Paint companies experienced significant selling pressure on Monday as crude oil prices surged nearly 29% to move past the $110 per barrel mark. However, oil prices have now plunged more than 20% from their intraday peak following US President Donald Trump's remarks that the Iran conflict could end soon. According to The Economic Times, Brent crude had hit a session high of $119.50 per barrel on Monday, before the sharp reversal. Crude prices extended losses on Tuesday morning, falling another 10% to trade below the $90-per-barrel level, marking the steepest fall from an intraday peak to closing price for the commodity. The turnaround comes after Trump's latest comments suggesting the war involving Iran could end very soon.
Shares of Asian Paints, Berger Paints, Akzo Nobel, and other paint companies are expected to remain in focus after the oil price reversal. As reported by The Economic Times, the development is significant for paint manufacturers because crude oil forms a key raw material base for the industry. Many inputs used in paint production are derived from petroleum products, and lower crude prices could reduce input costs and ease pressure on profit margins. The reversal comes after paint stocks had declined significantly on Monday, with Asian Paints falling 5% to trade at ₹2,163 apiece, Berger Paints plummeting 5% to their day's low of ₹421, and Indigo Paints shares falling nearly 5% to ₹831 on the BSE. The recovery in oil prices could provide relief to the paint sector after the initial shock of the surge.
The Strait of Hormuz continues to remain effectively shut for regular traffic after several tankers were bombed in the area. More than 20% of the world's oil supply passes through the Strait of Hormuz, which connects the Persian Gulf with the Gulf of Oman and the Arabian Sea. While US President Donald Trump-led administration claims that the Strait remains open and has offered to insure vessels transiting the narrow waterway, the market doesn't seem to be convinced that Iran won't attack any ship attempting passage. The closure has created significant supply disruption concerns, with Qatar's Energy Minister Saad al-Kaabi warning that Gulf energy producers could shut down exports within weeks, potentially pushing oil prices to $150 per barrel if the conflict intensifies.
In an exclusive conversation with ET Now, Abhijit Roy, MD & CEO of Berger Paints India, explained how the company is managing the crude oil price surge. Roy revealed that around 30-35% of raw material costs are exposed to crude oil, with decorative paints being more affected since they require higher inventory levels. The company currently holds over a month of finished goods inventory produced at older prices, while maintaining 30 days of raw material inventory also purchased at earlier prices. Roy noted that companies are likely to pass on most of the cost increase through price hikes, though minor adjustments may occur, with price revisions expected to be implemented soon after discussions with OEMs. The recent oil price reversal could provide some relief in implementing these cost management strategies.
According to The Economic Times, JM Financial had earlier cautioned that if the effective closure of the Strait of Hormuz lasts beyond a week, it could significantly push crude oil prices higher. However, the brokerage believes India may cushion the impact of extremely high oil prices by increasing imports of Russian crude. Domestic brokerage JM Financial said that every $1 increase in crude prices raises India's annual import bill by about $2 billion. The prolonged tensions could lift logistics and marine insurance costs, disrupt shipping routes across the Gulf and widen pressure on the country's trade balance. The Indian rupee could face near-term depreciation pressure, prompting potential intervention by the RBI through foreign exchange reserves. Higher crude prices could add to inflation risks, push bond yields higher and compress equity valuation multiples, making the recent oil price reversal particularly significant for India's economic outlook.
