Raw material, including petroleum-based items, accounts for 55-60 percent of input costs and has a direct impact on gross margins. Price hikes have not been enough to absorb the input cost inflation.
The impact of the Russia-Ukraine conflict can be felt far and wide across sectors and asset classes. However, the major impact is on prices of crude oil, which has a bearing on almost everything else.
Brent futures, a global benchmark for crude oil prices, spiked to almost $120 a barrel this week as the market restricted purchases of Russian crude oil and scrambled to source other grades.
The Organization of Petroleum Exporting Countries, which controls the majority of global oil production, expressed unwillingness to ease the tight oil markets and maintained its targeted monthly production increase of 400,000 barrels/day for April even after the disruption to Russian supplies.
Experts said the $125/barrel level could be breached sooner than later. Some said crude will soon touch a new decadal high, with a telling impact on the global economy.
Kotak Institutional Equities, in its latest report, said it expects “oil prices to remain on an uptrend over the near term” due to the uncertainty that the oil markets face from further escalation of the conflict; lower exports of Russian crude and petroleum products in anticipation of sanctions by the US and its allies, and the lack of incremental supply to ease a tight market.
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