Low commodity prices could force producers out of business and pose critical risks to the supply chain, according to a new study released by IHS.
The company said the IHS Materials Price Index, a weighted average of the 10 most common commodities, had fallen 40% over 2015, threatening a replay of the year 2000 when many US steelmakers suddenly folded.
“The risk to the supply base for long-term commodities is rising rapidly,” said Jason Kaplan, senior research manager at the IHS Pricing & Purchasing Service.
“Low prices have clearly undercut the margins of commodity producers, with many operating at losses.”
Kaplan said that weak demand and overcapacity had deflated prices in many industries and that suppliers had not reacted quickly enough to the fall in price, including producers of nickel (pictured).
“If we look at the nickel industry, 70% of producers are losing money, but no one wants to blink first,” Kaplan said. “We are witnessing a replay of the year 2000 with the US steel market. The same situation led to 21 companies going out of business over 18 months.”
Commodities producers had reacted to low prices by cutting capital expenditure and operating expenditure which would lead to inevitable job cuts, he said.
The company said the base metals market had been depressed by weak fundamentals and lack of financial interest.
However, despite slackening demand, high capital investments means many mines have kept running.
“Most base metal prices will stay low, as long as no structural change cuts supply,” Kaplan said.
He added that low oil costs had brought down polymer prices.