4th of July Commodities: Getting More Bang for Your Buck!

Spend Matters welcomes a guest post from Robert Miles, at Mintec Ltd.

The economies of the world seem to be spluttering a bit at the moment, and it's that time of the year again when an awful lot of money goes up in smoke and colourful flashes of light.

As you all know, this Wednesday is Independence Day. And what's a good celebration without an equally breathtaking pyrotechnic display? Another reason to celebrate is that it appears the raw material cost of fireworks have been trending downwards, the essential elements in their manufacture have recently decreased in price.

Modern fireworks are still primarily propelled by gunpowder, a mix of saltpetre (potassium nitrate, which supplies the oxygen for the reaction); charcoal (which is the fuel) and sulphur (also fuel, but in addition speeds up the rate of combustion).

All three of these have decreased in price, from their highs over the last few years:

Saltpetre $1458/MT (-11% year-on-year)
Charcoal $196/MT (-41% year-on-year)
Sulphur $205 (-5% year-on-year)

Packaging prices have also being moving favourably, with cardboard down 15% year-on-year and the price of plastic film falling by 9% over the same period.

The firework market was under a lot of pressure in 2008, abetted by higher prices for the raw materials of manufacture and new regulation in the EU market which required fireworks to meet a CE standard that despite being claimed as being relatively simple has been described by some as slow and complex. It is only recently that raw material prices have begun to fall.

As well as being the original inventor of fireworks, China is the largest manufacturer and exporter, making about 90% of the fireworks sold globally for the past twenty years. Exports of Chinese fireworks reached USD 557m in 2009 and were USD 553m in 2010.

There was a 1- year ban on the domestic use of fireworks in China prior to Spring 2006, but China's domestic fireworks market has developed strongly in the last few years and now is actually larger than all of China's combined overseas firework markets.

Workers salaries have been rising steadily in China over the last decade as employees, particularly the young, are increasingly unwilling to work for low wages in what is potentially quite a dangerous occupation. Regulations on firework production have been tightened and increasingly the market is being targeted towards professional displays, slightly away from those targeted at families or individuals.

Transport costs also have a strong influence on the price of fireworks, with shipping costs for containers holding dangerous goods from Shanghai increasing strongly in recent years.

Whether or not these price movement will provide you with more bang for your buck, we will have to wait and see. But next time you look to the sky to watch the fireworks, at least you know how some of your money is going up in smoke!

- Robert Miles, Mintec Ltd.

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