From biscuits to fuel, Ukraine war driving up prices of everything

The Ukraine crisis has led to a rally in commodity prices. Consumer goods companies, hit with high input costs, are now passing on the price rise to customers. Will there be more price rise in FMCG?

In tatters due to prolonged pandemic, the global supply chain was recovering when Russia struck Ukraine with all its might. 

Last week, the 145-year-old London Metal Exchange was forced to suspend nickel trading and cancel trades after prices doubled overnight to $100,000 a tonne amid a market panic triggered by Russia’s actions. The exchange described the current events as unprecedented. 

Russia accounts for 10% of global nickel supply, 6% of the aluminium output and 18% of wheat exports. 

Aluminium, copper, zinc, lead, crude oil, wheat, natural gas, coal and edible oils are some of the commodities that have been on the boil as traders feared supply disruptions on account of the Russia-Ukraine war.

With the price of metals and plastics used in appliances and consumer durables shooting up, several manufacturers had already effected price hikes last year. They are gearing up for another round now.

Usha International, which sells fans, cooking appliances, sewing machines and water heaters, said the company may have to pass on price increases to the tune of 10-15% in April.

FMCG companies too are preparing to pass on higher input costs. 

Hindustan Unilever hiked prices across its portfolio of products by 3-13% in multiple tranches in February, with the sharpest increase of 13% seen in the 100 gm Lux soap pack. 

Crude oil derivatives and vegetable oil are key raw materials used in making soaps, cosmetics and detergents.

Dabur India CEO Mohit Malhotra recently highlighted continued inflation in hydrocarbon derivatives, paper-based packing material, raw honey and spices. He said Dabur undertook calibrated price increases of about 5% in key products.

The sharp price increase in all major commodities is hurting every step of a company’s supply chain, from manufacturing to packaging to distribution.

 Although commodity inflation is not expected to cool down anytime soon, demand is still holding up led by the post-COVID economic recovery. However, private consumption could turn sluggish again as it faces headwinds from soaring commodity prices.