Commodities typically respond to changes between import prices and the U.S. dollar. The weakening of the U.S. dollar correlates to factors such as geopolitical uncertainty, international trade and tariffs, all of which contribute to increasing prices. For example, as a consequence of the weaking U.S dollar, the prices of minerals such as tin, antimony and lead have increased.

Commodity prices greatly impact manufacturing costs. For many companies, increasing their prices is not about increasing profit margins. Unfortunately, they cannot absorb the increases and continue to stay in business.

Supply Constraints

When supply cannot meet demand, price increases will typically follow. China recently announced that it is restricting the export of antimony, which is on the U.S. critical minerals list. Effective September 15, anyone wanting to export the mineral will have to apply for a license. As a result of supply shortages, the cost of antimony has increased 200 percent as of August 2024.

Tin has also been affected by current constrictions on supply with a reduction in volume of the mines. Tin prices remain elevated compared to historical levels, propelled by production problems in Myanmar, Indonesia and the Democratic Republic of Congo, which account for 43 percent of global supply.

Port Strike

The port strike on the US East and Gulf Coast has ended with a tentative wage agreement, but delays persist as over 40 ships await offloading, and 120 more are enroute. The strike’s ripple effects will disrupt global supply chains for weeks, and delayed ships will impact schedules into early 2025.

While ILA workers are back after a three-day strike, the agreement is temporary, and major issues like port automation remain unresolved, leaving the possibility of future strikes as negotiations continue. The current contract is extended until January 2025.

Operating Costs

Operating costs have increased significantly because of several factors. One of the most impactful is the elevated premia for lead, which accounts for approximately 50 percent of battery input costs. Lead premia and overall pricing have been driven primarily by the weakening of the U.S. dollar and the increase in transport costs. We are seeing container costs on overseas shipments going back up, which is supporting those elevated premia.

Labor costs are also a factor. Companies report that finding and retaining quality talent is a top challenge. In the second quarter of 2024, the Employment Cost Index (ECI) came to 165.5, indicating an increase in labor costs of 0.9 percent.

In addition to the increase in labor costs, approximately 7.42 million people were unemployed and looking for work in August 2024 with a 3.5% unemployment rate in the manufacturing industry. The skills gap in manufacturing could lead to over 2 million unfilled jobs by 2030.  This drives more competition and higher wages for skilled workers.

Looking Ahead

After 17 months of steady interest rates, the Federal Reserve lowered rates by half a percentage point at its September meeting. The decision marks the first cut in four years, as attention turns from controlling inflation to shoring up the labor market. Additional cuts have been penciled in through the end of 2026.

I anticipate the dollar staying fairly weak for a period of time. The markets have continually expected the economy to fall into recession and are sensitive, pending the results of November’s election and the incoming administration’s policy on China. While manufacturing investments in the U.S. have increased over 305 percent compared to the two years prior to the passing of the Inflation Reduction Act, our economy still relies on imports from China, and a hardline approach could drive prices up.

Jeremy Furr, Senior Vice President, Strategic Sourcing