[Raw Material Prices Plunge] Commodity-Related Stocks 'Tumble' Amid 경기 Slowdown Concerns

CRB Index Soars 40% This Year, Drops 15% This Month
Sharp Decline in Inflation Beneficiaries Like Refining, Shipbuilding, and Grain Sectors

On the 24th, as domestic gasoline and diesel prices continue to decline for the third consecutive week due to the drop in international oil prices and the expanded effect of fuel tax reduction, a major gas station in Seoul is selling gasoline at 1,939 KRW per liter and diesel at 1,969 KRW per liter. Photo by Jinhyung Kang aymsdream@

[Asia Economy Reporter Minji Lee] At the beginning of this year, as the prices of non-ferrous metals, agricultural products, and crude oil, which had been soaring due to prolonged inflation, began to decline, related stocks have been unable to escape a downward trend. The factor pulling these stock prices down is the 'concern over economic slowdown.' This reflects worries that earnings will decrease as demand for raw materials declines.

According to the trend of the Reuters-Jeffrey CRB index on the 25th, it has fallen below 300 points since the beginning of this month. This index is an average price index of 19 commodities (such as oil, natural gas, copper, nickel, corn) selected by the international commodity futures research company CRB. The index surged from around 250 at the beginning of this year to about 350 in early last month, showing a rise of over 40% in about six months. While the index’s excessive rise increased inflation concerns, it has fallen by more than 15% since the beginning of this month.

The decline in the index was triggered by concerns over a sharp drop in demand due to economic slowdown. In June, the U.S. FOMC (Federal Open Market Committee) showed its determination to continue taking giant steps (raising the benchmark interest rate by 75 basis points at once) to curb inflation, bringing recession fears to the surface. Additionally, market forecasts that the U.S. economy might show negative growth in the second quarter accelerated the decline in commodity prices.

Researcher Sohyun Kim of Daishin Securities analyzed, “The outflow of financial funds due to recession and demand drop forecasts influenced the price decline in the commodity market,” adding, “By commodity sector, speculative fund net purchase positions have significantly decreased compared to the beginning of the year in the order of grains, gold, WTI, and copper.”

In the domestic stock market, stocks that had been spotlighted as beneficiaries of inflation are being pushed out of focus. Representative examples are refining stocks linked to the sharp rise in oil prices, which are now on a downward path. S-Oil surged more than 40% from 85,900 won on January 3 to 121,500 won by the 10th of last month but has dropped more than 13% in the past month. During the same period, Jungang Enervis (-15%), SK Innovation (-10%), and Heungkuk Oil (-4.6%) also continued to decline. Shipbuilding stocks such as Daewoo Shipbuilding & Marine Engineering (-12%) and Hyundai Heavy Industries (-9%), which had expected order expansions due to rising oil prices, also fell.

Stocks of companies expected to benefit from the rise in prices of non-ferrous metals like copper and zinc are also declining. Poongsan, which produces products using copper, has fallen 16% since last month, and Hyundai BNG Steel, which produces stainless cold-rolled steel sheets using nickel, has plummeted more than 22%. LS (-18%), a copper smelting company, and Korea Zinc (-21%), a zinc smelting company, also dropped.

The decline in grain and feed-related stocks is also deepening. Agricultural product prices had benefited from supply disruptions caused by Russia’s invasion of Ukraine, energy price burdens, and export restrictions by food-exporting countries, but prices have fallen as some of these factors have eased. Harim, a chicken-related stock that soared to the 4,000 won range in April, is currently trading at 2,900 won, having plummeted more than 23% since last month. During the same period, Hanil Feed (-37%) and Woojin BNG (-16%) also sharply declined.

However, considering expectations for China’s economic stimulus, there are also forecasts that the decline in commodity prices will be limited. Researcher Byungjin Hwang of NH Investment & Securities explained, “The recent sharp decline in commodity prices is due more to concerns about recession than fundamentals, and China’s economic stimulus expectations will ease the downward pressure on industrial metal prices,” adding, “In the agricultural sector, attention should be paid to the possibility of La Ni?a exceeding 50% by the end of this year, which could lead to continued hot and dry weather.”