Tyre And Paint Stocks May Come Under Pressure As Crude Oil Prices Rise

Monday, June 16th: India’s paint and tyre stocks are under a shadow of concern due to the escalating geopolitical tensions between Israel and Iran, which have led to a sharp rise in crude oil prices. Both sectors are heavily reliant on petroleum-based raw materials, making them highly vulnerable to price volatility.

Brent Crude Spikes Amid Middle East Conflict

The intensified hostilities, marked by retaliatory attacks and Iran’s rejection of a ceasefire, have pushed Brent crude prices up by as much as 5.5%, briefly touching $75 per barrel. West Texas Intermediate (WTI) crude also hovered around $74. A key development contributing to this spike was Israel’s reported strike on Iran’s South Pars gas field, a crucial energy production site.

The primary concern for global oil supply is the Strait of Hormuz, a vital maritime chokepoint through which approximately 20% of the world’s global oil supply passes. Any disruption to shipping in this strait could lead to a dramatic increase in oil prices.

Paint and Tyre Industries Face Margin Squeeze

The ripple effect of rising crude oil prices is directly impacting industries with significant petroleum-derived inputs.

• Paint Industry: Decorative paints, in particular, are highly dependent on over 300 petroleum-based raw materials, including solvents, resins, phthalic anhydride, pentaerythritol, and methyl methacrylate. These raw materials constitute a substantial 55-60% of total input costs, making profitability margins highly susceptible to fluctuations in crude oil prices. The increased cost of titanium dioxide, a key pigment in white paints, further exacerbates the burden on manufacturers.
• Tyre Industry: Similarly, the tyre sector faces vulnerability due to its reliance on synthetic rubber and other petrochemical derivatives, such as styrene-butadiene rubber and butadiene rubber, both of which are produced from crude oil. While previous drops in crude prices benefited tyre companies by expanding their margins, the current surge is expected to reverse this trend, leading to higher production costs and a squeeze on profitability. Carbon black, another critical component in tyre manufacturing, is also produced by burning natural gas or crude oil.

Stocks in Focus: Asian Paints, Berger Paints, Kansai Nerolac

The stock market has already reflected some of this pressure. Over the past year:

• Asian Paints shares have declined by around 24%
• Kansai Nerolac has also fallen by 13%
• Berger Paints, in contrast, gained 13% during the same period

Meanwhile, the Nifty 50 benchmark index has seen a modest 5% increase in the same timeframe.

With crude oil remaining volatile amid geopolitical uncertainty, investors may need to brace for more turbulence in these raw material-intensive sectors.

What’s Ahead? 

If crude oil prices continue to rise due to sustained tensions in the Middle East, both paint and tyre companies may face shrinking profit margins, prompting analysts to revise earnings estimates downward. Investors should watch for any pricing actions these companies take to offset rising input costs, as well as any government or regulatory responses if inflationary pressure escalates. Until oil prices stabilise, paint and tyre stocks may remain under pressure, and market sentiment could stay cautious toward these sectors.

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