- Atradius publishes Global Trade report on the global outlook for raw materials
- Value of some commodities has quadrupled in just two years
- Commodity-rich nations and mining companies to be the big winners as supply is restricted
Amsterdam, October 1, 2008 - A report by Atradius, a leading global trade credit insurer, has found that manufacturers are bracing themselves for further price hikes in raw materials as vital commodities such as tin and copper suddenly become as highly prized as gold.
Between 2002 and 2006, for example, copper producers enjoyed a 560% price increase. This price inflation is largely due to China, and other emerging economies, developing huge appetites for industrial raw materials. In 2007 the Chinese economy accounted for 37% of global steel consumption. The US share, by contrast, was only 10%.
With output and prices up, producing nations are taking advantage of their new found market power. A number of commodity-rich countries are implementing policies that can restrict the supply of vital raw materials. China, Russia, Venezuela and Bolivia are named as particularly risky investment sites for this reason. Governments in these countries have implemented policies which restrict the free flow of materials driving prices even higher. Despite this, these emerging commodities markets are reaping most of the benefit from the growing demand. Europe’s metals industries have seen dramatic declines in their share of world metals production output. The EU’s share of aluminum output fell from 21% in 1982 to 9% in 2005, and its share of steel fell from 25% to 16%.
With raw materials prices at such high levels, processors’ of raw materials and manufacturers’ margins are being squeezed as they are not able to pass the full cost of the increase on to consumers. Stefan Dunker, a manager at Atradius Risk Services comments, “We have not yet seen a wave of bankruptcies, but if there are further price increases, that could well happen.”
In Germany, a recent report by the Federation of German Industries (BDI) showed that from 2002-2007, German industry had already been hit by €97 billion in higher direct raw materials costs. This has led to 148,000 job losses in German industry and a 0.5% reduction in the overall German GDP.
However, the outlook for commodities buyers is not all bad. Some manufacturers are taking a number of steps to avoid a direct impact from rising costs, such as stockpiling raw materials, investing in their own supply sources, decreasing their use of precious metals, and increasing the efficiency with which they use materials of all types. Innovation using alternative materials will also play its part in long term demand of various raw materials. All these factors should help to moderate demand and reel in prices.
Isidoro Unda, CEO of Atradius concluded; “Though the run-up in commodities prices has been sharp and severe, demand has traditionally been cyclical depending on demand for the products in which they are found. The convergence of a number of economic factors including a looming US recession, slowing growth in Europe, falling oil prices and tightening credit conditions could combine to produce some relief in prices of some raw materials for both manufacturers and consumers. These changes however are generally slow to take hold and declining prices may not be in the cards for a few years.”
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The Atradius Global Trade report Bedrocks of Prosperity can be downloaded free of charge from the Atradius website at: http://global.atradius.com/creditmanagementknowledge/publications/latestreleases.html
About Atradius
The Atradius Group provides trade credit insurance, surety and collections services worldwide, and has a presence in 40 countries. Its products and services aim to reduce its customers’ exposure to buyers who cannot pay for the products and services customers purchase. With total revenues of approximately EUR 1.8 billion and a 31 percent share of the global trade credit insurance market, its products contribute to the growth of companies throughout the world by protecting them from payment risks associated with selling products and services on credit. With 160 offices, it has access to credit information on 52 million companies worldwide and makes more than 22,000 trade credit limit decisions daily.
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