Publication / 05 Oct 2011

Commodity Exposure Index

Many companies have seen their margins hit by sharp rises in raw material costs, prompting a number of profit warnings during 2011. Trucost looked at which sectors would be most disrupted by further increases in oil, coal, wheat and cotton prices, as well as by water pricing that reflects resource scarcity.

Evidence is growing of a fundamental shift in the trajectory of commodity prices, with profound implications for how companies work with supply chains. Since 2002, commodity prices have risen by 202% and 29% of profit warnings issued by UK-listed companies in 2011 have been due to rising commodity prices.

This study seeks to identify FTSE 350 sectors most exposed to costs that may show volatility in supply chains. Data on FTSE 350 companies were analysed to identify the potential sensitivity of different sectors to rising commodity prices.

Trucost benchmarked 186 FTSE 350 companies on profit risk from the costs of oil, coal, wheat and cotton embedded in supply chains, and ranked them by sector to create a Commodity Exposure Index. On average, a 10% change in the price of each of these commodities equates to a 2% change in (EBITDA). The top five most exposed sectors are food, electricity, gas, water and multi-utilities, chemicals and beverages. Of the 26 sectors analysed, food producers are most exposed – a 10% rise in commodity prices equates to 13% of EBITDA.

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