Oversupply Driving Down Raw Materials Costs

Commodities Dec 15, 2012 No Comments

Raw materialsSo far this year, U.S. oil futures are down 13%, while cotton prices have fallen 19%. Sugar is 20% lower. Copper is off 21% from its February 2011 record.
A glut of raw materials from crude oil to copper to Palm Oil and cotton is driving down prices and dimming the outlook for commodities over the next few months.

Stores of crude in the developed world are forecast to end 2012 at a two-year high, thanks largely to a slowdown in world demand growth and an unexpected surge in production in the U.S. In China, copper stockpiles are at record levels as the country’s slowing economy limits use of the metal. Cotton bales held in warehouses are predicted to reach an all-time high next year.

The reasons for the supply glut vary widely by market. High prices in recent years convinced farmers to grow larger crops. New drilling technologies unlocked massive new oil and natural-gas reserves in the U.S. Companies serving fast-growing markets in Asia ramped up exploration and production to meet demand for industrial metals and other goods. Many companies are continuing efforts to tap new resources because prices are still high enough to turn a profit.

via Oversupply Buries Raw Materials – Wall Street Journal.

Rod Sherkin

Rod is a former senior executive, responsible for Purchasing, for both Pillsbury and Ball Packaging back in the 80’s and 90’s. Since then, he has continued to work in the Purchasing field as both a consultant and founder of the website Propurchaser.com.

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