Last week, Spend Matters featured a recap of metals-focused commodity management strategies for 2012 (here and here), including offering a forward look into what companies should be considering and forecasting for 2013. Yet what should we make of general commodity management and related trends going into next year? A recent Bloomberg summary captures a number of salient concepts we should take under careful consideration as we plan our overall commodity management strategies going into next year.
For one, it's important to keep in mind that "investors almost doubled purchases of commodities" in 2013. While there are various schools of thought about the positives and negatives of speculators in these markets, we can no longer dismiss speculative open positions and general interest as not having some role on market clearing prices and the cost to hedge. In 2011, "money invested in commodity funds increased by $21.6 billion this year, up 92 percent from the gain in 2011."
These investors and funds are lined up for what they're hoping will be continued upward press movements in 2013. Bloomberg suggests that "precious metals will lead returns in 2013, rising as much as 25 percent, as grains advance 18 percent and industrial metals 16 percent," based on a survey of 131 traders, investors and analysts across 15 raw materials. Our own MetalMiner analysis suggests that procurement teams shouldn't just consider the potential for upward price pressure continually throughout the year, but rather the impact of high volatility on pricing when a company needs to buy.
According to Goldman head of commodity research Jeffrey Currie, commodities will return 7% over the next 112 months as "increasing consumption will curb available supply, boosting near-term prices relative to longer-dated contracts." Further, according to another set of analysts, "demand for energy and grains will be 'resilient' and delayed harvests in South America will limit supplies." And "Arabica coffee is expected to have the biggest gain among the 15 commodities in the survey ... [further] Nickel may be the best-performing industrial metal, rising as much as 16 percent, while copper will gain 12 percent."
Procurement organizations need to get ready for the commodity rollercoaster. We hope the following free downloadable white papers and research briefs in the Spend Matters PRO research library can be a helpful guide along the way:
Making Sourcing Savings Stick: New (and Not-so-New) Strategies to Drive Savings Implementation
A Foundational Look at the Evolution of Sourcing Technology and Platforms
Advanced Sourcing Technologies and Platforms to Broaden a Portfolio
Minimizing Commodity Volatility Through Advanced Commodity Management and Hedging Approaches