FMCG products dearer as oil prices skyrocket
FMCG firms in food product category are facing problem of higher input cost due to soaring palm oil price; Paint companies, which use crude oil as direct ingredient, suffering from rise in overall cost of material
image for illustrative purpose
Passing On The Cost
- FMCGs hiked prices of soaps, detergents, toothpastes, shampoos and select food products like coffee, biscuits and juices
- Global wheat prices rising
- Barley supplies also hit
- Nestle, HUL already raised prices
Bengaluru: Rising crude oil prices is prompting a host of FMCG and paint companies to raise prices on the back of rising input cost. Analysts are of the opinion that inflationary pressure created due to high oil prices is likely to continue and another round of price hikes is also likely in the first quarter of next financial year.
Fast-moving consumer goods (FMCG) companies hiked prices of soaps, detergents, toothpastes, shampoos and select food products like coffee, biscuits and juices in February as raw material prices saw a northward rise owing to high crude oil prices.
On the back of ongoing Russia-Ukraine crisis, FMCG firms in food product category are facing the rise in input cost like palm oil in recent time. Global wheat prices are also strengthening as both Russia and Ukraine account for around 30 per cent of global wheat production.
Similarly, paint companies, which use crude oil as direct ingredient, see rise in overall cost of material, prompting them to raise prices.
"Inflation in palm oil is particularly worrying, as it is a key raw material for nearly all FMCG companies, especially soap manufacturers and to some extent food players. The situation was
exacerbated further by the recent restrictions on palm oil exports by the Indonesian government and Ukraine being a major exporter of edible oils," Motilal Oswal said in a report.
Also, Russia-Ukraine region being a major exporter of food grains, barley supplies will remain a key monitorable, analysts said.
Meanwhile, some analysts also said that rising raw material prices may pass on to the farm producers with a lag. This will eventually help the producers by getting higher prices from companies.
Large FMCG companies like Nestle, and HUL have already raised prices of their key products to pass on the cost to consumers.
Though such hike will be able to pass on some percentage of cost rise to consumers, companies will not be able to pass on all the cost. Therefore, margin compression is expected to be seen by large FMCG companies in the current quarter.
Crude oil prices have risen rapidly to touch a record $130 per barrel as major producer Russia's ongoing conflict with Ukraine have disrupted supply. Though prices have come down to below $100 per barrel in recent days, the ongoing crisis creates uncertainty on the future price movement.
