No end in sight to commodity price boom

27 September 2013

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28 September 2013 | Will Green

The “super-cycle” of rising commodity costs that has seen average prices more than double since the turn of the century shows little sign of abating, sccording to a study. 

In Resource Revolution: Tracking global commodity markets researchers said the trend of falling average prices throughout the 20th century changed to one of steady increase in 2000.

Since that time, energy costs have risen 260 per cent, metals by 176 per cent and food prices by 120 per cent. 

The report, by McKinsey & Company, said despite price drops since 2011, average commodity prices are still close to 2008 levels and “talk of the death of the super-cycle appears premature”.

The report, which focuses on energy, metals and agriculture, said energy prices, with the exception of shale gas, were rising because of increased demand from developing countries and the increasing cost of supply. 

Copper and steel prices have risen 344 per cent and 176 per cent respectively since the turn of the century, and the report said while demand from emerging countries such as China played a part, increasing supply costs associated with geological issues and energy prices were important factors.

Food prices have increased due to a combination of factors including a declining pace of yield increases, rising demand for feed and fuel, declines in global buffer stocks and supply side shocks. Meanwhile, timber, cotton and tobacco prices have increased by between 30 per and 70 per cent, while rubber prices have rocketed by 350 per cent. 

The report said: “The volatility of resource prices has also been considerably higher since the turn of the century. While short-term volatility is influenced by many factors, such as droughts, floods, labor strikes, and restrictions on exports, there also appears to be increasing evidence of a more structural supply issue that is driving longer-term volatility.”

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