Commodity EDGE: Forecasting, Statistical Modeling and Building Internal Competencies (Dispatch 4)

We're live blogging Commodity EDGE today and tomorrow. If you can't join us at the event, join us virtually on Spend Matters and MetalMiner!

In the second installment covering Omer Abdullah's presentation (Omer is Co-Founder and Managing Director of The Smart Cube, if you're curious), we'll share a few of the highlights from his talk on how to address commodity price volatility across markets.

"Cotton prices have been highly volatile in 2011; cotton prices (Cotton, Cotlook "A Index," Middling 1-3/32 inch staple, CFR Far Eastern ports), decreased by 23% in May 2011 from April 2011 to reach 165 cents per pound on account of oversupply and decreasing downstream demand."

"Rubber prices (Singapore Commodity Exchange, No. 3 Rubber Smoked Sheets)
declined by more than 16% in November 2011 to 152.95 cents per pound from 184.21 cents per pound in October 2011; however, rubber prices increased by 10.4% in Feb 2012 to reach 181.55 cents per pound from 164.48 cents per pound in Jan 2012."

"On the global scale, wheat prices declined by more than 11% in the fourth quarter of 2011 to reach $279.7 per metric ton (MT) from $315.9 per MT in the third quarter of 2011 propelled by an increase in the supply pattern."

"Palm oil prices have been highly volatile in 2010–11 because of various supply disruptions and evolving consumer demand; in 2010, palm oil prices increased by 54.8% from Jan 2010; however, prices declined by 16% by Dec 2011 to reach $1,027 from $1,228 per MT in Dec 2010 on account of an increase in supply."

"Copper prices increased by 8.1% during the first two weeks of Jan 2012 to reach $8,431.3 per MT from $7,794.9 per MT on account of an increased demand from emerging economies such as China amidst supply disruptions."

"Aluminum prices have also been highly volatile in 2010; in 2010, aluminum prices registered a highest decrease of 11.9% in May 2010 to reach $2,040.5 per MT from $2,316.7 per MT in April 2010, while it recorded an increase of 7.6% in March 2010 to reach $2,205.6 per MT from $2,048.9 per MT in February 2010."

"Tin prices declined by more than 30% in the fourth quarter of 2011 to reach $20,849 per MT from $29,883.3 per MT; tin prices continued to be volatile in the first six weeks of 2012, where they reached $25,115.7 per MT in the second week of February 2012 from $20,486 per MT in the first week of 2012, a decrease of 18.4%."

As Omer remarked, this ongoing volatility is the new normality -- a fact we state in our event's tagline, "sourcing intelligence for the new normal." Have some of these commodities gone off the Commodity EDGE? Absolutely. But Omer's overall point was that it's not too late to bring them back under control through an analytics-focused commodity-focused risk management program. Stay tuned as we offer guidance on the topic, covering the rest of Commodity EDGE live from Chicago.

- Jason Busch

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