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Escalating Prices -- A bullwhip effect

 The recent steel price escalation reflects the classic bull whip effect in the global steel supply chain. Primary reason is the constraint of Coke supplies from Australia due to floods in Queensland. This disruption in Coke has created an exponential cascading effect on the steel supply. It is well above the price increase in Coke. Across the supply chain there is hoarding of steel as mills increase prices leaving the end users scrambling for their purchases.

Yet another explosive bubble is building up. Already Hot Rolled is being talked of in the region of USD 1000/- in coming months. Of course at some time (maybe a few months), Coke supplies will stabilize. Mills will be able increase their supplies and resulting slight downward trend will result in panic selling and then the bullwhip will be in reverse. Demand will die and and panic will result with mills unable to move materials result in further lowering and backward exponential cascading effect.  The reverse bullwhip will be even worse and of course leave many shell shocked (and possibly too overstretched to survive).
If only we could be brave when others were fearful. And fearful when others were brave.
dtd. 14/02/2011

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