The experts within our Basic Industries Group maintain ongoing contact with a wide range of knowledgeable sources to stay abreast of the issues and trends that could impact the industry’s M&A climate or otherwise influence our clients’ businesses.  Following are a few of the topics addressed in our most recent Basic Industries Review, which is published quarterly.

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BASIC INDUSTRIES REVIEW (2008: Q1) (View complete report)

Key Trends

Spotlight on Raw Materials

Fueled primarily by growing demand from China, India and other developing countries, commodities of all types, particularly those used in manufacturing processes, have exhibited dramatic price increases over the past year. The CRB Metals Index, which tracks a basket of raw materials and includes copper, zinc, steel scrap, tin and lead scrap, increased 46 percent in the 13 months ended February 29, 2008, outpacing the aggregate CRB Commodities Index's near 30 percent rise over the same period. The current pricing environment is somewhat disjointed from the underlying fundamental economic supply/demand function. The long-term outlook for raw materials used in basic infrastructure and manufacturing continues to be positive. However, speculative investment capital has poured into commodities, from oil and gold to copper, aluminum and zinc, as noted in the aforementioned CRB Metals Index.

In general, the most likely scenario we see unfolding is for most commodities to moderate in price as sentiment shifts from safe-haven investing and inflation hedging to a global slowdown mentality. While the rest of the world is not likely to follow the road of sluggish growth to the same degree as the United States, reduced U.S. consumption will negatively affect growth in some regions, notably Japan, China and Europe. These tempered short-term expectations are likely to take some of the speculative excess out of the current pricing environment, without changing the long-term secular trend.

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