Crude and palm oil prices fall from record highs, but FMCG firms rule out price cuts

Consumer packaged goods makers said they would not cut prices despite the correction in two crucial commodities – crude and palm oil – but would instead slow the pace of price increases.

Palm oil is used in the manufacture of products such as soaps, cookies and noodles, while crude oil is a key input for detergents and packaging, among others. Palm oil fell below $1,300 per metric ton from highs of $1,800 to $1,900, while crude oil retreated to below $107 per barrel, after peaking around $130. Together, they account for more than half of business input costs. While sellers of edible oils slashed prices due to a reduction in import duties in the segment, makers of food, household and personal care products said margins were still under pressure.

“The pace of price increases will slow down, but there won’t be a price drop,” said Anil Chugh, president, Consumer Care Business,

Consumer Care and Lighting, which sells brands such as Santoor. “We’ve only shifted half the total burden of commodity inflation before and instead taken a hit to margins and reduced operating costs.”

Household budgets impacted

The overall fast-moving consumer goods (FMCG) market fell 1% between February and April, according to Kantar. Analysts have said recent deflation is a good sign, but it’s unclear if this will hold.

“Macro events such as rate hikes, drying up of liquidity and risk aversion further benefit the deflationary trend. Separately, competitive exports from Malaysia and Indonesia benefit businesses and consumers Indians,” said Abneesh Roy, senior vice president of wealth management. and consulting firm

Securities.

The rise in product prices has had an impact on the overall household budget, resulting in a calibrated consumption of non-essential products. Consumers paid 10% more per kg of FMCG products in the February-April period compared to a year ago, while pack sizes were reduced by an average of 15%.

“There will be no further price increases and reduction in packaging weight, which was expected as companies were making incremental price increases,” said Mayank Shah, Category Manager Parle Products, adding that margins would improve for most companies. “Price stability will also help market recovery, both urban and rural, as inflation and rising prices were a major concern.”

Nearly a dozen FMCG-listed companies saw an overall gross margin contraction on average for the 10th consecutive quarter on an annual basis as price increases were offset by further rises in commodity rates.

However, companies are still hoping for a recovery in demand and margins in the second half of the fiscal year, expecting a normal monsoon, strong agricultural prices and easing inflationary pressures in the coming months. come.

Chief executive Harsha V Agarwal said cutting input costs will help, but the company will wait until they stabilize before acting on prices.

“We have to assess the situation properly,” he said. “Any price stability is good for the industry, creating demand and consumers will also have more in hand to spend on discretionary items.”

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