Inflation may come down as commodity prices dive

Inflation may come down as commodity prices dive
October 1, 2011





CHENNAI: Commodity prices are on a downhill drive – a glimmer of hope for Indian manufacturers and exporters amid rising inflation, interest rates. Almost all base metals – copper, nickel, aluminium, lead, zinc and tin – are trading at their calendar year lows, triggered by projections of a tepid economic growth in the West. However, the benefit of lower prices has been negated by depreciation in rupee.

Economists said that the falling commodity prices are a good augury for Indian economy as a whole. “A fall in prices will drive down inflation, which in turn soften interest rates and increase profitability margins. We cannot see all these happening very fast, but these are good tidings, at least for now,” said Abheek Barua, chief economist of HDFC Bank.

Lower commodity prices will have a direct impact on profit margins. “Companies engaged in metals mining may not benefit but those who are net commodity importers will benefit. Global prices are bogged down long term pessimism of global economic prospects and we see the falling price trend to continue in the coming months,” Barua said.

The London Metals Exchange prices of copper, a metal for which India is a net importer, have dropped from $9,868 a tonne in February this year to $9,001 a tonne in August. It was trading around $7,000 at LME on Friday. Aluminium prices have softened to $2,379 a tonne in August from $2,678 in April. Nickel fell to $21,845 a tonne from $28,252 in February. Lead prices fell to 239.70 cents/ kg in August from 270.1 cents in April.

“The drop in commodity prices is definitely good news for consumer goods industries like durable and automobiles manufacturers. Even electrical goods makers stand to benefit, but not the metal companies. The advantage of falling prices at LME is negated by rupee depreciation as the landed cost of these metals will not be substantial,” said Anjani Agrawal, partner and sector leader, (metals & mining), Ernst & Young India.

Export-oriented industries, particularly capital goods exporters, are expected to benefit with lower commodity prices and depreciating rupee.

“While it is generally welcome to have commodity prices come down and surely, over a period of time, this will help.

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Lower commodity prices and a relatively weaker rupee will be good for exports. Given most of our exports are low-cost driven, this will be an advantage,” said Kumar Kandaswami, manufacturing leader for Deloitte in India.

Lower base metal prices will also help large steel/ metal heavy projects which were under pressure on account of the cost of financing. “This should provide some relief,” Kandaswami said.

Another commodity which has seen a crash is rubber. Rubber prices of popular RSS 4 variety inThailand market dropped 33% in eight months. The commodity fell to 464 cents/ kg in September from 618 cents in February. “Rubber is a very sensitive commodity. Today it is cheaper to import tyres than import rubber as our duty structure is designed to please and protect the rubber growers,” said Arun Mammen, MD of MRF, said.

“We have asked for import of duty free natural rubber under the advance authorization scheme,” says Alok K Goyal, deputy secretary general, All India rubber Industries Association. “Since there is severe shortage of natural rubber in the domestic market, future trading only adds to the volatility,” a AIRIA report said.

India has around 4,600 rubber products manufacturing units that employ close to four lakh people, almost all of them in Kerala.









Falling India passenger car sales dampens metals, rubber industry
September 28, 2011





NEW DELHI (Commodity Online): The deceleration in India passenger car sales may impact energy, metals and natural rubber demand in the country. According to CRISIL Research, the fall in growth in car sales can be attributed to soaring petrol prices and hike in the interest rates by the Reserve Bank of India (RBI).

CRISIL Research expects the car sales growth to decline to 2-4% against the earlier forecast of 8-10%.

The domestic market for steel, aluminum, natural rubber may be dampened with the fall in car sales.

Petrol price was raised by 3 rupees to 66.84 per litre (price in Delhi) has been one of the major reason for the sales to go down and also the hike in interest rates to 25 Base Points (bps) by RBI. RBI has raised the interest rates for the 12thtime in a year.

The cost of owning a car has increased significantly by 12-14% due to frequent increases in fuel price and interest rate.

Earlier in 2008, India car sales had touched the lowest 1.4% on global recession. The dealers and the car manufacturers are offering discounts and gift coupons to promote sales but results are not forthcoming.

The demand for diesel cars like Maruti Suzuki –Swift, Swift Dzire, Mahindra Logan and Ford Fiesta has risen. The market for the used diesel cars is also picking up.