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Focus: Sourcing/Procurement

Feature Article from Our Sourcing and Procurement Subject Area - See All

From SCDigest's On-Target e-Magazine

- April 2, 2013 -

 
Supply Chain News: Input and Commodity Costs Mostly Flat in Q1, Lowest Rise Since 2010

 

Demand is Soft and Supplies Plentiful in Most Categories; US Dollar Strength Also Helps

 

SDigest Editorial Staff 

 

Even as the US stock market was soaring 10% in the first quarter, commodity and input costs were generally flat, as overall global demand remains soft in most categories and supplies are strong. That represents a change from the past several years, when stock and commodity prices mostly have moved in lock step.

SCDigest Says:

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We will also note that China and Australia announced this week that they would soon begin trading in their own currencies without using the US dollar.

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The Thompson Reuters /Jeffries CRB Commodity Price Index ended Q1 basically flat, up just .4%. It reached its highest point in early February, up 3% from the start of the year, and then fell 4.7% from there to reach a low on March 6. But prices recovered from that point to end the quarter about where they started.

That measure was consistent with other commodity indexes, which all use their own mix of energy, metals, agriculture and other goods to measure overall input prices. The Dow Jones-UBS commodity Index, for example, was down 1.1% in the period.

By most measures, this was the weakest pricing environment overall in a first quarter since 2010.

The bottom line is that input costs in general were not a big worry during the fist three months of the year.


That pricing weakness was seen in combination with - a partly because of - a strengthen of the US dollar in the quarter, as the greenback rose 2.6% against the Euro and about the same against the Canadian Lune. Because most international commodity prices are set using the US dollar, a rising dollar will push prices down by an equivalent amount globally for US buyers, all things being equal. The dollar did fall slightly (.3%) against the Chinese Yuan in Q1, continuing a two-year trend.

We will also note that China and Australia announced this week that they would soon begin trading in their own currencies without using the US dollar, with the Chinese converting Aussie dollars to the Yuan, as efforts by some to displace the US dollar as the world's reserve currency continue.

Energy prices were up in the quarter, led by the continuing surge in natural gas prices in the US, which continue to move higher from historic lows seen the last couple of years, up almost 16%. Oil prices were up in the low single digits, and US diesel prices rose 2% in the quarter.

 

 

Source: Thomson Reuters Jeffries, Plus SCDigest Analysis


(Sourcing and Procurement Article Continues Below)

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The chart below shows changes in the prices in a number of commodities across energy, metals, agriculture products and manufacturing inputs. As we have learned the hardway, tracking down these prices is a difficult job, in part because even a single commodity can be priced in various ways (spot or cash price, future contracts of various lengths, regional/country differences, estimates of prices actually paid, etc.) Also of course the units of measure (pounds, bushels, etc.) vary dramatically, sometimes even within a single commodity.

So, do not look too hard at the actual dollar amounts under Dec. 31 and March 31 columns versus what you may be paying, but the changes percentages should be pretty accurate (though different measures can lead different results - our data saw copper down 8.6% in the quarter, while the Wall Street Journal said the drop was more like 6.8%).


Q1 2103 Price Changes in Select Commodity Categories
 
Dec. 31, 2012
March 31, 2013
% Change
US Dollar*
 
 
 
vs Euro
0.76
0.78
2.6%
VS Canadian Dollar
0.99
1.02
2.7%
vs Yuan
6.23
6.21
-0.3%
Energy
 
 
 
US Diesel
3.91
3.99
2.0%
Oil (Brent)
108.61
109.94
1.2%
Oil (WTI)
93.09
97.23
4.4%
Nat Gas (US)
3.47
4.02
15.9%
Metals
 
 
 
Copper
3.73
3.41
-8.6%
Palladium
695
767
10.4%
Platinum
1521
1576
3.6%
Silver
30.03
28.18
-6.2%
Aluminum
0.91
0.84
-7.7%
Nickel
7.75
7.56
-2.5%
Carbon Steel
721
720
-0.1%
Agriculture
 
 
 
Corn
712
760.2
6.8%
Wheat
768
757
-1.4%
Soy Beans
1420.5
1469
3.4%
Rice
15.49
15.36
-0.8%
Chicken
1.48
1.45
-2.0%
Cocoa
2218
2170
-2.2%
Sugar
19.6
17.66
-9.9%
Cotton
75.86
88.46
16.6%
Industrial Inputs
 
 
 
Rubber
301.35
269.35
-10.6%
Softwood Pulp
656
900.73
37.3%
Polypropylene
0.75
0.76
1.3%
 
 
 
 
*Represents worth of one US dollar in foreign currencies. 

 

Source: Multiple Sources, Compiled by SCDigest

 

SCDigest continued to be amazed how hard it is to get this information, especially for industrial inputs such as chemicals, paperboard, finished steel and other categories, and we are going to try to find a way to better deliver this information to readers soon.


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