Stocks of crude sensitive companies, like paint and tyre players and oil marketers surged in trade on March 6 as a fall in oil prices to a six-month low boosted hopes of easing input costs. Prominent names like Asian Paints, BPCL, HPCL, Apollo Tyre gained around 3-4.5 percent.
Brent crude prices dipped below $70 per barrel, extending a decline of over 6 percent in the last four trading sessions. Morgan Stanley has lowered its Brent estimates for the remainder of the year, now expecting the benchmark to trade in the $60s during the second half of 2025.
Falling crude oil prices are a boon for a slew of sectors dependent on the commodity as a key raw material. For downstream refiners lower input costs translate into improved profitability and margins, as it gives them ample headroom to dictate prices. To that effect, shares of Chennai Petro, IOCL, HPCL, and BPCL surged 2-10 percent.
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Similarly, crude oil prices have a significant impact on the decorative paint industry, which is highly raw material-intensive. Paint manufacturing relies on over 300 components, the majority of which are petroleum-based. With raw materials accounting for 55-60 percent of input costs, fluctuations in crude prices directly influence gross margins for paint companies.
Falling crude oil rates also slashes the cost of producing items such as titanium dioxide, a key ingredient for white paint. A fall in crude prices will positively impact paint manufacturers as that reduces their input costs and gives them more leeway to generate higher margins. Paint companies like Berger Paints, Kansai Nerolac and Asian Paints soared 2-4 percent.
Brent crude is also a key source of synthetic rubber and various petrochemical products essential for tyre manufacturing. As crude prices decline, the cost of these raw materials drops, leading to lower production costs for tyre companies. This reduction in input costs allows tyre manufacturers to improve profit margins, potentially boosting their overall financial performance.
However, on the flipside, the fall in crude prices will have a negative bearing on oil drilling stocks like ONGC and Oil India as it squeezes their profit margins. This is because the price of refined products may not drop as quickly or proportionately and hence, refineries holding inventories bought at higher prices may face inventory losses as the value of their stock decreases.
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