Feb. 3, 2016

IHS: Commodity Producers at Considerable Risk

Low profitability has undermined commodity producers and brings high risks to the supply chain, according to new analysis by IHS Inc., a leading industrial analysis firm. The IHS Materials Price Index, a weighted average of the 10 most common commodities, fell 40 percent over 2015, bringing it below the lows of the economic crisis.

“The risk to the supply base for long-term commodities is rising rapidly,” says Jason Kaplan, senior research manager at the IHS Pricing & Purchasing Service. “Low prices have clearly undercut the margins of commodity producers, with many operating at losses. Weak demand and overcapacity have deflated prices in many industries and supply has failed to react quickly to the drop off in price.”

Kaplan pointed to the nickel industry, where 70 percent of the producers are losing money, but no one is taking any steps. “We are witnessing a replay of the year 2000 with the U.S. steel market. The same situation led to 21 companies going out of business over 18 months."

He added: “Producers are reacting to this current climate by slashing both capital and operating expenditures, with inevitable job cuts. How the supply base fully adjusts to the low pricing is still unclear, but the implications for long-term, stable commodity supply are looking increasingly negative.”


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Monday, October 23, 2017