Cooling crude oil prices – companies in these sectors could benefit the most

• Cooling crude oil prices could bring relief to governments, companies and common people alike across the world.
  
• A fall in crude oil prices will not only help governments focus on growth instead of inflation, it will ease bottomline pressures on companies and reduce cost of living for the common man.
  
• For investors, too, this could bring much needed cheer at a time when Nifty has corrected over 8% this year so far.
  

Crude oil prices are sliding back after peaking crossing the $125 barrel mark in March. This could bring some much-needed relief to companies across sectors. It could also help reduce prices of commodities and food products, and help contain the growing inflation.

Brent crude, the type of crude oil that is imported by India, fell below $100 per barrel for the first time in nearly three months. However, the current cool down is due to fears of recession and fall in demands thereafter, so governments could have a bigger problem on their hands soon.

That said, falling crude oil prices are expected to benefit sectors like paints, petrochemicals, textiles, aviation, tyres, and cement.

It is worth noting that the benefits from a fall in crude oil prices will take time to reflect in the bottom lines of companies. However, stock markets tend to price in these movements a lot faster.

This is evident from the move in metal stocks – for example, the Nifty Metals index rose sharply by 4% after China announced its $220 billion infrastructure stimulus programme.

These companies could benefit from a fall in crude oil prices

Aviation

Aviation industry is amongst the worst affected by rising crude oil prices, as aviation turbine fuel is the single biggest cost driver for airline companies. Jet fuel prices have been hiked from ₹72,000 per kilolitre to ₹1,23,000 – a hike of ₹51,000 since the beginning of 2022.

Amongst listed airlines, InterGlobe Aviation and SpiceJet are the two biggest names, and Jet Airways will join them soon this quarter.

Paints

Manufacturing paint requires over 300 inputs – most of which are petroleum-based. The paint industry was already suffering from subdued demand post the Covid lockdowns, and the surge in crude oil prices has proved to be a double whammy.

Asian Paints, Berger Paints, and Kansai Nerolac Paints are some of the biggest paint companies in India.

Petrochemicals

Crude oil prices and petrochemicals are intricately linked. According to a McKinsey report, a 50% oil price drop can result in a 50% decline in raw material spend at the beginning of a value chain and 20% at the end of it.

Some of the prominent names here include Reliance Industries, Indian Oil, GAIL, Rain Industries, Pidilite, Castrol, among others.

In the specialty chemicals sector, there are companies like Aarti Industries, Atul, and Alkyl Amines.

Textiles

Synthetic textile manufacturers are also one of the key beneficiaries of falling crude oil prices, since crude oil is an important component of industrial inputs like fibre, yarn, fabric and other textile products.

Some of the biggest names in the synthetic textile industry include Welspun India, Filatex India, and Indo Rama Synthetics, among others.

Tyres

Tyres are another product which depend heavily on crude oil, comprising nearly 60% of the cost of production of a tyre.

Some of the biggest tyre manufacturers include MRF, Apollo Tyres, JK Tyre and CEAT.

Cement

Record low home loan interest rates and the post-pandemic burst in demand had pushed the realty sector towards recovery, but the cement industry’s margins were eaten away by rising crude oil prices. A cool off in crude oil prices could bring some cheer to the sector, as 60% of their business is linked to crude oil prices.

Some of the biggest cement makers in India include UltraTech Cement, Ambuja Cements, Shree Cement, and ACC, among others.

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