09/08/2011 (Business Daily) - The fall in commodity prices at the international market amid fears of a slowdown of the global economy is set to reduce exposure to imported inflation and exchange rate instability.

Crude oil prices have dropped eight per cent to $104 over the past two months while copper has reduced by 15 per cent and steel 33 per cent — all of which account for a third of the Kenya’s import bill.

Dealers reckon that a fall in commodity prices will cool the volatile currency market.

Traders are cutting back their demand for these commodities on fears that the eurozone’s debt problems aren’t going away. The US is also struggling to avoid drifting into recession.

The price of other critical commodities such as rubber, palm oil and coal have also fallen significantly over the period in what could see the cost of goods such as tyres, cement, cooking oil and soaps drop as manufactures transfer the cost savings to consumers.

The International Monetary Fund expects fuel and metal prices to drop further as the world frets over recession This outlook bodes well for Kenyans who have seen monthly inflation rise to 15.53 per cent last month from 5.0 per cent in January due to expensive food and energy as well as the weak shilling that has made the cost of imported commodities increase.

The falling cost of oil is expected to have the biggest impact on the economy since a rise in petroleum prices usually pushes up the cost of transport and ultimately the cost of goods including electricity.

A litre of diesel is retailing at Sh106.12 a litre in Nairobi compared to Sh87.45 in January.

Cheap fuel could also weaken the Kenyan shilling against the dollar as oil marketers’ demand for the greenback as oil marketers will require more dollars to import petroleum.

The shilling is trading at record lows of Sh92.80 to the dollar compared to Sh80 at the start of the year.

The forecast lower metal costs could see local industrialist such as manufacturers of building materials, who mainly rely on the two commodities pay less for raw material costs helping to curb the rising product prices. “Anything around a five per cent drop in the cost of steel on international market should be enough for us to pass on prices to the local consumer,” said Mr Kaushik Shah, managing director Mabati Rolling Mills, manufacturers of corrugated iron sheets and other steel products.

Similar comments were echoed by rivals: “We will respond if the trend holds for than three months,” said Mr Sandeep Kaushik, chief operating officer Insteel Ltd.