Crude-sensitive stocks including Asian paints, Astral, MRF surged up to 7% in 2 weeks amid sharp drop in oil prices
Declining crude oil prices impact oil-producing countries negatively but benefit oil-importing countries and industries like tyre, paint, aviation, plastics, and chemicals. Stocks from these sectors have rallied as lower raw material costs are expected to benefit these companies.
Crude oil prices have been declining over the past few weeks on the back of concerns about increasing supply, low demand from major oil-consuming countries, and rising tensions in the Middle East. These developments have caused Brent Crude futures to drop 5% in the last three weeks, while WTI prices have fallen nearly 5.27% over the same period.
Falling crude oil prices negatively impact oil-producing countries. However, they are beneficial for crude oil-importing countries and industries that use crude oil as a raw material, such as the tyre, paint, aviation, plastics, and chemicals sectors.
Stocks from these sectors have rallied in anticipation that the drop in crude prices will reduce the companies' operating expenses, leading to improved net profits. Investors are optimistic that lower costs for raw materials will enhance profitability, making these sectors more attractive in the market.
Tyre Sector: Crude oil derivatives such as carbon black, synthetic rubber, and nylon tyre cord fabric make up nearly half the cost of producing a tyre. Consequently, fluctuations in crude oil prices directly impact the margins of tyre companies.
In response to the recent drop in crude oil prices, shares of tyre companies have reacted positively. Apollo Tyres shares have gained 5%, CEAT shares have risen by 5.10%, Balkrishna Industries shares have surged nearly 7%, and JK Tyre shares have increased by nearly 3%.
Paints: Paint companies also benefit from falling crude oil prices, as crude oil derivatives are key inputs for paint production. Approximately 50%–60% of the raw material costs for paint manufacturers are attributable to crude oil and its derivatives.
Shares of Asian Paints and Kansai Nerolac Paints have gained 2% and 5% in the last 2 weeks, respectively.
Textile Manufacturers: Synthetic textile manufacturers are set to gain from the sharp decline in crude oil prices, which are crucial for producing man-made fiber, yarn, fabric, and textiles.
As crude oil prices drop, so do the costs of man-made fiber (MMF), yarn, and fabric. Companies in this sector, such as Indo Rama Synthetics, have seen their share price rise by 5%.
Aviation: The airline industry is highly sensitive to crude oil price fluctuations, as jet fuel accounts for 50%–55% of total airline costs. A rise in oil prices directly impacts the cost of aviation turbine fuel (ATF), affecting the profitability of airlines. In reaction to the drop in prices, shares of Indigo have gained 2.75% in the last 2 weeks.
Plastic Products: Companies like Astral, which rely on plastic polymers derived from crude oil, will benefit from falling crude prices as it reduces input costs and improves margins and profitability. The stock price also reacted positively to this development, as it gained 4.25%.
Specialty Chemicals: The raw materials for specialty chemicals, such as toluene, methyl tert-butyl ether (MTBE), acrylonitrile, and propylene, are linked to crude oil prices. A decline in crude oil prices helps improve operating margins. For instance, shares of Alkyl Amines Chemicals have gained 5% in the last two weeks.
Disclaimer: We advise investors to check with certified experts before taking any investment decisions.
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