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Commodity Prices on the Rise

Overall manufacturing activity in the US is continuing to expand, but increasing prices for commodity goods could eventually hamper growth in some industry sectors.

While manufacturers are benefiting from strength in new orders and production, there is significant concern with regard to commodity prices, according to the Institute for Supply Management's most recent Manufacturing Business Survey. “Many manufacturers indicate the prices they have to pay for inputs are rising, and there is concern about the impact of higher prices on their margins,” says Norbert J. Ore, CPSM, CPM, chair of the Institute for Supply Management (ISM) Manufacturing Business Survey Committee.

The ISM's Manufacturing Report on Business for March 2011 indicated growth because the Purchasing Management Index (PMI) was above 60 percent for the third consecutive month. The component indexes of the PMI remain at very positive levels and signal strong sector performance in the first quarter. Of the 18 manufacturing industries tracked by ISM, all are growing, with the exception of Wood Products and Primary Metals. Computer & Electronic Products ranked fifth in terms of growth; Electrical Equipment, Appliances & Components ranked seventh.

Unfortunately, many of the commodities reporting increased prices are used in the electronics supply chain. These include aluminum; aluminum products; brass; copper; copper based products; electronic components; fuel oils; fuel surcharges; high density polyethylene; nickel; plastics; plastic products; plastic resins; polyethylene; polyethylene resin; polypropylene; resins; resin based products; rubber; rubber products; silver; stainless steel; steel; hot rolled steel; steel products; steel surcharges; and transportation rates.

Natural gas is the only commodity reported to be down in price. Commodities in short supply include electric components and titanium dioxide.

Some of the key highlights from the report:

    Employment
    ISM's Employment Index registered 63 percent in March, which is 1.5 percentage points lower than the 64.5 percent reported in February. This is the 18th consecutive month of growth in manufacturing employment. An Employment Index above 50.1 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

    Of the 18 manufacturing industries, 12 reported growth in employment in March in the following order: Apparel, Leather & Allied Products; Machinery; Transportation Equipment; Textile Mills; Computer & Electronic Products; Electrical Equipment, Appliances & Components; Paper Products; Plastics & Rubber Products; Nonmetallic Mineral Products; Food, Beverage & Tobacco Products; Printing & Related Support Activities; and Fabricated Metal Products.

    Prices
    The ISM Prices Index registered 85 percent in March, 3 percentage points higher than the 82 percent reported in February and the highest reading since July 2008 when the index registered 88.5 percent. This is the 21st consecutive month the Prices Index has registered above 50 percent. While 72 percent of respondents reported paying higher prices and 2 percent reported paying lower prices, 26 percent of supply executives reported paying the same prices as in February. A Prices Index above 49.4 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Index of Manufacturers Prices.

    All 18 manufacturing industries report paying increased prices during the month of March in the following order: Textile Mills; Apparel, Leather & Allied Products; Wood Products; Furniture & Related Products; Electrical Equipment, Appliances & Components; Food, Beverage & Tobacco Products; Fabricated Metal Products; Machinery; Transportation Equipment; Primary Metals; Chemical Products; Paper Products; Miscellaneous Manufacturing; Nonmetallic Mineral Products; Printing & Related Support Activities; Computer & Electronic Products; Petroleum & Coal Products; and Plastics & Rubber Products.

    Inventories
    Manufacturers' inventories declined in March for the second consecutive month. The Inventories Index registered 47.4 percent, 1.4 percentage points less than the 48.8 percent recorded for February. An Inventories Index greater than 42.7 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis' (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).

    The seven industries reporting higher inventories in March — listed in order — are: Apparel, Leather & Allied Products; Fabricated Metal Products; Computer & Electronic Products; Electrical Equipment, Appliances & Components; Food, Beverage & Tobacco Products; Chemical Products; and Machinery. The eight industries reporting decreases in inventories in March — listed in order — are: Plastics & Rubber Products; Primary Metals; Petroleum & Coal Products; Nonmetallic Mineral Products; Miscellaneous Manufacturing; Printing & Related Support Activities; Paper Products; and Transportation Equipment.

