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Does commodity price crash benefit customers always? |
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Written by Sim Kih
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Tuesday, 21 October 2008
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 Price of Gardenia's Hi-fiber bread has risen 15% in the past year.
Prices of Gardenia High Fiber White Bread (400g) | S$1.95 | S$2.00 | S$2.15 | S$2.25 | | 19 Sep 07 | 23 Sep 07 | 25 Nov 07 | 4 Sep 08 |
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COMMODITY PRICES may have crashed but that may not translate to a lower household bill.
Prices for Gardenia bread, the most popular brand consumed in Singapore, for example, have continued their uptrend unabated (up 15% over the past year), despite wheat prices having fallen by half in the past six months, as the chart below shows.
 Plunge in the price of wheat.
 source: Bloomberg
Thankfully, commodity-like products such as gasoline pass on more of fluctuations in raw material cost to customers.
This can be seen in petroleum prices coming off some 12.5% in the past 3-4 months, reflecting the 50% drop in crude oil prices over the same period. (From a high of close to US$150 a barrel in July 2008, crude oil prices have halved to about US$70 a barrel currently.)
The lack of price correlation between retail goods to cost of source materials is a reflection of how fragmented the end-customer market is.
Bread eaters, having a more fragmented customer profile than automobile drivers, are more likely to be price takers with little bargaining power.
Conversely, marine fuel is more price elastic to cost of raw materials compared to gasoline as each ship is a relatively significant variable to the bunkering supply chain.
This can be seen in how bunkering costs fell in direct tandem with crude prices, falling 50% from over US$700 a ton to about US$350 currently.
 source: Bloomberg
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