Oil on boil: Consumer companies feel strain, price rise looms

MUMBAI: The spectre of price hikes is looming for consumers as rising oil prices on the back of escalating West Asia conflict risks inflating input costs for companies which will eventually have to pass on the increase to shoppers across the country, straining household budgets.

From lotions and detergents to ACs, washing machines and even a box of paint, crude-linked derivatives make up a significant portion of raw materials that are used to manufacture several regular household products. A depreciating rupee had already been putting pressure on margins of consumer firms that are dependent on imports. Besides, upward movement in prices of certain commodities had also translated into cost increases for consumers in the recent past - for instance coconut oils and home care products among others.






While the endeavour of companies will be to absorb the crude-led rise in costs as much as possible, price hikes will certainly be in the offing if oil touches $90 (per barrel), said Mayank Shah, chief marketing officer at Parle Products. He added that in the foods space, crude accounts for about 20% of input costs. "Rise in crude prices impact freight and packaging costs," Shah said.

'Crude and rupee shock'

Higher oil prices drive up the cost of essential raw materials such as polypropylene, styrene monomer and ABS which are fundamental to the manufacturing of refrigerators, washing machines, air conditioners and other appliances, said Kamal Nandi, business head and EVP at appliances business of Godrej Enterprises Group. "If the upward trajectory of crude and the weakening of the rupee persist, it will put pressure on consumer pricing in the near term," said Nandi.

The war which has pushed Brent crude prices over $80 per barrel in a matter of days threatens to derail the recovery in consumption helped by GST cuts. Big-ticket purchases such as cars and select durables had seen big demand boost post GST while the FMCG industry was starting to see some demand revival after a prolonged spell of slowdown.

Emami Group, maker of BoroPlus and Dermicool which took 2%-4% price increases in some personal care products to adjust for inflation in the Dec quarter said that for now, the company will wait and watch instead of taking a sudden call on pricing, said Harsha Vardhan Agarwal, vice chairman & MD.

"The current situation in West Asia has resulted in disruptions in container movement and logistics. We are closely watching the oil prices as that would impact input costs," said Mohit Malhotra, CEO at Dabur India.

Calibrated rise

Price increases will be selective and calibrated, instead of broad-based as the strategy will be to protect margins while sustaining demand, said Kuldip Raina, MD & CEO at Shalimar Paints. Nearly 35%-40% of the raw materials used in paint manufacturing including emulsions and additives are linked to crude derivatives, many of which are import dependent.

"In recent weeks, input costs for select crude-linked materials have risen by 8%-12%, alongside firming freight, packaging and specialty chemical costs globally," said Raina. Analysts at HSBC in a note said that oil prices could rise to $90-$100 per barrel if prolonged closure leads to big stockdraws, production is shut or damaged.
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