Moneycontrol Pro Panorama | Rumble in the commodity markets

Investors should note that factors that are driving the current uncertainty in the global economy can weigh on business prospects and prices in export markets also.

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As 2024 draws to a close, it is increasingly apparent that commodity prices will remain subdued in 2025. China, the biggest user of commodities, is slowing. And as global economy faces headwinds from heightened trade barriers, demand for commodities is expected to soften. This poses challenges to Corporate India and earnings.

Our columnist Vijay L Bhambwani warns that the Western Texas Intermediate (WTI) crude oil prices can drop below $55 a barrel in 2025 calendar year. The WTI variant of crude oil is currently around $70 a barrel. In the past, such a fall in crude oil prices coincided with a downturn or bearish predictions for the global economy.

India being a net importer of commodities has historically benefited from low commodity prices. However, the story is no longer that simple.

Global linkages and deepened trade relations mean the fall in commodity prices will have a cascading effect on local industry. Consider the steel sector.

Amid demand slowdown in China and the rest of the world, global producers are increasingly routing their steel to India. This is exerting downward pressure on steel prices in India. The benchmark hot-rolled coil prices can decline by around 10 percent in the current fiscal, predict ratings agencies. The falling product prices will weigh on realisations and operating earnings of steel producers even though a reduction in raw material prices can provide relief to some extent.

The industry is facing earnings slowdown amid capacity expansions and capital expenditure. This can deteriorate leverage ratios. Ratings agency CRISIL forecasts the net leverage ratio of primary-steel makers to rise to 5-year highs in the current fiscal.

The impact of easing commodity prices is already visible in a slowdown in corporate earnings.

On the flip side, easing petrochemical and metals prices can aid companies that use them based as raw materials. But investors should note that factors that are driving the current uncertainty in the global economy can weigh on business prospects and prices in export markets also.

The case in point is exporters of chemical-based products from India. Companies in these sectors are seeing subdued prices on soft demand and abundant supplies. Worried about a demand slowdown and high inventories, global customers are wary of placing large orders in advance.

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