How Global Commodity Prices Affect Egyptian Listed Companies

How Global Commodity Prices Affect Egyptian Companies

When wheat, oil or steel prices move on world markets, Egyptian companies feel it. But the same news can be good for one company and bad for another, depending on what that commodity is to each of them.

What you will learn

Tell a company that sells a commodity from one that buys it as an input.
See why the effect lags and differs from the simple math.

Product or input?

The first question: does the company sell this commodity or buy it? A fertilizer maker selling at prices linked to world markets may see revenue rise when global prices rise. A pasta maker using imported wheat faces the same rise as extra cost. Some companies sit on both sides, buying an input and selling a product whose price is linked to it.

The global price rises

A company that sells itIts revenue can rise

A company that buys it as an inputIts costs can rise

The same global price move, two opposite effects.

A worked example

Two invented companiesUpper Egypt Fertilizers, an invented company, sells 100 thousand tonnes a year at a global 400 dollars a tonne, or 40 million dollars. If the price rises 20% to 480, its revenue becomes 48 million dollars for the same volume. Sunrise Pasta, another invented company, buys 10 million dollars of wheat a year. If wheat rises 20%, its costs go up 2 million dollars, and unless it can raise its prices, that comes out of its profit.

Why the simple math is not enough

Four things make the real effect different. First, the dollar: commodities are priced globally in dollars, so a move in the pound can amplify or cancel the effect. Second, inventory: a company may hold materials bought at the old price that last for months. Third, contracts: some companies buy or sell at prices agreed in advance. Fourth, some products are priced locally in other ways, so not every global rise reaches the consumer.

That is why the effect may show up in later periods rather than right away, and how fast depends on inventory, contracts, pricing and the exchange rate. The market may move ahead of the results and price the expectation early.

Watch outDo not tie a stock to a commodity from the company's name alone. Check its statements and disclosures for how much of its revenue or costs that commodity represents.

Follow global commodities

The commodities page shows oil, metals and agricultural prices, which you can compare with sector performance.

Commodities Sectors

Check yourself

1. Global oil prices rise. A company uses a lot of fuel for transport and sells no oil. What is the most direct effect?

For this company oil is a cost, not a product.

2. Why might a company not feel a rise in an input right away?

Inventory and contracts delay the effect on results.

Summary

The same commodity move can help those who sell it and squeeze those who buy it as an input.
The dollar, inventory, contracts and local pricing change the real effect.
The effect usually shows in results months later, and the market may move first.

Related lessons

Educational content only, not investment advice. Companies and figures in the examples are invented for illustration.