From SCDigest's On-Target e-Magazine
- Jan. 7, 2015
Supply Chain News: Commodity and Input Prices Collapse in 2014
Every Category Sees Sharp Declines for the Year, Especially in the Second Half; Will Fall Continue?
SDigest Editorial Staff
The long bull market for input and commodity prices ended in 2011 or 2012, depending on how you view it, but overall prices stayed modestly flat in 2013 and even in the first half of 2014, before collapsing in the last six months.
SCDigest Says: |
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Retail gas prices in the US have fallen just as fast, in good news for consumers, whereas diesel prices were slow to react and were down only 17%. |
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That collapse was of course most prominent in oil markets, with prices dropping almost 50% from mid-year highs and still falling here in early 2015, giving a shot in the arm many hope for a global economy that is largely still wobbling.
The retreat in overall commodity prices, including oil, comes in part from a strengthening US dollar, as most commodity deals are priced in the greenback, and in part due to weak demand from shaky economies almost everywhere but the US and China, the latter of which itself is seeing slowing growth, albeit still at the 7% range.
As shown in the table below, compiled by SCDigest, the value of the US dollar rose sharply against both the Euro and especially the Japanese Yen, while remaining mostly flat again the Chinese Yuan. That comes after a couple of years of the dollar falling against the Chinese currency, a change that came in conjunction with international criticism that the Yuan was undervalued.
US West Texas Intermediate and Brent Crude prices were down for the year 41% and 47%, respectively, but with almost all of that decline in the second half of the year, especially Q4. Natural gas prices in the US (much cheaper than most of the rest of the world) were also down sharply, falling 33% or so to just $2.91 per million British thermal units.
Retail gas prices in the US have fallen just as fast, in good news for consumers, whereas diesel prices were slow to react and were down only 17% for the full year despite the much sharper drop in oil, but diesel has started to fall as well in the past few weeks. (See Oil May Fall to Below $40 per Barrel, Experts Say, but Diesel Costs Much Slower to Respond.)
The metals group was down 14% for the year, with iron ore prices notably falling some 47%, in a slump for the group that started in the first half and accelerated in the last six months. Only aluminum and zinc saw price gains for the year, and just barely even for those two.
Average agricultural prices were down 9.5% on the year, with a sharp drop in the second half coming after modest gains in the first six months.
The table below provides details on changes by grouping and select commodities.
Changes in Select Commodity Prices for Full Year and Last Half 2014
(Spot Market Pricing)
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Price Dec. 31 |
Change from Dec. 31, 2013 |
Change from June 30, 2013 |
| Currency |
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| US Dollar versus Euro |
0.82 |
12.3% |
12.3% |
| US Dollar versus Yen |
119.7 |
38.0% |
18.2% |
| US Dollar vs Yuan |
6.2 |
2.1% |
0.0% |
| Group Unweighted Average Change |
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17.5% |
10.2% |
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| Energy |
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| Crude Oil, WTI |
53.71 |
-41.1% |
-46.6% |
| Crude Oil, Brent |
55.81 |
-47.0% |
-49.5% |
| Diesel Fuel (on road) |
3.21 |
-17.7% |
-18.1% |
| Natural Gas |
2.91 |
-33.1% |
-35.8% |
| Group Unweighted Average Change |
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-34.7% |
-37.5% |
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| Metals |
|
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| Industrial Silver (Troy Oz) |
16.1 |
-14.4% |
-22.8% |
| Industrial Platinum (Troy Oz) |
1210 |
-10.8% |
-17.0% |
| Copper (lb) |
2.83 |
-17.7% |
-9.9% |
| Aluminum (metric ton) |
1835 |
4.0% |
-0.5% |
| Iron Ore |
71.2 |
-46.9% |
-23.8% |
| Shreded Scrap Steel (gross ton) |
340 |
-18.7% |
-8.8% |
| Steel |
603 |
-11.6% |
-10.0% |
| Tin (cents/lb) |
1189.8 |
-14.9% |
-13.9% |
| Zinc (cents/lb) |
106.29 |
4.0% |
-0.7% |
| Group Unweighted Average Change |
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-14.1% |
-9.3% |
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| Agricultural |
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| Cotton (per lb) |
0.597 |
-27.7% |
-27.2% |
| Corn (per bushel) |
3.72 |
-8.1% |
-14.9% |
| Corn Oil |
34 |
-11.7% |
-15.0% |
| Rice, Long Grained |
25.5 |
-8.1% |
-8.9% |
| Soybeans No. 1 |
10.1 |
-22.5% |
-29.4% |
| Wheat, No. 2 (per bushel) |
5.94 |
-7.2% |
-0.8% |
| Chicken Broilers (per lb) |
1.13 |
8.7% |
1.8% |
| Coffee, Columbian (per lb) |
1.87 |
46.1% |
-5.1% |
| Milk, Non-fat Dry (Chicago lb) |
100 |
-52.2% |
-45.4% |
| Raw Sugar (metric ton) |
344 |
-12.7% |
-12.6% |
| Group Unweighted Average Change |
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-9.5% |
-16.1% |
Various Sources, Compiled by Supply Chain Digest
(Sourcing and Procurement Article Continues Below)
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As noted above, in general commodity costs have been falling since the Spring of 2011. The chart below shows the commodities price index from the International Monetary Fund over the past five years.
The International Monetary Fund Commodity Price Index Past Five Years
As can be seen, the index reach a peak in April, 2011 after a steep rise since July 2010. Since that peak, the index has fallen steadily except for a brief rally in 2012, before declining significantly in the last half of 2014.
Will commodity prices fal, stay flat or head back up in 2015? No one knows of course, but the predictions are flying.
Bank of America painted a rather bleak picture for commodity markets in 2015, noting that the commodity "supercycle" has passed. It says one of the main drivers of the supercycle was China, and since the country has shifted its growth model away from investment and toward more personal consumption and services, its analysts believe commodities will continue to lag in coming years, as they have over the past four years.
The economists at IHS agree, predicting commodity prices will slide 10% on average next year, though that was in December and much of that 10% may already have been realized.
Any reaction to this update on commodity and input costs? What is the impact of this trend going to be? Let us know your thoughts at the Feedback button (email) or section (web form) below.
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