Shares of Paint companies such as Asian Paints, Berger Paints, Kansai Nerolac and others traded lower as higher crude oil prices rekindled worries on the margin front.
Oil continued to rise with investors still weighing worries over an economic slowdown against concern over lost Russian supply amid sanctions related to the conflict in Ukraine.
Oil prices rose as the Group of Seven nations promised to tighten the squeeze on Russia's finances with new sanctions that include a plan to cap the price of Russian oil.
US crude ticked up 0.99 percent to $110.65 a barrel. Brent crude rose to $116.22 per barrel.
With today's gains of two percent, Brent crude futures have risen over six percent in three sessions.
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At 1:59 pm shares of Asian Paints traded at Rs 2,728 per share. The share snapped a three-day gaining streak and fell over 3 percent, one of the major laggards on the Nifty 50 today.
Among other stocks in the sector that fell were Akzo Nobel India, Kansai Nerolac Paints and Berger Paints, down 0.7-3 percent.
Crude oil’s derivative titanium dioxide (TIO2) is the raw material for making paint and its prices also go up in tandem. The surge in raw material prices will increase the cost of production and impact the paint companies’ gross margins of the base raw materials that account for a significant percentage of costs for paint makers. The sector faced a pandemic-induced slowdown in the last two years and the rising input costs further add pressure on recovery.
Another worry for the paint industry is the rise in packaging costs. Paint boxes use tinplate extensively for packaging their products. The industry already faced a supply crunch for this metal due to disruptions after the pandemic including congestion at ports and the unavailability of containers. This pushed up packaging costs significantly in the past few quarters.
The Ukraine crisis has resulted in a sharp uptick in metal prices. Although this benefits metals, it can wreak havoc on already pressurised margins in sectors like paints.
Apart from this worries of more competition following Grasim Industries' increased capital expenditure outlay for its new paints business, had also fuelled concerns over the profitability of paint companies earlier.
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