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Rising raw material costs, declining profitability and higher working capital requirements are having the biggest impact on companies in the automotive and chemical sectors, said a report by global rating agency Moody's.
Although commodity prices have declined in recent weeks, they continue to be above long-term averages. Companies in the automotive and chemical sectors are most exposed to potential weakening in profitability and rising working capital intensity because of increasing raw material costs. Steel and aluminium prices have retreated from previous peaks but remain high and volatile, and as a result, will hurt the profitability of automotive manufacturers but more so for auto-parts suppliers, the report said. Strong car demand in India will support carmakers' pricing power. Further, chemical companies face higher input costs, or higher raw materials cost along with working capital requirements. On the other hand, companies in commodity industries, such as mining and upstream oil and gas, are key beneficiaries of the high commodity prices. Mining companies are primary beneficiaries of high commodity prices. Record high selling prices for their commodities will allow revenue growth to far exceed the increase in production cost, the report said. Most miners' liquidity will remain sufficient to cover any increase in working capital requirements, along with planned investments. (ANI)
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