The Weak Dollar and What it Means to the Supply Chain

March 17th, 2008 at 06:49am David Bush - Iasta

A couple months ago, I received a newsletter from Denali under this title. The is content very, very good and is a “sneak peek” at the bigger set of information available, at Denali Intelligence, a category specific market intelligence service.

There is some fascinating analysis in this FREE newsletter.

Some economists project that the US dollar is now undervalued and will rise soon, but the current momentum is downward and will continue to be so into most of next year. A chief source of downward pressure comes from foreign central banks and investors as they work to reduce the volume of US dollars in their portfolios. Simply put, US imports flood foreign investors with payment dollars that they must absorb or reinvest. As the tide of dollars is traded, supply and demand laws take over … and the dollar surplus drives the “price” downward.

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In 2008, on average, prices of imported goods will rise 3% to 4% to directly adjust to the recent dollar depreciation. How quickly this inflation will occur depends on the particular market parameters (degrees of demand, supply and competition), but most of the price adjustment is expected to occur by mid 2008.

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World demand for the commodities used in construction and manufacturing, such as cement, steel and energy, is straining supply capacity. Therefore global conglomerate suppliers do not need to absorb as much of the exchange rate loss when they get paid in cheaper dollars than they expected. Metals, plastics and cement international product prices are already displaying this impact, but the prices of materials produced in the domestic U.S. market are insulated from this effect. The decline in foreign supplier’s interest is sometimes first observed in reduced auction participation. In these occurrences, domestic suppliers may regain an advantage previously lost to foreign competition.

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I find this so interesting. Not only has Denali Consulting created a tremendously valuable resource (and business), they are also distributing useful parts in the form of a dense newsletter. I know these guys well and this is a rapidly expanding business for them. It is well worth looking in to, for any sourcing professional that does not have its own supply market research team.

Entry Filed under: Analysts/Research, General, Global Supply Issues/Risk, Suppliers