. There's got to be a better way, but I'm not sure of it. I screenshot stuff all day long at work, so I'm sure that's why it would be my natural tendency to go that route first.

BTW, congrats on the scrap metal prices. Hope they last a bit for you and you get some warning before the bubble pops.

[rogercbryan]

I don't think metal demand has gone up 450% in 6 months, its just not likely. Speculation probably plays a large role. You would be wise to hedge against further increases by taking positions in the futures or options markets if it would affect your business.

When you say hedge against further increases in the options markets what strategy would you recommend? When dealing with a bubble I'm thinking a straddle at current rates would be the best hedge for a steep movement play?

I'm not a seasoned veteran of options (stock) but I have played around with them a bit in the past. How would I go about trading commodity options?

[rogercbryan]

Since HTML is turned off, I'd say make it in your choice of spreadsheet apps and then screenshot it and post it as an image. There's got to be a better way, but I'm not sure of it. I screenshot stuff all day long at work, so I'm sure that's why it would be my natural tendency to go that route first.

BTW, congrats on the scrap metal prices. Hope they last a bit for you and you get some warning before the bubble pops.

Ahhh... a screen shot... thats a great idea! TY