From the March 2011 issue of Treasury & Risk magazine

Commodity Prices Hit Margins

As the economy slowly revives, companies face a new threat: rising commodity prices that could pressure corporate cash flows and margins. According to a recent study by Fitch Ratings, the industries that are likely to feel the biggest pinch are airlines, ethanol producers, and livestock and poultry processors, with packaged-goods companies and retailers also likely to feel some pain.

Fitch argues that the Federal Reserve's stimulus, federal tax policies and the exuberant growth in emerging markets like China and Brazil are all reinforcing the increases in commodity prices.

Given the improvement in the economy, companies are in a better position to pass on higher costs to their customers than they were the last time commodity prices headed higher in 2008, Fitch says.

On the other hand, the rating agency notes that companies did a lot of restructuring during the recession, which leaves them little excess capacity to cut if commodity prices start to sting.
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