Ukraine impact: Crude dependent sectors to take a hit while steel makers may gain bigger share in EU imports

MACRO Impact

Bigger oil bill – Apr-Jan crude imports already over $100 billion against $62.2 billion in FY21

Growth, CAD and inflation impact

For Every $10/bbl rise in crude price…

• Current account deficit rises by 30 basis points
• Consumer inflation spikes 40 basis points
• GDP falls by 20 basis points

EARNINGS Impact

1. Oil marketing companies’ earnings to be hit

• OMCs have not been able to pass on the increase because of elections
• The marketing margins have turned negative to Rs 2.8 and Rs 1.2 per litre for petrol and diesel
• In the previous quarter, they had gained on average Rs 4 and Rs 5 per litre respectively.
• The retail fuel accounts for nearly two-third of the total operating profit of OMCs.

2. Supply disruption and higher input costs for Auto

• Ukraine among major producers of neon gas used in chip manufacturing.
• Nearly 30% of palladium used in catalytic convertors sourced from Russia.
• The precious metals account for nearly 2-2.5% of their total raw material cost
• Prices of precious metals have increased by 10-30% following the current flare in Ukraine.
• Crude & crude derivatives used in tyre manufacturing and account for around 18-20% of raw material cost of tyre makers
• The cumulative increase in raw material prices, if passed on to consumers, may lead to a 2.3% increase in vehicle prices
• The gross margin of the automakers have dropped by 8-10% in the past six quarters
• It is likely to remain under pressure in the near term.

3. Steel the major gainer

• Export opportunities for Indian steel makers may increase
• Russia and Ukraine account for nearly 10% of the total global steel export
• The sanction on Russia may improve export opportunities for Indian steel makers.
• The Euro zone imports nearly 30 million tonnes of steel, of which 20% originates from Russia and about 10% from Indian steel makers.