At the heart of most cycles (and prices) lie the fundamental laws of supply and demand
At the heart of most cycles (and prices) lie the fundamental laws of supply and demand. Recent months have offered some salutary lessons on the susceptibility of many systems to apparently small changes in this balance. Oil and iron ore prices have reacted savagely to seemingly gradual shifts in the supply demand balance. Any doubts that may have been harboured as to the inherent cyclicality of these businesses and the ability for prices to exist at a permanently higher plane have been dispelled...The raft of capital expenditure and operating expenditure reductions from the likes of Santos, Origin Energy and their global counterparts that have accompanied falling prices, evidence the lack of preparedness for these price changes... These rapid and unexpected changes raise some important questions. What are the implications of these sharp price falls and are they confined to commodities? Are there other areas in which the supply demand balance is similarly vulnerable? Access the full report (sophisticated investors only): (VIEW LINK)
2 topics