Increasing Crude Oil Price To Impact Product Pricing Across Sectors

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    The global crude oil price has touched US$ 80 per barrel lately and it is seen to hurt not just the import bill of the country and hence a combination of macros in the economy but Indian consumers will also duly feel the heat due to price rise across sectors. This is now eminent as well as evident with daily price increase in petroleum products that have scaled to new highs.

    Increasing Crude Oil Price To Impact Product Pricing Across Sectors

    Here are some of the common and rather major sectors that will bear the brunt if crude oil surge does not control:

    1. FMCG: The fast moving consumer goods segment has still not reacted to the sharp surge in crude oil price but in case there is a significant increase in price of fuel products both diesel and petrol from the current all-time high levels, industry's input cost will go up due to higher transportation cost. This increased cost can then be passed on to the end consumers by increasing product prices marginally.

    2. Medicines: For consumers, the price of medicines can shoot up due to increase in input material cost as diesel is used in boilers and also due to the likely impact on price of petrochemical based raw material. For the pharma industry as a whole, the effect of rising crude oil price and hence the weakening of rupee which is yet a positive for the exports will see the effect negate due to its heavy reliance on import of raw material.

    3. Automobiles: Industry foresees and fears a slump in demand due to increase in oil price. As it is auto makers have been forced to revise prices higher due to significant increase in the freight cost. The demand for new vehicles will be affected across segments including heavy vehicles which may see a drop in demand if diesel prices continue to rise.

    4. Consumer durables: Due to rising input cost and falling rupee, the industry has already decided to push up cost higher by 10-15% with effect from June this year. And in case the current crude oil situation persists, the industry will be forced to increase prices further. Notably, crude oil price rise does not impacts the industry directly but has a significant bearing due to its use a feedstock for a number of products plus it is also a major freight cost determinant.

    5. Logistics: With rise in the fuel cost, logistics cost has also gone up simultaneously and the effect is visible on an immediate basis. Logistics constitute some 10-15% of the overall product cost in India.

    6. Tyres: As crude-based raw materials including synthetic rubber and carbon black constitute around 60% of the total raw material cost for tyre companies, the impact on the industry due to crude oil price rise has been huge. As per analyst the price of these crude-based raw materials is on the rise even as natural rubber prices remain benign.

    7. Aviation: The crude oil price rise impact is visible on the aviation industry with increase in air turbine fuel price by over 7% until April this year. But this is unlikely to be passed on to airline passengers due to heavy competition in the industry. So, for now flyers are relieved even though ATF which constitutes significantly to industry's cost is rising.

    Goodreturns.in

    Story first published: Tuesday, May 22, 2018, 12:43 [IST]
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