BRENT @ $43.28: Commodity rout likely to slash India’s import bills

With India being the net importer of these commodities, there will be positive impact of the development on the economy.

The fall in global commodity prices on Monday, on the back of negative sentiments on China’s dwindling manufacturing activity, is expected to slash India’s import bills and provide RBI with the cushion to cut key interest rates, say experts. Besides, there is a sense that lower input cost will help corporates in shoring up their earnings.

While Brent crude touched an intra-day low of $43.28 a barrel on Monday — lowest since March 2009 — falling on concerns of a weak demand from China, other commodities such as copper, which gauges global industrial demand, declined 2.5 per cent, hitting a six-year low. Aluminium fell to its lowest since June 2009. While Copper has declined 22 per cent in 2015, Nickel slid 6 per cent to its lowest since 2009. Zinc and lead were also trading at their five-year lows.

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“The fall in prices of commodities is definitely going to benefit India especially on the oil front. We import around 80 per cent of our oil and the decline in oil prices will help us in bringing down our oil import bill. Further, the current account deficit will also improve on low oil prices,” Sugandha Sachdeva, incharge of metals, energy and currency research, Religare Securities Ltd, told The Indian Express.

With India being the net importer of these commodities, there will be positive impact of the development on the economy.

“The exchequer will save hugely on account of low commodities prices mainly oil. Further, with the prices tumbling, inflation is also expected to come down, proving room to the RBI to cut interest rates,” she added.

The apprehensions around deterioration in Chinese demand and the fact that the country’s manufacturing sector contracted at its fastest pace in almost six and a half years in August battered the commodities prices worldwide.

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Chinese stocks plunged more than eight per cent today, posting their biggest one-day loss since the height of the global financial crisis in 2007 as investor sentiments took a beating. However, with the rupee registering its biggest single-day fall by 82 paise at 66.65 against the US dollar, Sachdeva said that “the benefit of falling commodities prices may not be as much”.

“Because of the rupee movement, we won’t be able to take as much benefit. The prices of commodities have fallen in US dollar but one will have to shell out more in Indian rupees due to depreciation,” she said.