South, SE Asia auto chemical sectors most vulnerable to high costs – Moody’s

SINGAPORE (ICIS)–High commodity prices will strain the credit quality of rated companies in south and southeast Asia in varying degrees, with automotive-related and chemical companies the most exposed, Moody’s Investors Service said on Monday.

Elevated prices of key inputs such as steel, aluminum and energy will hurt the profitability of automotive manufacturers in the region, particularly auto-parts suppliers, although India’s strong car demand will support carmakers’ pricing power, it said in a statement.

Meanwhile, chemical companies face higher feedstock costs and working capital requirements.

“High commodity prices remain a key risk that adds to global macroeconomic uncertainty, clouding the prospects for commodity-reliant sectors,” Moody’s vice president and senior analyst Maisam Hasnain said.

“Although commodity prices have declined in recent weeks, they continue to be above long-term averages,” Hasnain said.

Property developers, steelmakers and palm oil producers have moderate exposure to the impact of high commodity prices.

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.

On the other hand, upstream oil and gas producers 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.

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