Will Commodities Prices fall again?

Laura Oliva Commodities

A tsunami struck the commodities market. An impact having direct consequences for many companies.

What’s going on?
The year 2015 is a good year for purchases of industrial raw materials. To date, all major commodities traded in the international financial markets, showed double-digit decreasing prices (Figure 1).

Commodities Prices YTD

Aluminium, zinc, copper and platinum decreased between 15 and 20%. Palladium, tin and nickel lost between 20 and 30%. Steel has lost as much as 70%.
To better understand the scenario it’s appropriate to make an introduction. Commodity prices are usually in US dollars. European companies must therefore take into account the FX price. Euro has weakened this year (Figure 2). About eight percent less, which reduces but does not eliminate the decrease in raw material prices paid in Euros.

It is a long time since there were no such favourable conditions for manufacturing companies.
Aluminum, zinc, nickel and copper are indispensable raw materials in the production of household appliances, in the transport and construction industries as well as in the mechanical and electrical components.

Euro USD

During 2014 (see Periodic Table below), the prices diverged significantly. Strong price increases for steel and palladium but copper and lead prices dropped significantly.


Periodic Table of Commodities Prices.001

1. The prices of commodities

Aluminium prices, reached the lowest for six years (Figure 3). The main producer is China.
China ’s exports of aluminium rose by 66% in the first six months of the year from the same period a year ago.

Alluminium

Also copper prices are at a record low. China is the largest importer and user of copper. Chinese demand for copper is so important it determines prices in the financial markets.
What’s the problem with China?
China’s economic growth is slowing.
The Chinese exports in July fell by 8.3%, due to weak global demand. Imports also fell by 8%. The estimated increase of 7% of GDP this year is the lowest rate in the last 25 years.
Until recently, the Chinese authorities have kept the Yuan at about 6.2 to a Dollar seeking to spur global usage.

2. The consequences for businesses

It’s very important to choose the right time to avoid paying high prices. The current market trend for most of the raw materials is a clear weakening of prices.

This means that until the next turnaround, prices will continue to decline or at least remain unchanged.
Given this scenario with prices at record low, the temptation is to fill the warehouse and order for next year.

At the moment there is no rush. Orders can wait to take advantage of next signs of weakness in the prices of raw materials or strengthening of the Euro, it could be a trump card that determines the competitiveness of the products sold by manufacturing companies.

Having the opportunity to buy at the best price, without changing supplier, but taking advantage of favorable price movements is a valuable advantage over competitors.
But how to programme purchases and to benefit of price movements?

The prices change daily, we must always be careful in the market to pursue every opportunity.
In this regard, it is useful to have a platform of information and analysis as the eKuota one.

It is an innovative technology that helps companies to manage the risks arising from the financial markets. Having prices and quotations under control and an automatic notification of changes arising in the markets can be a useful solution for many companies to minimize costs and improve the bottom line.

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About the Author

Laura Oliva

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Co-founder of eKuota. Degree in Corporate Finance from the Universita’ Luigi Bocconi in Milan, she has more than a decade of experience in capital markets. She was Head of Debt Capital Markets within the Allianz Group, she worked at a number of international investment banks. She was Global Product Specialist, Head of Structured Finance and ABS team, Head of Syndication and Credit Analyst. She managed and executed bond issues and loans syndication for major italian companies. She is a Fixed income and Securitization expert, she deals with financial analysis and financial markets. Co-Author of the AdviseOnly blog. Mom of three, born in Rimini now she lives happily in Milan.

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