Hot Rolled Futures: Bullwhip or Whipsaw, Further Volatility Ahead

SMU contributor Bryan Tice is a partner at Metal Edge Partners, a firm engaged in Risk Management and Strategic Advisory. In this role, he and the firm design and execute risk management strategies for clients along with providing process and analytical support. Prior to Metal Edge Partners, Bryan held a variety of commercial leadership roles involving purchasing, sales, and risk management for Feralloy Corp., Cargill Steel Service Centers, and Plateplus Inc. You can learn more about Metal Edge @ www.metaledgepartners.com. Bryan can be reached at Bryan@metaledgepartners.com for queries/comments/questions.

There have been some interesting articles written recently about the bullwhip effect, which is loosely defined as the distortion of demand and increasing volatility that occurs as forecasts and orders move through the supply chain. The thesis of many of these articles has been that inflation may be less of a headwind to the economy as you look at some of the economic data, though ramifications for the metals industry could be a bit more problematic. The chart below shows the seasonally adjusted growth in retail inventories of general merchandise for the last three decades. Many of these retailers are those that pride themselves on being supply chain experts (e.g., Wal-Mart, Target, etc.). This recent spike in inventories seems ominous to us.