Apr

26

We just witnessed an historic perturbation on the price of oil, a very inelastic supply/demand structure. How many other industrial commodities will or are experiencing this (and I'm sure there are scores of unlisted commodities used in the industrial process that we're not even aware of what's going on in those markets).

And market perturbations have a tendency two fishtail going forward depending how inelastic the supply-demand situation is there, that is there's a tendency to go shortage to glut2 shortage to glut the more inelastic the commodity is.

My argument is that there are downstream systemic prices that will be paid these perturbations will echo through the entire manufacturing system, with the more complex products dependent and more components certain to suffer.

Returning say to the actuator example, and I use this only as an example I don't know where these perturbations will be felt, but let's suppose something as simple as manufacturer of a seal or a type of seal in hydraulic component tree cannot be performed four. Because of the unavailability of a certain industrial commodity necessary in its manufacture. And again I'm not picking on hydraulic seals I'm using it as one example of what I'm talking about, so as to be clear.

A large supplier like a Parker or SMC they keep an inventory but it is tiny, most products in most industries done JIT.

And if a seal is unavailable suddenly aircraft is hydraulic system needs repair are down, as are drawbridges, heavy equipment, even garbage trucks, and at least half the elevators in the world - any of these devices and the systems whose operations are contingent on them, go down too until something as simple as seal manufacturer is reinstated once supply of a necessary upstream commodity for its manufacture becomes available.

Maybe hydraulic seals are a poor example but you see what I mean about the domino effect at play here, that oil price going negative last week was a huge warning of this sort of pending trouble.


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