3rd Quarter 2008 Commodities Report

CHARLOTTE, NC, October 15, 2009 – United Sourcing Alliance actively monitors market pricing to ensure our supplier partners remain competitive with market fluctuations. Below you’ll find our latest update on key commodities and currencies.

ISM Manufacturing Price Index – The September Manufacturing ISM Report on Business has reported that the manufacturing sector declined in September at a “significantly faster rate” than the previous 2008 trend. The Purchasing Managers Index (PMI) was reported at 43.5 in September, down from 49.9% in August and the lowest reading since October of 2001 (40.8). Industries reporting growth in September were: Petroleum & Coal, Paper Products, Food-Beverage-Tobacco, Misc Manufacturing, Computer & Electronics, and Chemicals. Reporting declines were: Nonmetallic Mineral, Textiles, Wood, Furniture, Apparel, Machinery, Transportation, Fabricated Metal, Printing, Plastics, Rubber, Electrical, Appliances, and Leather Products.

The price index fell significantly from August to September indicating that we are paying higher prices on the average, but that those increases are coming at a much slower rate. Of those participating in the ISM report: 30% reported paying higher prices, 23% reported paying lower prices, and 47% reported paying the same. Higher prices are being reported for: Adhesives, Caustic Soda, Corrugated Containers, Electrical Products, Paper Products, Steel Products, Plastics, and Plastic Resins. Caustic soda continues to be reported in short supply. Lower prices are being reported for: Aluminum Products, Copper, Corn, Fuel Oil, Gasoline, Machine Parts, Stainless Steel Products, and Zinc.

Pricing for polyethylene products has continued to push upward in the third quarter with a major producer, Solutia, pushing through increases in September. This was on top of the increases already passed through in August. As of the time of this writing LDPE pricing prior to conversion stands at $1.00 per pound – an increase of 28% compared to the June number. Continued rising prices in the petrochemical markets were the reason given to support these moves by Solutia.

However, Solutia may find itself on a lonely island with support for the August increase weakening, and some of its competitors delaying any price increases for 30 days. While this does not end a market of rising prices it does indicate that those increases are slowing and that there may be some downward relief in sight. We expect the benefit of lower oil prices, slowing demand, and increases in worldwide production to move this market lower in 2009.

Corrugated Containers
The first increase in linerboard since October 2007 hit the markets in August with an increase of $50 per ton bringing linerboard to an all time high of $655 per ton. The box makers hit the streets with increases ranging anywhere from 8% to 12%. With this success under their belts the paper producers followed that up with another announcement of a $60 per ton increase to be effective in September.

However, it is hard to imagine that increase sticking with box shipments reported down YTD by 1.8%. If this sluggish market continues the current trend year end shipments will be down 3% compared to 2007. The September published rate for linerboard in Pulp & Paper remained steady at $655. Paper producers continue to push and it remains to be seen if these attempts will be successful. The next Pulp & Paper will come out October the 20th. Based on our recent discussions with those inside the industry we believe this announced increase will not stick.

Cores & Tubes
Not wanting the box makers to have all the fun, Sonoco announced a 5% price hike of its products effective September the 15th. Increases in raw materials, primarily paper and adhesives, was the driving factor behind this announcement. This increase comes on top of the already implemented energy surcharges from back in June.

Dow Chemical is sticking to the recently implemented price increases of 20% and 25% on all products despite the recent decline in oil prices. Petroleum is the prime ingredient for plastics and chemical production and was the main factor fueling those increases by hitting record highs this summer. But with the recent declines it was speculated that pricing would be revisited. However, Dow’s CEO says no.

Sales volume has continued to be good despite the 45% across the board increases and therefore there is no need to revisit. However the door was left open with the CEO stating that if oil dropped below the $100 a barrel level the company may reconsider. With oil dropping below $80 per barrel the morning of October 10, 2008 for a one year low I believe it is time to revisit. This is down 46% compared to the high of $147 per barrel set on July 12.

Natural Gas
The price outlook for natural gas has changed significantly since our last commodities update. At that time increases were predicted to continue into 2009.

