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FMCG: Raw material prices fall but margins remain under pressure

A rain deficit in some northern states, and deprecation of the rupee, could impact the sector and derail the benefits of declining commodity prices. Analysts feel the pressure on margins may ease only in H2 of FY23.

September 09, 2022 / 15:26 IST
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FMCG companies such as Hindustan Unilever (HUL), ITC, Dabur, Marico, and Britannia are finally witnessing a much-needed fall in commodity prices, which have been a concern for the segment for more than a year now.

Crude oil is at a nine-quarter low, and has dropped 9.5 percent in the second quarter (Q2) of fiscal 2023 compared to Q1. “Crude oil prices are currently hovering at $88 per bbl (or per barrel), a 34 percent dip from the recent high of $134 / bbl in March, 2022,” said a note by Motilal Oswal.

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Crude-linked derivatives such as linear alkyl benzene, light liquid paraffin (LLP), titanium dioxide, etc., are used as input in several non-food FMCG products. LLP, for instance, is a key raw material for skin and hair care products.

Similarly, the price of palm oil also has reduced substantially in Q2. At less than $800 / mt, palm oil, a key commodity for FMCG products, especially soaps, is at its 52-week low.