The global macroeconomic uncertainties particularly in eurozone, lower consumer confidence and slowdown in demand in emerging markets have dampened sentiments in global commodities market, analysts said. From beginning of May, the CRB index that constitutes of 19 commodities was down 11 percent while price of WTI crude, Arab light crude and coal prices are down 20 percent, 16 percent and 3 percent, respectively, a research report of Topline Securities said.
Cotton, which was already under-pressure, has declined by 16 percent, it added. Other commodity prices like PTA and Px have also come under pressure, while fertiliser prices have remained relatively immune. Muhammad Sohail, leading analyst in this report said that the decline in international commodities' prices is expected to have divergent impact on different listed sectors.
IMPACT ON E&P: NEGATIVE Decline in international oil prices is expected to negatively affect E&P sector's profitability. A $10/bbl change in oil prices alters sector's FY13 earnings by 6.3 percent with POL being the most sensitive (7.0 percent), while OGDC and PPL earnings change by 6.5 percent and 5.9 percent, respectively.
IMPACT ON OMCS AND IPPS: POSITIVE For oil marketing companies (OMCs), it is expected APL to remain relatively immune but for PSO it is a blessing in disguise. Declining oil price would reduce PSO's margin on FO and cause inventory loss, but reduction would also slowdown the built-up of circular debt and subsequently improve its liquidity position. In similar context, IPPs liquidity position is also expected to improve due to reduce built-up of circular debt.
IMPACT ON REFINERIES: NEUTRAL TO NEGATIVE For refineries, reduce prices means lower benefit of deemed duty in absolute terms and result in inventory loss. For every $10 change in the oil prices, deemed duty changes by $1.4/bbll, which effect NRL and ATRL annualised earnings by Rs 3 and Rs 2 per share. However, for NRL, the reduction in oil prices bodes well for lube margins at least in the short run.
IMPACT ON CEMENTS & AUTOS: POSITIVE Decline in coal prices could further improve margin of local cement manufacturers. "Our estimates suggest that every $10 per ton decline in coal price improves DGKC and Lucky FY13 earnings by 8-9 percent. Similarly, falling steel prices bodes well for Auto Assemblers and slightly improve their margins, assuming PKR-Yen parity to remain same.
IMPACT ON FERTILIZER: NEUTRAL Compared to other commodity prices, international urea and DAP prices remained relatively immune. However, domestic urea prices still more than 30 percent discount to int'l prices, the change in int'l prices has minimal bearing on predominantly urea producers like FFC, FATIMA and Engro. For DAP producers like FFBL, the int'l DAP prices has remained relatively immune to commodity price fall boding well for the profitability.
IMPACT ON TEXTILE: NEUTRAL TO NEGATIVE On textile sector, fall in cotton prices is expected to reduce margins on cotton yarn. However, given integrated business, like NML, the impact would be slightly diluted given the diversified portfolio that includes high end products.
IMPACT ON CHEMICAL: NEGATIVE Since price of Int PTA (end product) reduced by 20 percent, while overall PTA-Px margin have decline by 20 percent boding negatively for the LOTPTA.
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