STABLE COMMODITIES. Relief for commodity producers bl-premium-article-image

Anand Kalyanaraman Updated - January 17, 2018 at 06:14 PM.

Somboon Srisart/shutterstock.com

Commodity producers were at the receiving end of the meltdown in energy and metal prices that began in 2014. From oil and gas producers to steel makers, the rout in the commodity market took a heavy toll. But the bleeding seems to have stopped in recent times. Prices seem to have stabilised and steep downsides appear unlikely.

After slipping under $30 a barrel in January, crude oil reversed course, nearly doubling to about $50 a barrel by early June.

Price stability
A steep price dip again seems unlikely, with several global central banks adopting an easy monetary policy and talks of a production freeze gathering pace. At the same time, prices may not rally beyond $60 a barrel, because many US shale oil and gas producers will again find it viable to produce around this level. The new normal of $45-$60, could still work to the benefit of oil producers such as ONGC, Oil India and Cairn India by limiting downsides.

Metal prices, which were on a free fall over the last few years, are also showing signs of stabilising. Prices are expected to stabilise or improve, aided by two factors.

One, demand from China is expected to pick up as its economy continues to grow, though at a slower rate. Earlier stockpiles have nearly dwindled and as new power plants come up, demand should grow. Two, oversupply issues seem to be under control as producers have adjusted to the new normal of prices below $5000 a tonne. Stability in copper prices will help big producers such as Vedanta.

Demand to improve Aluminium is also expected to be stable. While the risk of higher supply leading to price depression continues, demand is likely to improve in the long run. Also, the hike in import duty on aluminium in Budget 2016 helped local suppliers. These could aid revenue for producers such as Hindalco and Nalco. Coal prices globally have risen of late, tracking natural gas prices. With coal demand in India expected to be robust, Coal India should benefit.

Steel prices in China have risen recently, thanks to easing of restrictions on property purchases. Also, overall world steel demand is expected to pick up. Meanwhile, India’s steel consumption growth in 2016 and 2017 is expected to be the highest among the steel consuming nations. Introduction of minimum import prices on steel products and anti-dumping duties should help steel makers such as Tata Steel, JSW Steel and SAIL.

With inputs from Meera Siva and Maulik Madhu

Published on August 28, 2016 17:21