Commodity prices soar on Russia supply fears - Times of India

Commodity prices soar on Russia supply fears – Times of India

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MUMBAI/CHENNAI: Input costs will push up and margins will squeeze across multiple sectors, if the spike in commodity prices are not passed on. Prices of crude, aluminum, nickel, steel, palladium, among other commodities, have soared since the US and European nations imposed sanctions on Russia, following its invasion of Ukraine.
Fears of prolonged supply crunches and global inflation mount input cost pressures for multiple sectors. While steel and aluminium sectors benefit from the rally, automobile, consumer durable, construction and real estate industries will feel the pinch.
The automobile sector is unlikely to get a respite from the ongoing microchip shortage, said rating agency Crisil in its report titled Russia-Ukraine a strain on multiple sectors. That’s because Russia and Ukraine produce 75% of the neon gas used to manufacture semiconductors. A protracted strife and sanctions on Russia would further curtail semiconductor production, Crisil said.

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Import dependence on palladium and platinum, which are used in catalytic converters, and nickel, which is used as a cathode in lithium-ion batteries, is relatively low and hence would have a minimal impact on domestic automobile companies. However, aluminium and copper, which have become costlier, will push up raw material costs.
Volvo Eicher Commercial Vehicles MD Vinod Aggarwal said: “Costs will go up as the sourcing price for high precision metals like aluminium and copper have gone up. As a result of these, there will be price hikes, which will impact demand just when the commercial vehicle industry has started recovering.” Aluminium is used by the automobile industry for wheels as well as lightweighting, while copper is used in wiring harness. More than 70% of the revenue of automobile manufacturers goes towards raw material costs.
India Ratings & Research associate director Shruti Saboo said: “In the first 10 months of FY22, steel and aluminium prices have increased by 15% and 34%, affecting the total cost of manufacturing of vehicles.” Also India’s electrification drive has increased the demand for aluminium.
Chemicals and paints industries, which use crude oil-inked derivatives as their primary feedstock, may see some margin squeeze in the first quarter of next fiscal “as inventories bought previously at lower prices run out”, Crisil said. Spot prices of natural gas, which are also linked to crude, could continue to climb. Urea makers, which use it as feedstock, can pass on the higher prices, Crisil said. But if the war prolongs, domestic availability of urea could become a bother for the farm sector because 8% of the requirement is imported from Russia and Ukraine. Similarly, city gas operators have favorable cost economics versus competing fuels, which could permit them to pass on the gas price inflation downstream — at least to an extent, Crisil said.
Diamond polishers too could see a squeeze in margins as continued trade disruption could make roughs costlier. Alrosa, Russia’s largest diamond miner, accounts for 30% of the global production of roughs, the prices of which had surged 21% in 2021.



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