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8 August 2013 | Will Green
The supply of commodities may not be able to meet long-term demand without investment in new technologies, a report has warned.
Price Formation in Commodities Markets: Financialisation and Beyond surveyed 11 different markets, including oil, gas, iron, wheat and sugar, and covers elements such as supply and demand, financial markets, government intervention and weather.
The report, produced jointly by the Centre for European Policy Studies and the European Capital Markets Institute, said there had been a “structural shift” in prices over the past decade due to the growth of emerging economies.
The report said: “Demand has been constantly growing across all commodities markets for more than a decade. This has led to a general fall in stock-to-use ratios, in particular for agricultural and soft commodities.
“Without significant investments in new technologies, questions remain over the ability of current supply to satisfy growing demand in the long term.”
It continued: “The growth of emerging economies, in particular, of Chinese industrial consumption, lies behind the structural shift in prices.”
The report said the price of commodities was the result of complex factors, including product features such as quality and storability, supply and demand features such as capital intensity and average personal income, and external factors such as access to finance and public subsidies.
The report said: “In general, supply factors, such as capital intensity, are more important drivers of price formation for energy commodities and industrial metals, while agricultural and soft commodities markets are more influenced by demand factors, such as income growth, and exogenous factors that can cause supply shocks, such as weather events or government policies.”
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