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Commodity prices stable; gold keeps shining

We analyze quarterly price movements in key commodities and identify companies under our coverage that could either benefit from or face adverse effects of the price movements. In 4QFY24, prices of agricultural and nonagricultural commodities have stabilized on a sequential basis.

Non-agricultural basket:

* Crude oil prices were up 2.0% YoY, while they were down 1.8% QoQ. However, the prices have been range-bound for the last 30 days at around USD85/bbl. The recent increase in prices was due to ongoing uncertainty in the global market and the expected extension of voluntary production cuts by OPEC.

* Vinyl acetate monomer (VAM): After the sharp correction in VAM prices throughout FY24, the trend is reversing. Prices increased by 15.1% as of Jan’24 vs. the average price of USD 888/t in 3QFY24. They are currently trading at USD1,013/t. Despite this increase, VAM prices are still down by 7.7% YoY.

* Domestic gold prices rose 10.5% YoY and 3.7% QoQ, attributed to elevated US interest rates and concerns regarding inflation. Currently, gold is trading at INR65,446 per 10gm.

* Titanium dioxide (TiO2) prices declined by 13.1% YoY and 2.8% QoQ. They currently stand at INR340/kg.

Agricultural basket:

* Maize: Maize prices rose 3.9% YoY and 4.6% QoQ and could rise further as demand increases amid supply shortages and the government’s plan to procure the commodity for ethanol production. Prices currently stand INR2,225/quintal.

* Coffee: Due to unseasonal rainfall, shortage of labor and increase in demand, coffee inflation hit double digits YoY at 15.3% (2.5% QoQ).

* Tea: Tea prices have seen a substantial decrease on low export demand and sluggish rural consumption. Tea prices decreased by 10.2% YoY and 21.1% QoQ.

* Wheat: Wheat prices increased 2.6% YoY as the government continued to support farmers by rising MSP. However, the prices declined by 2.4% QoQ.

* Barley: Barley prices declined 25.1% YoY and 3.9% QoQ, with the prices reaching at INR2,032/quintal.

* Sugar: Sugar prices increased by 10.8% YoY but declined 3.6% QoQ. The current price stands at INR3,800/quintal.

* Mentha oil: Prices were down 18.7% YoY but flat QoQ.

* Palm oil: Palm oil is a key raw material for soap companies and, to some extent, food players. Malaysian palm oil prices increased 7.9% QoQ but marginally declined 1.2% YoY.

* Palm fatty acid: Prices increased by 2.7% YoY but remained flat QoQ. Currently, the price stands at USD 816/MT.

Overall commodity cost basket:

* The commodity cost basket fell 1.8% YoY but remained flat QoQ. There was an increase of 2.4% YoY/1.7% QoQ in the agricultural basket.

* The decrease in prices of tea, wheat, barley and sugar prices was offset by a rise in prices of coffee and maize.

* Conversely, the non-agricultural commodity basket declined 6.2% YoY and increased 2.4% QoQ, offsetting the rise in agri commodity prices.

Our View:

High inflation in the past two years greatly impacted mass segment consumption, particularly FMCG products in rural areas. Slow income growth and high inflation reduced the desire to consume. However, with softer inflation and FMCG price cuts, the income-to-cost balance has improved gradually. Macro indicators suggest steady improvement, leading to anticipated volume growth from FY25 to FY26.

Impact on our preferred picks

* GCPL: In recent months, palm oil prices have increased, which could affect margins for the company.

* HUVR: The company’s commodity basket has seen a mixed bag of price fluctuation. Prices of palm oil and palm fatty acid, crucial inputs for the comp any, increased QoQ. Additionally, tea prices fell substantially, while coffee prices increased. Furthermore, the company has decreased prices to compete with smaller and regional players.

Other materially impacted companies: APNT, PIDI, BRIT, and UBBL

* APNT and PIDI: TiO2 (a key raw material for APNT) prices were down 13.1% YoY and 2.8% QoQ. VAM (a key raw material for PIDI) prices increased 15.1% in Jan’24. Crude oil prices have been raising and reached to USD85/bbl during the quarter, which could shirk margins in a muted business environment.

* BRIT saw a mixed trend in raw material prices. Wheat prices marginally rose 2.6% YoY. Sugar prices grew 10.8% YoY due to lower production. Skimmed milk powder (SMP) prices declined 10.5% YoY and 3.5% QoQ.

* HMN is expected to see an improvement in its performance thanks to a drop in mentha oil prices by 18.7% YoY. However, rural offtakes and demand from mass consumers in the low-income segment are still under pressure.

* UBBL: Two key RMs for UBBL are barley and glass bottles (packaging costs). Barley prices decline 25.1% YoY on a high base. The company has successfully cleared out its high-cost inventory, taking advantage of the availability of new crops. Glass bottle costs have stabilized YoY/QoQ.

* UNSP: RM prices for Molasses rose 10.0% YoY and glass prices stabilized now

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