July 2013 Global Economic and Commodity View: Procurement Presentation Download

Earlier this summer, I presented an economic and procurement outlook to a group of consultants. The presentation focused on a range of topics, but I spent quite a bit of time talking about the current state of the global economy and impacts on commodity markets, currencies and supply and demand. I’ve included some of the summary presentations as an attachment (for download) that show -- among other things -- the following.

US manufacturing dipped into negative into negative territory in May. As we wrote in a recent issue of Surplus Record, “ISM’s Manufacturing Purchasing Managers Index (PMI) suggested contraction in the industrial space for the first time in 2013 during the month of May. In fact, during May, the barometer had its most negative monthly showing since 2009. The services economy was much better off in the US, showing growth on ISM’s Non-Manufacturing Index.”

Commodity prices are in the decline, which along with ISM data, suggests a declining strength of the industrial sector. June MetalMiner IndX (MMI) data, which weighs over 100+ different global price points, highlighted a material and steep decline in a range of industrial and precious metals markets. The Raw Steels MMI dropped 4.8% in value, the Copper MMI fell 2.2%, and the Rare Earth MMI crashed by 25.6%. That last number is not a misprint!

Certain commodity markets (e.g., rare earth metals) have fallen off a cliff in recent months. Lisa Reisman, editor of MetalMiner, says that “demand remains tepid and China has slightly loosened up export restrictions. Most of the newer exports have gone to Japan (from China). The market is not one market though. Certain rare earth metals have actually increased while others have declined. Visit the MetalMiner IndX for a specific look at pricing trends.”

The recent China scare involving bank lending and liquidity is a wake up call that reminds us of the fragility of the manufacturing supply chain and the critical importance of lower tier manufacturers and producers being able to borrow on the open credit markets. During the crisis, as Bloomberg observed, “the overnight repurchase rate [bank lending rate] set a record at 13.91 percent, before the People’s Bank of China, China’s central bank, injected funds, driving rates into its biggest fall since 2007.” During the crisis, many banks were left having to lend to each other and creditors on an off-balance sheet basis (sound familiar, anyone?).

Curious to learn more? Download some of the highlights from my presentation here. 

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