MERCHANDISER
AGRICULTURAL PRODUCTION will need to address problems of col- jointly owned trading company.
lateral damage to the environment, according to the new Global “Agricultural production often poses problems
Sectors Outlook report from Euler Hermes UK, a company of Allianz. of collateral damage to the environment,” says
The report, authored by Philippe Brossard, Euler Hermes’ Head of Brossard. “It is not certain that the agricultural
Research, points to the three major challenges facing the world’s production of energy products such as grains
agrofood industry: for producing ethanol, which is in turn burned
1. Ensuring adequate supplies of drinking water. as fuel, will in the end result in any environ-
2. Fluctuating commodity prices affected by large manoeuvres mental gain. Objective factors are also forcing
among the major industry players. farmers to cut water usage by, for example,
3. The need to convince consumers that genetically modified foods switching from corn to rapeseed. This year,
have no effect on human health. however, world production and consumption of
corn continue to increase.
Food & Beverage Products Face
“For its part, organic farming has a good future,
given that in France, for example, it still accounts
Environmental Challenges
for only 2% of domestic food consumption. If
we are to preserve our genetic heritage or simply
“Grain prices have been rising sharply for more than two years,” better co-exist with it, everyone will have to
Brossard explains. “Exceptionally among the commodities in ques- become more competent in deciding their own
tion, coffee, cocoa and sugar have posted clearly slower price gains. dietary intake. The agrofood industry can profit
Water prices, for their part, show no sign of slowing. Factors such as from this in the future, once it overcomes the
taste, health, brand image and product differentiation all help make fears held by some consumers over GMOs.”
food and beverage products more valuable to consumers and to the
groups that produce them. [Danone is an example]. Global Outlook
“Meanwhile, the wave of transactions between these groups contin- World industry has remained dynamic into
ues: Unilever has sold its European frozen food business to Permira 2007. Commodity prices, particularly in non-
Funds, and another fund has acquired Heinz’s European seafood oper- ferrous metals, remain under pressure. But mar-
ations. Starwood Capital Group LLC, a US private investment firm, itime shipping indices suggest very strong lev-
bought the Taittinger group and very quickly resold its champagne els of activity. Capital goods are especially ben-
division to Crédit Agricole and to members of the founding family. efiting from the business cycle.
“The European Union’s new Common Market Organisation for sugar Industrial investment is stagnant in the old
and expectations over the future of ethanol are shaking up the sugar industrial countries but thriving in the new
trade, with the big names turning everything to good account. Tereos industrialised countries, benefiting German
has established itself in the Czech Republic and in Mozambique, while and Japanese exporters particularly.
Cristal Union, Nordzucker and ED&F Man have launched Eurosugar, a Transport investment is also enjoying strong
growth in the maritime sector, railways and
RISING COMMODITY PRICES
aeronautics (the latter to the benefit of US and
2005 2006 2007 (E) French exports). The iron and steel industry con-
Average Yearly Average Yearly Average Yearly tinues to enjoy sustained activity, and steel pro-
Price Average Price Average Price Average
duction should grow 5% by volume in 2007.
Nickel US$/tonne 14,740 6% 24,244 64% 38,097 57%
The electronics sector is the beneficiary of
Grains Index US$ 190 -12% 220 16% 268 22%
demand for new products, bringing accelerated
Wool Australian c/kg 709 -9% 737 4% 840 14%
Zinc US$/tonne 1,382 32% 3,272 137% 3,707 13%
growth in consumer electronics sales – for tele-
Pulp $/tonne 612 0% 669 9% 747 12%
vision, telephony and photographic equipment,
Natural Gas US$/mBTUs 9 51% 7 -24% 7 10% among others. Semiconductor sales – a good
Steam Coal US$/tonne 65 -14% 66 0% 71 8% barometer of the sector – should increase by
Gold US$/troy ounce 445 9% 604 36% 648 7%
volume by around 10% this year, after a 14%
Aluminium US$/tonne 1,899 11% 2,568 35% 2,752 7%
rise in 2006.
Cocoa US$/tonne 1,696 -2% 1,782 5% 1,883 6%
But clouds are looming on the horizon.
Steel US$/tonne 472 -11% 506 7% 533 5%
Copper
Alongside all these brilliant performances, signs
US$/tonne 3,679 28% 6,714 82% 7,044 5%
CRB Index US$ 312 13% 377 21% 395 5%
of fragility in the world economy are multiply-
Coffee c/lb 101 49% 104 2% 108 4%
ing. The construction sector is in free-fall in the
Silver c/troy ounce 731 10% 1,156 58% 1,205 4% US, and the contagion could spread to other
Cotton c/lb 54 -12% 57 6% 59 3%
countries.
Propylene EUR/tonne 734 20% 835 14% 851 2%
“It is a matter of increasing urgency that the
Ethylene EUR/tonne 765 4% 971 27% 949 -2%
emerging economies take up the baton of con-
Oil US$/barrel 55 43% 66 20% 63 -3%
sumption and cease being mainly driven by
Rubber Ringgitt/kg 533 13% 720 35% 663 -8%
Sugar c/lb 10 38% 15 50% 11 -24%
their exports,” the report concludes.
Sources: Datastream, Euler Hermes SFAC forecasts.
www.eulerhermes.com
26 SEPTEMBER 2007 COMMODITIES NOW
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