A report by Atradius, a leading global trade credit insurer, has found that manufacturers are bracing themselves for further price hikes in raw materials as vital commodities such as tin and copper suddenly become as highly prized as gold.

Between 2002 and 2006, for example, copper producers enjoyed a 560% price increase. This price inflation is largely due to China and other emerging economies developing huge appetites for industrial raw materials. In 2007, the Chinese economy accounted for 37% of global steel consumption. The U.S. share, by contrast, was only 10%.

With output and prices up, producing nations are taking advantage of their new-found market power. A number of commodity-rich countries are implementing policies that can restrict the supply of vital raw materials. China, Russia, Venezuela and Bolivia are named as particularly risky investment sites for this reason. Governments in these countries have implemented policies that restrict the free flow of materials driving prices even higher. Despite this, these emerging commodities markets are reaping most of the benefit from the growing demand. Europe's metals industries have seen dramatic declines in their share of world metals production output. The EU's share of aluminum output fell from 21% in 1982 to 9% in 2005, and its share of steel fell from 25% to 16%.

With raw materials prices at such high levels, raw materials processors' and manufacturers' margins are being squeezed because they are not able to pass the full cost of the increase on to consumers. Stefan Dunker, a manager at Atradius Risk Services comments, "We have not yet seen a wave of bankruptcies, but if there are further price increases, that could well happen."

In Germany, a recent report by the Federation of German Industries (BDI) showed that from 2002-2007, German industry had already been hit by euro 97 billion in higher direct raw materials costs. This has led to 148,000 job losses in German industry and a 0.5% reduction in the overall German GDP.

However, the outlook for commodities buyers is not all bad. Some manufacturers are taking a number of steps to avoid a direct impact from rising costs, such as stockpiling raw materials, investing in their own supply sources, decreasing their use of precious metals, and increasing the efficiency with which they use materials of all types. Innovation using alternative materials will also play its part in long-term demand of various raw materials. All these factors should help to moderate demand and reel in prices.

Isidoro Unda, CEO of Atradius, concluded: "Though the run-up in commodities prices has been sharp and severe, demand has traditionally been cyclical depending on demand for the products in which they are found. The convergence of a number of economic factors, including a looming U.S. recession, slowing growth in Europe, falling oil prices and tightening credit conditions, could combine to produce some relief in prices of some raw materials for both manufacturers and consumers. These changes, however, are generally slow to take hold, and declining prices may not be in the cards for a few years."