Commodity Pricing Roller Coaster
The past fifteen months has certainly been difficult for all of us, but especially for those attempting to forecast the movement of energy pricing. Unless you have been stranded on a desert island somewhere the past year, you are well aware of the tremendous volatility in the price of oil in 2008-2009. It seems like years ago, however, it was only last summer that crude oil pricing rose from $60/barrel to a peak of $147/barrel in a matter of a few months. This incredible run-up had a major impact on the economy and directly impacted all our lives. The experts were telling us that oil prices could go as high as $200/barrel. As a result, major cost drivers in our industry such as resin products saw price escalation almost unprecedented in our lifetime. This put a tremendous amount of pressure on both sellers and buyers.
During mid-Sept, 2008 we experienced the financial industry meltdown. This event created gridlock within our economy and the oil bubble finally burst. The price of crude dropped almost as quickly as it had risen. Resin prices; material used to manufacture many of the products we use every day; dropped precipitously as a result.
I mention the events of the past year to show how things can change very quickly in this economy. I am currently projecting our cost of materials for next year and am linked in to various publications and news sources to determine 2010 commodity pricing. Based on a recent surge of good news, the economy has rebounded from its’ dismal showing in late 2008 and early 2009. It is yet to be determined whether that bounce back is sustainable or a short-term bubble due to the stimulus activity in play. The answer to this question will determine commodity pricing next year as increased demand will certainly lead to higher prices.
Projecting the future of commodity pricing is difficult given the events of the past year. However, this is my best educated guess as to how this will play out. I believe that the short term uptick in economic indicators is just that, short-term. I think we will have our good days and bad days over the next several months into the late spring, early summer of 2010. I believe a more sustained recovery will take place in the second half of 2010. Therefore, commodity pricing should remain relatively soft through the first half of 2010. It’s the second half of the year that we may begin climbing that hill on the roller coaster once again.
Although difficult to forecast the future price of resin, I can assure you that we are doing everything we can to partner with our suppliers and leverage our corporate spend as efficiently as possible. Our experienced and dedicated buying team will continue to execute world class procurement strategies to provide you the best value for all your Bags & Bows purchases. Thanks for being a valued customer of Bags & Bows!
Bob Guillemette
Sr. Strategic Sourcing Manager