KUALA LUMPUR, July 18 — High commodity prices will strain the credit quality of rated companies in South and South-east Asia to varying degrees, with auto-related and chemical companies the most exposed, says Moody’s Investors Service (Moody’s) in a new report.
Vice-president and senior analyst, Maisam Hasnain said that high commodity prices remain a key risk that adds to the global macroeconomic uncertainty, clouding the prospects for commodity-reliant sectors.
“Although commodity prices have declined in recent weeks, they continue to be above long-term averages,” he said in a statement today.
Maisam said that elevated prices of key inputs such as steel, aluminium and energy would hurt the profitability of automotive manufacturers in SE Asia — particularly auto-parts suppliers — although India’s strong car demand will support carmakers’ pricing power.
Meanwhile, chemical companies face higher feedstock costs and working capital requirements.
He added that property developers, steelmakers and palm oil producers have moderate exposure to the impact of high commodity prices.
“Property developers can pass some of the higher costs to house buyers, and as for steelmakers, strong steel demand will support their earnings despite narrowing product spreads on higher input costs.
“Meanwhile, palm oil companies will need to increase short-term borrowings to fund higher working capital needs,” he said.
On the other hand, upstream oil and gas producers would benefit directly from high product prices.
“Refiners, too, will lift with bumper margins, although they face higher input costs, increased working capital needs and uncertainty over their ability to pass on higher costs to customers.
“Likewise, record high selling prices will boost mining companies’ revenue to far exceed the increase in production costs,” said Maisam, adding that most miners will have sufficient liquidity to cover any increase in working capital requirements, along with planned investments. — Bernama
