On Monday, the BSE Metal Index fell 3.5%, nearly twice the fall suffered by the broader market.

Those looking for a silver lining in the developed world’s woes said commodity prices will fall, which is good for India’s inflation. But that is harmful for Indian producers of these metals. If international prices slide, firms’ profits will follow suit, as domestic prices are pegged to the landed price of imports.

The jury is still out on the extent of impact from the US downgrade. The effect will be felt by financial markets first, and eventually by business, too. The risk from Europe’s serial economic crisis is known, though its severity could perhaps surprise.

In the metals sector, the intensity of the impact could be different in the short term, which will be determined by what happens to financial markets, and in the long term, by the follow-on effect on demand.

Ferrous: Steel prices are unlikely to get affected in the short run by these developments as they depend on demand-supply conditions. The key risk to prices is from the US and European Union economies slowing significantly.

Firms such as Tata Steel Ltd, due to their European operations, will be more exposed to volatility in these markets. Indian steel firms would be more worried about rising interest rates and their effect on India’s economic growth, and the recent ban on mining iron ore in Bellary. Firms such as JSW Steel Ltd and Sesa Goa Ltd have been hit hard by the ban.

Non-ferrous: The impact on non-ferrous metals is likely to be visible in the short run, as these metals are actively traded. Most of them were falling even before the credit downgrade was announced.

If copper prices fall, Hindustan Copper Ltd will be affected as it mines the metal, but others such as Hindalco Industries Ltd and Sterlite Industries India Ltd will not. Their profits depend on refining charges earned on copper concentrate, where their fortunes have improved. But a fall in prices of commodities such as aluminium, zinc and lead will hit their performance.

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