Consumers face the brunt of commodities price surge

Durables makers hike prices to offset input costs

Over the past one month, consumer durables makers have been silently increasing product prices to offset input cost pressures. Two rounds of price hikes, in the range of 5-6 per cent each, have already happened. If inflationary pressures continue to grow, another round of hikes may be inevitable just before the onset of summer, according to companies.

Analysts at brokerage Jpmorgan in a recent report said commodities across the board — from metals to agri-products to crude oil — appeared to have entered a boom period. This is visible in their prices.

Consider this: Prices of metals such as steel, copper, aluminium, zinc, nickel, tin, and lead have shot up 4 to 24 per cent in the last one month. Crude oil has jumped 21.5 per cent in a month, while prices of soya oil and palm oil are up 9-12 per cent in the same period.

According to Crisil Research, steel prices have risen 29 per cent in the last few months. “Cost push from iron ore has helped support prices,” said Isha Chaudhary, director, CRISIL Research.

Jayant Acharya, director (commercial and marketing), JSW Steel, said, “The entire value chain has seen an increase in prices – from iron ore to consumables and gas. Now, coking coal prices, which were at the level of $100 FOB (free on board) Australia a tonne in November and December, have increased to $150 FOB Australia a tonne on an average in February.”

Cement, on the other hand, is expected to firm up by ~1015 per bag as inflationary pressures increase. “Price hikes due to input cost pressures are out of our control. We cannot do anything to lower them, since petcoke is largely imported and ocean freights have gone up sharply. Fuel prices have also hit the roof, so our logistics cost goes up,” said Ravinder Reddy, director, Bharathi Cements. All of this has a direct impact on the housing sector, which is witnessing higher construction costs as the economy unlocks and real estate activity gains pace. Auto and durables players are also feeling the pinch.

Experts say high input costs are a matter of concern for real estate players, many of whom are battling unsold inventory. Commodity inflation will result in higher prices for the end user as builders are not in a position to absorb inflationary pressures.

“This will be more pronounced in the affordable housing segment as margins are much lower there. The industry is reeling under the impact of diesel prices heading north,” said Roshin Mathew, executive director and president, engineering, Brigade Enterprises.

While some real estate companies are holding price lines for now, developers will be constrained to pass this cost on to consumers in the near future, executives at realty firm Puravankara said. “We are mitigating the costs for now by re-looking at the design mix to reduce the content of cement. We are also exploring cuts and bends reinforcements that can help reduce wastage,” Ashish R Puravankara, managing director, Puravankara, said.

Kamal Nandi, business head and executive vice-president, Godrej Appliances, said price hikes were unavoidable. "Manufacturers have been judicious with price hikes in the last few months, given that it was a pandemic year and players did not want to impact demand during the festive period. It is not possible to hold back now, which is why a phase-wise price increase in appliances was initiated since January,” he said. The scenario has been no different in items such as mobile phones, laptops, television sets and kitchen appliances, which are also having to contend with a supply shortage from China due to import barriers and curbs. Experts say that for these players, the escalation in commodity costs is an added burden. Because of this, durables retailers have been seeing an unusual spike during sale periods, when prices drop to encourage business.

Prices, Nandi said, would be at elevated levels, owing to the crucial summer season, which will set in by Marchapril. “As temperatures begin to soar, demand for cooling products such as air conditioners, refrigerators and freezers will increase. At the same time, commodity inflation will not recede any time soon. We see commodity prices cooling off only July onwards,” he said. Firms in the automotive space have been responding to the raw material price rise with 1-3 per cent hike, depending on the category.

Gaurav Kumar, chief financial officer, Apollo Tyres, said the trend of input cost pressures would continue in the near term. “In response to this, we took some pricing actions in both original equipment makers and replacement segments towards the end of the December quarter (Q3) and are monitoring the environment closely. Further price increases would be needed to negate the cost push on account of raw materials,” he said.

During its post Q3 earnings call, TVS Motors said it had taken a price hike of 1 per cent in October 2020. The company undertook an additional blended price hike in January 2021 of 2 per cent (in both the domestic and export markets). It would look at further price hikes in the future if commodity inflation continued. Ashok Leyland, on the other hand, has already increased prices by around 1.5 per cent across categories. More price hikes could happen, triggered by an upward movement in the price of steel and semi-conductor shortage, Gopal Mahadevan, director and CFO, Ashok Leyland, said.