Companies asked to be ready for buyers market as dynamics could change with normalcy returning

The conditions that mostly favour a suppliers market at present with higher global commodities prices could soon start changing to a buyers market in which the latter starts commanding terms, when supply chains begin to come out of the current strains with the dissipation of the virus, according to a finance professional. 

The commodities prices spiked when supply chains were being unable to keep up with the pent-up demand while the sporadic virus outbreaks in key producing countries caused supply chain bottlenecks. Meanwhile, the record stimulus unleashed by the Central Banks and the governments around the world also sent the prices soaring to levels which haven’t seen in recent times. 

But Hasitha Premaratne, the group Finance Director at Brandix Lanka Limited is of the view that the tables could start changing when people start returning to jobs, demand conditions start normalising and the gradual unwinding of the pandemic era stimulus by the central banks around the world when countries slowly return to economic normalcy with the dissipating pandemic. 

“Don’t forget, as a I said the commodities bubble that is going on due to the high demand at a time when supply has crashed, when it normalises, you will see this starting to change and there will be some big shocks.” Premartane told a recent forum. 

The pandemic created some big winners and losers in industries exposing to fortunes and realities, which were starkly different to each other. 

For instance, those companies which were into technology and e-commerce, shipping and logistics and food and beverage among others saw their financial fortunes growing, while the companies into airlines, leisure, entertainment, events and other in-person service providers suffered enormous losses and hardships since the pandemic befell on them. 

“Some of the industries that are celebrating profits today might end up in the crying mode and vice versa”, Premaratne cautioned. 

Sri Lanka too had its share of impacts from the pandemic-induced global commodities bubble with the rise seen in every import commodity, which was then aggravated by the shortage in foreign exchange in the domestic market and the price controls imposed in a futile effort to bring the situation under control. 

This created shortages of many commodities including certain food staples such as milk powder, sugar and rice causing many hardships to the public. The persistent supply shortages prompted the government to shed their price controls last week on most of these commodities restoring supply in earnest. 

Sri Lanka’s main consumer price gauge climbed to 6.0 percent in the twelve months to August this year when the foreign exchange crunch came to a head before easing in September to 5.7 percent on some decline in food prices.

Hence, Premaratne asked companies to take a medium term view on each variable that affects the costs and the revenues of one’s business and assess how they could change when the world gradually comes out of the pandemic. 

He also asked the companies to develop different scenarios and have risk mitigation strategies in place to soften possible impacts. 

“So, it is important to understand that change is coming in and look at each variable that drives your profitability - be it cost or revenues - and understand how each of those drivers will change in the next 12 to 18 months as things progress gradually,” he added.