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Importers get respite in softer commodity prices

February 15, 2014

Importers of raw materials are enjoying a reprieve from softer commodity prices helping to cut their expenses and dampening pressure on inflation, IMF data shows.

Major commodities that Kenya imports have seen their prices soften on weaknesses in the eurozone economic numbers and fears of declining activities in the emerging markets.

East African Cables, Devki Steel Mills, rubber manufacturers such as Sameer Africa, beer makers have witnessed a drop in the cost of raw materials in the last one year and IMF says prices could soften or remain stable for the next 12 months.

This means external pressures on the exchange rate will be minimal thus lower inflation.

For instance copper prices used to make electricity prices have dropped to the lowest level since October 2010 from highs of Sh848,562 a tonne to the current price of Sh611,890a tonne.

Aluminum which is also used to substitute copper due to its high prices has also assumed a downtrend cutting raw material costs.

"Futures markets show most commodity prices remaining flat or declining over the next 12 months, with the exception of gasoline, natural gas, and some food products," the IMF said.

Rubber prices have also eased significantly giving tyre makers higher profit margins. East African Cables returned a profit of Sh288mn.

Beer maker have also witnessing softer barley prices compared to one year ago with prices almost halving.

A tonne of barley has dropped from Sh20,038 in January last year to Sh11,438 a tonne in Janury according to IMF data stream.

Heavy users of barley include the East African Breweries and Keroche Breweries.

Similalry the cost of maize which the government could be forced to import due to lack of food in the country has also seen a significant price reduction on the world market. A tonne of maize that was going for Sh26,058 a tonne is now worth Sh17,028 a tonne.

This good prices will also help to keep inflation relatively lower compared to 2011 which was characterized by high prices.

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Source: Nation (Kenya)

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