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Currency volatility: 2014's big risk.

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Concerns are growing among businesses about increasing currency volatility and the impact this will have on key raw materials.  


For procurement chiefs the early 2000’s were marked by volatility in the commodity markets, driven by geopolitical risk, supply-side shocks, weather events and global financial uncertainty, which sent prices rising in dramatic fashion.


A report in September by research firm McKinsey & Company found that since the year 2000 energy costs have risen by 260%, metals by 176% and food prices by 120%. Staggering increases and threw traditional purchasing and risk management strategies out of the window.


While these steep rises have eased as the world draws itself out of the economic quagmire and tensions ease in the Middle East, risk in the commodity markets never disappears for long.  


Concerns are now shifting to currency volatility and what impact this will have on the commodity markets.


One corporate risk management expert working in the agricultural industry told Procurement Leaders this week that he had two big concerns for 2014. The first was, understandably, the weather. The second was currency volatility.  


He said that volatility has been a recent feature of the Indian rupee, Australian dollar and Brazilian real, all of which are big raw material producing nations and will continue into 2014.


He added that on top of watching volatility here, buyers will also have to take into account the action that the Federal Reserve and European Central Bank take in respect to liquidity programmes. Any action by the Federal Reserve has the potential to impact on the dollar of which key commodities are priced.


Another executive, based in the treasury function of a food and beverage company agreed with this sentiment, adding that his company intended to keep a very close eye on what happens in the US.


While CPOs will be able to call on their past experiences to deal with any potential disruption caused by the weather or geo-political tensions, they will need to draw on all their know-how as well as the finance and treasury operations to understand where their exposures to this risk lie and how they can mitigate this. 


In an effort to understand what might happen in the commodity markets during 2014, Procurement Leaders are carrying out a survey and would welcome your views on this. To take the survey click here.

Tim Burt
Posted by Tim Burt

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