We have two companies. One Macon Iron primarily process scrap metal and the other General Steel, sells and fabricates metal products. Scrap prices metal prices have risen dramatically for the last few years and especially the last 12 months. During the last 30 days the price increases for the last 12 months have been largely undone.

For us that means that much of the profits that have been booked from the rise in inventory values are about to be returned. When prices drop this fast you end up selling material for less than you paid for it. You can not cut expenses enough to make money in this environment. That is just the nature of commodity products. This is why this business is inhospitable to debt.

Steel and scrap prices have dropped on almost all metal and other commodity products just as oil sells now for less than half of its high last summer.

At the time we all heard that with the growth of China and India would keep commodity prices high for the foreseeable future. It sounded like the permanently high plateau forecasted by academics for the stock market just before the crash of 1929. Again we learn that nothing grows forever; all markets have their reckoning.

This could be a temporary pause caused by the financial meltdown worldwide, but I would not expect a quick rebound. Some disagree.

There are those who will benefit from the drastic drop. Contractors who are now starting jobs they bid with a higher cost will have the benefit of executing the contract with lower costs. Lower metal and especially copper prices will reduce much of the metal theft that has plagued many communities.

Many economists look to the scrap market as a harbinger of the economy to come because it is one of the most free and unregulated markets. If the drastic drop holds as a meaningful indicator then we are in for a rough ride ahead.

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