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Commodities in an uncertain economy

As businesses all over the world emerge from a February that saw political unrest and turmoil in North Africa and the Middle East, March is creating even more economic uncertainty. The price of oil and traditional commodities remains volatile and dramatically elevated, causing the costs of production and delivery to become even more unpredictable and of greater concern. In turn, the costs of consumer products and services also increase.

John Faraci ’72 has been chairman and CEO of International Paper Company for seven-plus years, and he has a unique perspective on the likely consequences of recent worldwide events. The cost of paper rose by nine percent last year, but Faraci maintains that, despite the effects of increased pressure on production costs, relative commodity prices are still largely determined by supply and demand.

In a recent interview with Fox Business Network anchor, managing editor senior vice president Neil Cavuto, Faraci predicts modest growth for the domestic economy, and he remains guardedly optimistic about both U.S. and world markets.

In response to Cavuto’s question about cyclical variations in the company’s stock value, Faraci responded, “It is a cyclical business. Those cycles are more driven by the supply side than the demand side, although in this last downturn, obviously we had a huge downdraft in demand.”

When commenting about trends in the company’s production and what that means for the bigger economic picture, Faraci said, “Just using our corrugated box business as an example, demand fell 12 percent. It’s now up four. So we are still eight percent off of where we were pre-recession levels.” He continued, “Corrugated boxes go into … about every use for durables and non-durables. So it’s really a good barometer of what’s going on in the economy.”

Asked his view on where the markets are headed, Faraci answered, “The recovery in the markets outside of North America has got more legs to it in terms of GDP growth than we’re seeing here. I think the signs coming out of the fourth quarter and into the first quarter — put the weather aside, that’s had a big impact on it … I think we are going to see 3.5 percent growth.”

In addition to serving as a member of Denison’s Board of Trustees, Faraci, based in Memphis, also serves on the board of the National Parks Foundation.

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