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China consumes half of the world’s raw materials and is expected to remain one the world’s leading influencers in the industrial metals sector. 2017 saw Beijing impose a revolutionary crack down on excess steel-making capacity and inefficient mills in an effort to improve air pollution, which had plagued its industrial provinces for decades. The crackdown offset the drop in domestic demand which followed a tightening of monetary policy and slowdown in the residential property market, much to the relief of miners which feared a decline in demand from the world’s largest consumer would impact on global prices and eat into their margins. With the capacity cuts scheduled to continue into 2018, it is likely that industrial metal prices will be sustained. Steel prices will benefit from reduced production capacity, tightening supply and in turn supported prices, and high grade iron ore demand will be on the up thanks to the focus on moving production to mills with the greatest eff...

Part 1 - Tailwinds from 2017 2017 was a successful year for commodity investors and with the positive global growth prospects forecasted, 2018 has teed itself up for yet another year of commodity price gains. The World Bank has lifted its economic growth forecast to 3.1%. The IMF expects global GDP to rise 3.6% this year. A key indicator of global commodity performance is the US dollar (USD) - a strong USD tends to be bad news for commodity prices. The reason for this is that there is a strong inverse relationship between the USD and commodity prices and although the drivers behind this relationship are complex and the relationship is not necessarily one of cause-and-effect, the historical consistency of it indicates that it warrants a close watch. Following Trump’s successful presidential candidacy campaign in which he promised to prioritise tax cuts, increase infrastructure spending and make “America great again”, it was anticipated by many that the USD would have a...

While Commodity Price Risk Management (CPRM) originated in the commodity players, such as miners, refiners, energy producers, and so on, it’s increasingly being adopted by businesses that have significant commodity costs in their cost base but whose core business lies elsewhere – such as FMCG, retailers, manufacturers, and so on. For the many not the few The volatility of the commodities market poses great risks for many businesses that buy in commodities or raw materials. Unless a business is able to pass price changes directly onto the end customer, simply absorbing the impact of a price increase can lead to periods of significant losses. In contrast, business whose core business is the buying and selling of commodities, with established CPRM practices, or put another way hedging programs, in place are able not only to weather the storm when prices fluctuate in the markets, but also benefit from volatility. Many organizations are not even aware of the value of the...

Commodity price risk management is a relatively new concept for many businesses. It’s being adopted by many as a way to materially enhance profitability, and for the early adopters its seen as a source of competitive advantage. To give you a flavor of what’s involved, and to help you take a view on how well protected you are from today’s volatile commodity markets, we’ve written the following questions for you to consider: 1.)   Do you know the commodity price risks you face?  2.)   Are the risks quantified? Is there a single view of all risks? 3.)   How much risk can you afford to have? 4.)   Are you fully aware of the financial impact of price fluctuations?  5.)   Do you have a consistent commodity price risk strategy? 6.)   How effective is your strategy? 7.)   How much risk premium is included in budget setting? 8.)   Are budgets dynamic, in line with commodity price movements? 9.)   Are you able to h...