Factors Affecting Product Cost
Staff -- Purchasing, 1/15/2004 2:00:00 AM
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Chicago Board of Trade and the Dalian Commodity Exchange will share commodities market information that eventually could steer the Chinese into U.S. futures hedging. China is becoming a huge consumer of raw materials, reflecting its fast economic growth, so the goal is to get Chinese traders and buyers to access commodities markets to lock in prices for volatile copper, cotton, soybeans and other products.
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"Supplies of glycerin are ample, so pricing will be at or near the bottom of the cycle through mid-2004," according to Jon Stevens of Cognis Corp. Demand for glycerin in the U.S. remains strong, he says, but increased European crude glycerin production has maintained global supply excess.
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Citing increased demand from communications chip buyers, executives at Chartered Semiconductor are projecting 3% increases in 2004 average selling prices (ASPs). Reason: "We are seeing healthy demand growth from our market sectors," says CFO George Thomas, "so we are holding steady with our expectations of higher ASPs."
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Natural gas supplies are still tight, pushing January spot deliveries above $7 per thousand cubic feet (equal to a million British thermal units). Natgas supply will remain tight until liquefied natural gas capacity comes on in 2007 or so, says Arnie Schneider of Schneider Capital Management in Wayne, Pa. But, he believes demand will moderate and then slide, so he doesn't think the price is going to go much outside a range of $5-$6.
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Slippage in prices of notebook personal computers is expected soon due to a growing supply of components used in flat panel monitors and dropping prices in storage devices. The thin film transistor monitor, which accounts for almost 40% of the notebook price, uses liquid crystal display (LCD) glass that has been in short supply globally keeping prices high and supplies of flat panels tight. According to industry observers, the supply of TFT panels is expected to ease over the next four to six months.
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Prices of pulp and paper rose in 2003 and economist Earl Sweet at BMO Financial Group sees a continued rise in prices through 2004. "Price advances are likely to come from pulp and paper as world economic growth boosts paper consumption." He forecasts the northern bleached softwood kraft NBSK (market pulp) benchmark rising to an average of $640/metric ton in 2004 from an estimated $553 in 2003.
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