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 the Refco LLC office in Hudson, Ohio, told attendees of the 2005 Institute of Scrap Recycling Industries Commodities Roundtable Forum that while copper market fundamentals are strong, they do not necessarily determine how the market moves daily.

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 above 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."

Panelist Allan Sabol of Colonial Metals Co., Columbia, Pa., likened such investing to "ambulance chasing."

Sabol also wondered aloud whether the anticipated reconstruction boom would do little more than offset the post-hurricane decline in economic activity that has shut down thousands of businesses 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., said 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 added, though, that after a disaster on the scale of Hurricane Katrina, "there is always commerce that is affected both negatively and positively."

Hovey said 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 production of red metals in China is likely to remain at its new lofty level, which should keep copper trading at the top end of its range for the near future, according to presenters.

"I think you'll see continued high prices," said Refco's Hovey. She predicted that copper would trade on the Comex market at an average of from $1.45 to $1.55 per pound in 2006. "China is going to remain the biggest consumer of finished copper," she added, saying that the nation now consumes about 20 percent of the world's copper.

On the supply side, new mining capacity is coming online, LME inventories are starting to build back up, and projected supply should exceed demand sometime next year.

But thus far, the market is not reflecting these renewed supply factors. Hovey said copper trading at $1.70 is higher than she thought it would reach, so she will not be surprised if her $1.50 forecast for 2006 is low.

Other panelists backed the notion that market fundamentals are sound. David Lane of heating and air conditioning manufacturer Lennox International, Richardson, Texas, said domestic demand for copper tubing remains strong. "Our industry is expecting to use some 30 to 70 million pounds of additional copper" in 2006, he said.

Rifkin of OmniSource said the copper market's pricing and backwardation shows "the market is screaming for that material to come to the market today."

Sabol of Colonial Metals Co. said his segment of the market still has excess capacity, particularly because there are fewer ingot-melting facilities in the United States.

Rifkin and Lane also expressed concern as to the state of domestic manufacturing, with Rifkin pointing to the cost of insurance and regulatory compliance as concerns, and Lane noting that manufacturers in Asia can produce window air conditioner units "for less than what it costs us to build a coil."

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