How will rising prices impact crude derivative cos?

Sunita Nagpal, CNBC-TV18

Crude prices have been surging to a new all time high, now reaching USD 122/bbl on supply threats. Other than upstream and downstream oil companies, there is a whole slew of companies that live on crude derivatives and these are suffering already.

A CNBC-TV18 poll on crude oil found out that 33% of respondents expect crude to peak above USD130/bbl.

There are lot of companies and ancillary industries that use crude derivatives as their raw materials and these are all going to be impacted. Depending on which side they are, they will be positively impacted because of high crude prices or negatively impacted. The one’s to be impacted positively are ancillaries of oil companies, which are used by these oil exploration companies. Oil rig companies like Great Offshore, Aban Offshore are likely to be positively impacted.

The shipping companies which carry crude are also likely to see higher prices, because the demand will be higher so Mercator Lines and GE Shipping can gain on that. Other related ancillaries like Selan Exploration, Shiv-Vani Oils and also the pipeline companies will benefit, if crude goes upto USD 200/bbl.

The companies to be negatively impacted are the ones which use petrochem as their raw materials, which would be some companies like Indo Rama and GAIL. The textile companies that make synthetic fibers are likely to take a hit like Sangam India, RSWM, Banswara Syntex or JBF India. Other companies using chemical as their raw material to make chemicals, including dyes and chemical companies will be Thirumalai Chemicals, Meghmani Organics.

Fertilizer companies using Nafta as their raw material, those companies will be hit. Paints also use crude derivatives as thier raw material and will also take a hit - Asian Paints, Berger Paints, Goodlass Nerolac being some of them.

Among the pharma companies in which most of the Active Pharmaceutical Ingredients (API) are produced from crude derivatives, those companies will also take a hit and their raw material prices will go up and will be passed on and then one can see pharma prices also going up.

Impact will also be felt by packaging companies like ESSEL Propack, Cosmo Films, Uflex.
 
FMCG will not be directly hit, but because of the packaging cost going up they will also take a hit. So we will see HUL and Godrej also taking a hit because of the packaging cost going up.

Aviation as one knows is directly linked to Aviation Turbine Fuel (ATF) prices and ATF prices are not under government control, so prices will go higher on that and if the government decides to pass on the cost, then some of the auto cost can also come under pressure.