Regular readers will know that one the themes discussed regularly is the pro-cyclicality of the steel cycle (h/t Researchtime). By that we mean that when a steel demand shock such as the one we’ve just had in China arrives it creates its own demand. It takes a lot of steel to build the furnaces, mills, railways, ports, pipelines, trucks, processing machinery and ships that are needed to expand the supply chain.
This creates a parabolic effect in demand and then even more supply is built out to feed it.
However, when the underlines pulse ends, or reverses, all of that extra demand also evaporates and leaves enormous oversupply in the entire supply chain. The virtuous cycle goes into reverse.