How Bellwether Commodities Provide Market Insights

Estimated reading time: 3 minutes, 30 seconds

(Image Source: Joaquin Corbalan/stock.adobe.com; generated with AI)

By Carolyn Mathas for Mouser Electronics

Published February 28, 2025

One of the most essential ways procurement professionals can understand the marketplace is to use bellwether commodities to grasp current and future trends. In the electronics industry, interpreting the market performance of commodities such as copper, silicon, and rare earth metals provides insight into broader market conditions.

Investment traders have widely used technical analysis within commodity markets to identify market risks and opportunities. Given that markets tend to move in somewhat predictable patterns, the key is to recognize market signals. With early recognition of trends being so critical in the electronics industry, where supply chain disruptions and material costs can hinder a new product at any stage in the design process, let’s take a closer look at how bellwether commodities can inform procurement.

What Is a Bellwether?

Originally a term for a bell-wearing sheep leading a shepherd's herd, “bellwether” is now a colloquialism for a leading indicator of an economic trend. A bellwether’s ups and downs can signal a change in direction for an industry or the economy. Analysts use bellwethers’ historical data to predict future behavior and recognize shifting market conditions early.

Procurement professionals can use commodity bellwethers to identify early signs of market changes. Commodities serve as raw materials to produce complex goods and services, and rising commodity prices can signal shortages or production slowdowns. For example, in the electronics industry, fluctuations in silicon prices affect the semiconductor market, which then influences the supply and pricing of electronic components. Procurement teams can use that information by treating commodities as benchmarks for contract negotiations, long-term sourcing strategies, demand forecasting, and collaboration with suppliers.

Bellwethers in the Electronic Components Industry

In electronics, hard commodities are mined or extracted from nonrenewable natural resources such as gold, silver, copper, platinum, and palladium. Bellwether commodities for the electronics industry include copper (used in wiring and PCBs), silicon (semiconductors), and rare earth elements for capacitors, magnets, sensors, and EV battery manufacturing.

Copper

Copper is essential in electric appliances, industrial machines, vehicles and transportation, communications networks, and more. Copper’s performance has historically been an indicator for the entire metals category and commodities in general. Its performance often indicates shifts in domestic and global economic output. Falling copper prices could correlate to decreased demand and lower production for various products and industries.

Silicon

Virtually all modern computing devices rely on silicon-integrated circuits and semiconductors, including microprocessors, image sensors, power electronics, and memory chips. The semiconductor industry continues to expand its use of the element, spurring a global silicon wafer market expected to reach US$25.9 billion by 2032.^[1] Although alternatives such as gallium arsenide (GaAs) are becoming critical for 5G communications, silicon retains a cost and manufacturability edge.

Rare Earth Elements

Rare earth elements—a group of 17 heavy metals, including neodymium, praseodymium, terbium, and samarium—are critical for electronic devices, next-gen solar panels, and batteries. For example, all-electric vehicles require neodymium and dysprosium, which make up magnets for EV motors to convert electrical energy into kinetic energy. Watching the availability and pricing trends of rare earth elements helps procurement specialists gauge shifts in demand and cost for a wide range of sectors.

Conclusion

Conflicts, trade sanctions, or political instability can disrupt supply chains and increase prices. When supply exceeds demand, prices typically fall. On the demand side, rising industrial activity or consumption can boost demand for raw materials, putting upward pressure on prices. We can see this with the expanded production of electric vehicles and the increased need for and rising cost of metals such as copper and lithium. Inflation, interest rates, and currency fluctuations also profoundly impact commodity prices.

Commodities are typically highly volatile. Key price drivers include supply and demand, economic trends, weather, geopolitical events, and market sentiment. As a procurement pro, it’s important to become adept at making educated assumptions. What might happen with the commodities you’ve selected? What do the historical data, price trends, and economic indicators tell you? Through technical or fundamental analysis of this information, you can begin creating the underlying assumptions you’ll use to better understand market conditions that influence plans for component sourcing.

Sources

[1]https://www.alliedmarketresearch.com/silicon-wafer-market-A09975