The ISM and EBN will host a Webinar focusing on China, logistics, and the supply chain on April 21 at 12:00 p.m. EST. The Webinar will be moderated by the ISM's Norbert J. Ore, and panelists include:

  • Ravi Kichloo, Senior Vice President, Global Semiconductor Business Development, Avnet
  • Phillip Wu, Senior Marketing Director, UPS
  • KK Poon, CPSM, CPM MCIPS, Subject Specialist of China Federation of Logistic and Purchasing; Member of Logistic Management Committee of HK Management Association; External examiner and course advisor of Institute of Vocational Education (IVE); and Subject Specialist of The HK Council for Accreditation of Academic & Vocational Qualification (HKCAAVQ).

You can register for this Webinar here.

10 comments on “Commodity Prices on the Rise

  1. Ariella
    April 4, 2011

    The increase in prices does not bode well, especially as we are not really out of the recession — despite what some optimists say.

  2. Adeniji Kayode
    April 4, 2011

    I am yet to see any nation of the world that can boldly say that She is out of the recession yet.

    Are we looking at increase in Consumers goods now and for how long before a change comes?

  3. Ariella
    April 4, 2011

    The increase in prices is not just in electronic components.  Due to high gas prices, basic necessities like food are much more costly. The CEO from Walmart warned that prices are expected to go up for food, clothing, and other products. See http://www.deseretnews.com/mobile/article/705369820/Wal-Mart-CEO-Expect-to-pay-more-for-food-clothing.html:

    An increased cost in raw materials, along with labor costs in China and fuel costs for transportation are impacting retailers, said John Long, a retail strategist at Kurt Salmon global management consultants. He told USA Today he predicts that retailers will start increasing prices in June.

    “Every single retailer has and is paying more for the items they sell, and retailers will be passing some of these costs along,” Long said   

  4. Anand
    April 4, 2011

    Barbara,

     One of the major reasons for the rise in the commodity prices is the rise of Crude Oil prices. Rise in the crude oil prices increases the transportation cost and thus pushes the prices of the commodities up. I hope President Obama's  administration’s Blueprint for a Secure Energy Future, which envisions cutting the nation’s oil imports by a third in the next decade might help bring down the crude oil prices.

  5. Adeniji Kayode
    April 4, 2011

    Increase in crude oil definately increases the of price of everything.

    Is it possible to have a world that utilises crude oil much more less that today's consumption. This has boil down to the fact alternative sources of energy should be looked into as a world project

  6. Anna Young
    April 4, 2011

     

    Various factors have contributed to a surge in commodity prices. However, largely as mentioned by all, the political unrest in the Middle East, bad harvest and a surge in demand in Japan have impacted this increase.

    I read in WSJ today that Fed is still progressing with the $600 billion program initiatives to buy long term treasury in a bid to quicken growth and lower the unemployment rates. At least this will somewhat increase consumer spending and boost overall confidence.

    http://blogs.wsj.com/economics/2011/04/04/fed-not-to-blame-for-rising-commodity-prices-paper-argues/

  7. eemom
    April 5, 2011

    Anna, I hope you are right.  It seemed that just as we were on the right track for recovery, The middle East unrest then the Japan crisis hit.  I think consumers, now paying for higher gas prices as well as higher cost of goods in general, will continue to be cautious about their spending.  The FEDs stepping in to help has positive and negative connotations that make people wary of the recovery.

  8. mario8a
    April 5, 2011

    HI

    A concern in companies based in China is the radiation levels coming from Japan, for now, the north in China has been detecting some radiation levels that are to concern yet, however it might be related to the increase in price of commodities, since one of the first questions is if the companines will have anough supply if goods are related to Japan supply chain.

    at this time of the year companies need their safety stock for late of the year, that will be a possible reason why prices are increasing so  rapidly.

     

  9. Barbara Jorgensen
    April 6, 2011

    It's also noteworthy that the list of commodities in short supply increased from two or three last month to the list you see above. Things can literally turn on a dime

  10. Mr. Roques
    April 11, 2011

    I've learned to ask myself: “What does China have to do with it?” … I think they have a lot to do with it. Their insatiable demand drives prices for commodities through the roof (and basically any scarce resource's price as well).

    The Middle East situation has to with it as well, Japan's earthquake, coming out of the recession (yes?)…

    Leaving the industrial part aside, have we grown too big to maintain ourselves alive?  

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