While consumption is expected to grow by 2.2% in 2009 the latest projections indicate a reduction from the 2008 average price of $9.67/mcf to $8.17/mcf for 2009. A complete reversal of the supply situation is cited for this expected reduction in 2009. Recent price reductions were due primarily to moderate temperatures, lower oil prices, and uncertainties about future economic growth.

We will need to get through the winter heating season before we see these predicted reductions, but beyond winter we should see prices fall as a result of continued growth in on-shore production. Currently natural gas is trading at $7.34/mm BTU, a dramatic drop of over 40% since the June report of $12.69/mm BTU.

As of our last update on 6/6/08 the overall US Dollar Index stood at 72.39, a 12.1% decline from one year earlier when the index was at 82.34. Since that time and rather dramatically in recent weeks, the dollar has surged against most foreign currencies. Below you will find the current US dollar exchange rates versus some key currencies and the YTD change along side where it stood on June 6th. Once again during times of uncertainty, the dollar is proving to be a safe haven for traders worldwide.

  6/6 Rate/US$ YTD chg 10/10 Rate/US$ YTD chng
Brazil 1.6335 -8.2% 2.3175 +30.2%
Canda 1.0194 2.6% 1.1805 +18.8%
Mexico 10.3659 -5.0% 13.0497 +19.6%
Euro 0.6342 -7.4% 0.7455 +8.8%
UK Pound 0.5076 0.9% 0.5863 +16.5%
China 6.9231 -5.2% 6.8350 -6.9%
India 42.662 8.3% 48.358 +22.7%
Japan 105.00 -5.8% 100.25 -10.0%

A positive year-to-date change means the dollar has strengthened against the currency for this year and will purchase more of the currency or products of that country. Based on the current move, we should all look for opportunities to negotiate better pricing on imports. Know the numbers and use them to your advantage.

Quick Hits:
In July we announced that Cost Analysts has joined Untied Sourcing Alliance’s supplier portfolio as a provider of Telecom and Utility audit services. Headquartered in Greensboro, North Carolina, they have over 17 years experience and have conducted more than 2,500 audits with a success rate of over 80%. They have already begun doing audits for a number of USA clients and we must say we are impressed with their work. These are indeed lost dollars and there is no cost to you to have a very thorough audit performed by experts in the field. If you or someone in your financial group has not had a conversation with Cost Analysts we highly recommend it. Keep in mind, statute of limitations allows you to go back 36 months to collect errors and overcharges.

Lighting Surveys
If your company has not taken a look at your lighting requirements within the past 6 years you should. Our supplier partners stand ready to offer you a complete lighting survey at no cost. New technology in the market place can save you thousands in energy, replacement, and maintenance costs while giving you better lighting and a safer work environment. Typically if it has been years since you retrofitted your lighting, the payback on a complete change is one to two years. It’s also a green thing to do.

We have just recently completed a corrugated study and RFP for a new client out of the Atlanta area. The results were dramatic with a savings of 15% on a spend well over $4 million per year. With linerboard markets taking an upturn in pricing it may be a good time for you to take a closer look. We can conduct a RFP on your behalf and report back any potential savings for your organization. Likewise the process of data collection, discovery, analysis and executing a detailed RFP can apply to any number of product areas. Call if you’d like more details.

The Power of Calendars
A calendar delivers 365 days of advertising for just one purchase. A calendar reminds your customers every day of who you are, where you’re located, and what you have to offer them. Your customers use your calendar to plan their lives. Every calendar you buy brings a return on your investment. It’s not too late to order calendars and other promotional items you may use to build your brand name – Tarheel Promotions can help.

In closing
Let’s face it; no one is having fun right now. Most of us can’t impact, personally, anything that is going on in the financial markets, but what we can do is focus on doing our jobs as best we can. Times like these are the times when purchasing professionals can really make things happen. Who’s willing to step up? I know our team at United Sourcing is doing exactly that – savings our clients as much as 30% immediately. Let’s talk and make sure you are using all the categories that fit your company and bring savings. We know it’s tough out there, but we also know we can help.

Please contact Gene Smith at gsmith@usa-llc.com or 704-697-9695 Ext 14 if we can assist you further.

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