I just watched the movie “Margin Call” last night and it reminded me of how volatile the markets for Rare Earth materials and Polysilicon are. I know of several companies that won’t buy Polysilicon because the price was still going down. Although this last week the spot price did rise ever so slightly. For internal company reasons/politics, many companies won’t do dollar cost averaging which is essentially to keep buying as the price goes lower or higher. This would ensure them that they don’t pay the highest or lowest price but it will all average out. Since the price can be lower many companies don’t buy like this because if the price drops they feel they will be paying too much and that they might have egg on their face. Conversely, companies don’t have the problem of buying when the price goes up. I guess it’s another example of irrational exuberance.
In the movie there was extreme volatility (CMO, MBS, etc. from the Wall Street meltdown of 2008) and that’s what we are seeing now. Prices at all-time lows, prices inflated but now dropping, etc. Truth of the matter is that prices will settle down eventually. People will come to their senses once many have already succumb to the frenzy. In “Margin Call”, Jeremy Irons said “It’s not panicking if you sell first”. In the new year I feel that prices will stabilize as they always do. Because if prices have dropped 50%, for example, does the risk represent the same risk before the price drop? Even though there is increased volatility the price drop does not increase your risk but rather decreases it substantially. Warren Buffet has argued this point endlessly.
My opinion is that prices will stabilize and these markets will resume to normal in the coming year. Necessity is the mother of invention and we desperately need some stability. The market will show some bumps but, as always, will come back to normal after weeding out the ones who were either late to the party or panicked and left the business all together.
SkySpring Nanomaterials is a leading provider of High Purity Elements, Compounds, and Rare Earth materials to industrial, research, and institutional clients worldwide.
Like this:
Like Loading...