Falling commodity prices a boon for some

October 11 23:40 2015

The plunge in commodity prices is hammering the profits of giant producers such as Exxon Mobil and Alcoa, but it’s a windfall for companies paying less for raw materials. The winners from the commodities crash could help offset the pain of losers such as Alcoa as earnings season gets in full swing.The aluminum giant kicked off the quarterly reports last week by posting profits nearly 50% short of analysts’ estimates. The reason: a 19% decline in aluminum prices the past year.http://www.dreamstime.com/royalty-free-stock-photos-oil-pump-image17680658

The beneficiaries of the lower prices are tougher to identify because the gains are spread throughout the economy and may be limited for individual companies, says Steven DuBuc, commodities expert at consulting firm AlixPartners. Still. the big drop in raw materials costs “is going into somebody’s pocket,” he says. The savviest firms, he says, have negotiated discounts while passing little, if any, of the savings to their consumers.

The bear market for commodities, largely a result of China’s economic slowdown, is unusual because it’s happening while the U.S. economy is growing solidly, DuBuc says. That’s providing many companies a rare opportunity to pocket the savings but maintain their retail prices amid still-strong demand. Airlines, for example, have realized a bonanza in jet fuel savings, while fares have dipped just slightly. American Airlines is expected to save billions of dollars in fuel costs this year.

Automakers are also big winners. With aluminum, steel and copper costs dropping sharply, the average raw material cost per vehicle has fallen nearly $600 the past year, AlixPartners research shows. Most of that has flowed to the automakers, and with auto sales back to pre-recession levels, manufacturers haven’t had to pass the savings to car buyers