Ups and downs in the commodity market are expected, as this highly volatile market is strongly impacted by a number of factors, including world events and shifting economies. And manufacturing costs are necessarily affected as a result.

The following are four factors that are currently impacting commodities and manufacturing costs around the world. Read on to learn more and discover how working with Macrotech can help you weather a changing economic environment.

Deepening Global Recession

In a survey put out this summer by the National Association of Manufacturers, 59.3% of manufacturing leaders said they thought inflationary pressures would make a recession more likely in the next 12 months. And 54% said higher prices were making it more difficult to remain competitive and profitable. 

In the same survey, manufacturing CEOs reported that the biggest challenge they faced in their business was increased raw material costs. Increasing inflation means rising costs across the board, and commodities are no exception. As the price of raw materials increases, the cost of manufacturing increases. 

Rising Interest Rates

The federal reserve has raised interest rates several times this year in an attempt to temper inflation, with more rate hikes to come later this year and in 2023. A single interest rate hike wouldn’t have a huge effect on commodities and manufacturing costs, but multiple increases in a short period of time are another story.

Rising interest rates mean cost increases for both goods and financing. As a result, individual consumers and businesses alike are expected to scale back their purchasing, lowering demand and squeezing profits.

Record Strength of the USD

The value of the U.S. dollar has been on the rise for more than a year, and is now at nearly its highest level in more than 20 years against six major currencies, including the euro and the yen. And experts expect the dollar to remain strong for the near future.

The good news: The increased value of the USD is due to a strong economy. Despite inflation, the U.S. job market has remained strong, and many other areas of the economy have proven resilient following pandemic struggles.

The bad news: Commodities are typically priced in USD, so as the value of the dollar rises and falls, commodity prices generally follow suit. In addition, U.S. companies that sell overseas will see lower profits as it becomes more expensive for consumers in those countries to buy their products.

Economic Slowdown in China

China has experienced slower growth than expected this year due to several factors, including a zero COVID approach to containing COVID-19 and a slowdown in the real estate market. Retail sales, investment, and industrial output have all been down, and the unemployment rate is rising. Rapid export growth has been a bright spot in China’s economy this year, yet even that seems to be slowing down.

In August, China’s central bank cut interest rates in an attempt to stem the economic slowdown. Even so, prices on commodities like oil and copper have been significantly affected.

Macrotech Can Help You Navigate the Ups and Downs of Commodities and Manufacturing Costs

There is no doubt that the aforementioned forces are working in consort to affect commodities and manufacturing costs worldwide. In the midst of a volatile economic environment, you need a partner who can help you weather the changes to keep your organization on top.

When you work with Macrotech, you benefit from: 

Purchasing Clout 

Because we are able to combine and channel the business of many customers to a few vertically-integrated supporting factories, we have clout with factories that most individual companies can’t match.

This affords smaller companies the ability to compete with larger competitors through offshoring. They don’t need expertise in foreign markets, on-site technical support, customs agents, or international logistics. We handle all of this for them. Essentially, our customers enjoy the benefits of an International Purchasing Office without needing to establish an international presence.

Our clout also allows us to provide scheduling and expediting priority at our factories, giving customers more reliable ETAs and reducing expediting costs.

Financing Options

We provide capital for the benefit of our customers and supporting factories, with financing on both ends.  Factories are paid when product ships, while our customers enjoy extended deferred payment terms.

MMA also utilizes commodities futures contracts to hedge against rising materials costs. This allows us to maintain more consistent costs for many important commodities. Take copper, for example. The reactionary nature of copper pricing makes it a risky commodity, but the use of futures allows us to hedge against shifting prices, reducing the risk for our customers and providing significant financial stability for them.

Sourcing

MMA enables more effective manufacturing through an extensive supply chain. Through purchasing and consignment of cost-driving materials, factory unit costs are reduced significantly, and we work to find creative ways to cut costs throughout the supply chain. 

Working with MMA gives our customers more options than they would have on their own. They are no longer limited by the lack of a global organization: We make it easy for North American customers to manufacture in low-cost regions.

As a global manufacturing solutions provider with nearly four decades of experience in the industry, MMA can help your organization mitigate the effects of changing commodities and manufacturing costs on your products. 

Schedule a call with us to learn more about how MMA can help your organization navigate every economic season so you can continue to grow and thrive.