How Higher Brent Crude Prices Will Impact Key Sectors
The oil price surge has raised the costs of crude derivatives, impacting paintmakers to cement companies.
Oil prices have surged on voluntary production cuts by OPEC+ cartel.
Brent crude jumped 10.76% in just the past month, and more than 24% since July 1. That has also driven prices of various crude derivatives that serve as raw materials for multiple sectors.
Prices of five key products move in tandem with crude costs: titanium dioxide, carbon black, aviation turbine fuel, high-density polyethylene, and pet coke. These are used by sectors makers of paints, tyres, fast-moving consumer goods, and cement, and airlines.
Since July 1, prices of all the five key crude derivatives have surged. Aviation turbine fuel saw the biggest jump of 23.84%, followed by carbon black at 22.22%.
Paints
Production of paints heavily relies on crude-based derivatives--like titanium dioxide, pthalic anhydride, methyl methcrylate, and aromatics that are used as binders and solvents. These account for 40% of overall raw material costs.
Titanium dioxide, a key material used as white pigment in the industry, has seen a price elevation of almost 2.82% since July 1. Prices of pthalic anhydride and methanol have surged 10% and 20%, respectively.
If prices continue to rise, that will likely impact Asian Paints Ltd., Berger Paints Ltd., Kansai Nerolac Paints Ltd., Akzo Nobel NV.
Since paintmakers buy raw material about three months in advance, any effect of the ongoing surge will more likely be evident in the quarter ending December, rather then July-September earnings.
Titanium dioxide is also used as a pigment by the plastic, paper and ink manufacturing industries.
Tyres
Carbon black prices have jumped 22% since July to around Rs 110 per kg, according to independent manufacturers.
Carbon black is a key raw material for the tyre industry and acts as a catalyst to improve performance. It enhances rubber's mechanical strength, anti-vibration property, and conductivity, while also improving processing, strength, and durability.
The derivative also has applications in the plastic, battery, high performance coating, pipe, printing, ink, wire and cable making industries.
Aviation
Aviation turbine fuel prices have surged 23.84% since July 1. The central government hiked jet fuel prices for the third straight month in September by 14%, followed by 8.5% increase in August, and 1.65% hike in July.
Jet fuel or aviation turbine fuel is most commonly designed to be used for aircraft powered by gas-turbine engines.
Consumer Goods
High-density polyethylene is widely employed in the packaging materials for essential consumer goods. Since July, the price of this commodity has risen 1.48%.
HDPE finds extensive use in packaging of various consumer products, including soaps, detergents, hair oils, creams, shampoos, and toothpaste. Given that packaging expenses for these items typically account for 15-20% of the total production cost, the nearly 2% rise in costs will impact their profit margins.
Other crude derivatives commonly used by the sector include linear alkyl benzene and light liquid paraffin. Linear alkyl benzene is used in laundry detergents, light-duty dishwashing liquids, among others. While light liquid paraffin is used in creams and oils.
Cement
In order to reduce CO2 emissions, most cement companies have now enhanced their fuel mix in favor of petroleum or pet coke and currently use over 80% of pet coke as fuel.
Pet coke prices have risen 8.31% since July.
It is also useful in the production of electrodes for the aluminium industry, graphite electrodes for making steel and solid fuel boilers used to generate electricity, among others.
