On its third-quarter earnings call today, Caterpillar (CAT) confirmed what most of Commodity Surge readers already know, that over the short haul commodity prices will probably continue to drop, even after their steep plunge over the first half the year.
If you're in investor in companies like Caterpillar, who count on the business of companies connected to commodities, you'll find that they'll continue to make significant investments in raw materials and equipment to take advantage of the fall in prices.
In a statment Caterpillar said: "A weakening world economy could continue to push prices down and impact producers' investment plans.
"The current investment cycle was already under way in early 2005 when the oil price was a little over $40 and copper was $1.40. Current prices remain favorable for investment."
So while the eventual return of higher commodity prices could negatively impact company investments, for now we should see an upswing to grab low prices while they can.
Of course we have the credit problem to deal with in relationship to getting the funding to make these purchases. But companies with a low debt load are in a strong place to take advantage of the declining prices, and companies like Caterpillar will be helped significantly from that.
The problem for Caterpillar hasn't been sales, which for the quarter were at a record high, it was the high costs of materials which undermined the profits; falling by 6 percent even with the increased sales.
Steel prices were the primary culprit in downward profit results for the quarter.
The commodity slowdown is only going to be temporary, be prepared and watch for when the commodity bull market continues.
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