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Quarter-End Insights

Our Outlook for Basic Materials Stocks

Falling commodity prices and rising costs could crimp margins.

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Concerns about a slowdown in the global economy have taken a toll on many basic materials companies' shares over the past three months. For the most part, second-quarter results from these companies were strong, as the longer-term themes of developing-market industrialization and a constrained resource base (causing a tight supply/demand balance for commodities) continued to play out. Bright spots included coal, where demand from developing economies drove spot prices for Central Appalachian coal from under $60 per ton at the end of 2007 to $120-$130 today, and agricultural products (such as fertilizer and crop protection chemicals), where spot prices for standard potash rose from $175 per metric ton to $775. On the other hand, weak demand from the North American and European construction industries did impact some chemical companies' earnings.

Elizabeth Collins does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.