Slumping Commodity Prices Welcome for US Companies

Tuesday, 28 May 2013 01:07 PM

By Dan Weil

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While the drop in commodity prices over the past couple years has caused hardship for those investing in the raw materials, it's providing a boost for U.S. companies using those raw materials in their products.

That's because the decrease cuts companies' costs, The Wall Street Journal notes.

Goldman Sachs, in an assessment of first-quarter earnings calls, discovered that falling commodity prices helped plenty of businesses, the paper reports.

Editor's Note:
Make 2013 the Year You Pay Zero Taxes

The companies that have been helped include General Mills, whose foods contain plenty of agricultural commodities, and Corning, which uses raw materials in making components for electronics and medical-lab equipment.

In addition, retailers such as Gap and Target are benefiting from lower cotton costs. The cotton factor also is helping Nike and Hanesbrands.

When it comes to the U.S. economy as a whole, lower commodity prices "will be a tailwind, a gentle tailwind," Nariman Behravesh, chief economist at IHS, told The Journal.

Thanks to falling commodity prices, especially energy, he predicts gross domestic product will expand 2.5 percent to 3 percent over the long term instead of 2 to 2.5 percent.

To be sure, not everyone has given up on a rally for commodities.

“The weakness in many commodity prices over the past year has led a number of commentators to call the end of the commodity super-cycle," said Nitesh Shah, a commodities analyst at ETF Securities, according to the publication ETF Strategy.

"However, most commentators are in fact referring to the near-term outlook for a few specific commodities rather than the longer-term trend that characterizes a super-cycle.”

Editor's Note: Make 2013 the Year You Pay Zero Taxes

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