The rise in copper is leading to purchases of wire to hedge construction farther out in the future than normal. It is a one quarter event.
If they don't blow away earnings this quarter, just imagine what the next quarters will be when the channel stuffing/hoarding ends.
One more week until the selloff back to low 20s.
H and B,
saw a few of your postings... my
thesis --as soon as copper prices fall, will see an erosion (with 2-4 qtr lag) in WIRE's gross margin, and reversal of the LIFO inventory affect buffetting their (impressive but ephemeral) gross margin growth - but that call is predicated entirely
more on when copper prices start to fall / roll over,
which doesn't seem to be close to happening yet. I was
intrigued to learn about your take on channel stuffing
at distribtutors like hughes could be interesting... have you done any channel checks there?
Ask any construction company. They will tell you that they have won contracts and never bothered to buy the copper wire until they needed it.
Now, after getting their butt kicked by rising prices and hoarding they realized that they need to hold a larger inventory of wire.
Of course, when prices start to fall again (and they will) then they will be getting their butt kicked again by their inventory and may decide to reduce it and buy it when it is needed like before which means oversupply and falling profits.
I am very interested in the profits this quarter. No matter what, it is a sell on the news event.
I am sure all you IBD buyers are long-term focused and won't sell on 2Q and 3Q weakness.
Well I took your advice and polled my favorite electrical contractor (so what if I talk to myself). Wire manufacturer's such as this one DO NOT allow customers to place orders more than 90 days before shippment. There is only one that will hold prices longer than that and they are privately held.
Also, Despite popular belief, wire companies don't want in the speculation game. Wire DOES have substantial inventory of finished product to reach the demand of contractors; however, they do not stock up on a large quantity of cathode.
channel stuffing might just be true!
my local home depot had a massive amount of wire stock on hand about 3 weeks ago. 2 days ago there was still a lot of it there. i think HD took advantage of the price of copper maybe a month ago. i could not find any with encore brand there.