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Commodity intelligence key to mitigating market unpredictability .

Commodities Manufacturing and engineeringRaw materialsEnergy and Raw MaterialsBlog+-

After the US Federal Reserve announced that it would be scaling back its economic stimulus programmes and data from China showed that manufacturing rates had plunged, commodity prices dropped. For CPOs watching who’ve been paying close attention, this won’t have been a shock.


Ben Bernanke, chairman of the Federal Reserve, said that the Fed may start to taper the bond purchases that it makes next year, if signs indicate that the economic risks have abated. Meanwhile, a report from China indicated that factory activity had slowed, raising anxieties about future demand for raw materials and base metals in particular.


On the back of this, gold slipped below $1,300 an ounce, its lowest price in over two and a half years, silver fell 9.7%, oil sank by 3% and copper touched 20-month lows. Even the agricultural markets were struck by the news, with corn, wheat, soyabeans and sugar also falling.


Those procurement chiefs with their fingers on the pulse of the market may have been taken aback by  the sudden announcement from the Fed, but through market intelligence will have had an idea that it was coming.


Speaking to Reuters in June, David Meger, vice president and metals trading director at Vision Financial Markets said, "Every forthcoming piece of U.S. and other data will used as a barometer to measure the potential for the Fed to unwind certain stimulus programs in the coming months.


"Obviously all these will also relate to the dollar’s relative strength, which is another major determinant for commodity prices."


And for many CPOs this was already being factored into their purchasing strategies.


Talking to Procurement Leaders about price expectations in the cotton market, one CPO at a global commodity trader said, "Supply/demand fundamentals point to an increase (in cotton prices), but not a dramatic one.


"However, governmental policies continue to impact the markets in very unpredictable ways."


Clearly, this particular CPO was concerned about any potential moves by the world’s governments, but he had used this intelligence and to drive the company’s purchasing strategies. He said the company would "offset any price risk through trading and hedging strategies…"


Although it may be impossible to know the impact that any individual event will have on the notoriously unpredictable commodity markets, this type of event reinforces the message of how essential it is for procurement chiefs to gather quality market intelligence and act accordingly.


Tim Burt
Posted by Tim Burt