Fuel price surge may hit some firms harder than others

A steep increase in fuel prices has sent fresh shockwaves across the country's corporate sector and capital market, raising concerns over profitability, inflation, and overall economic momentum.

The government on Saturday raised fuel prices to record highs, increasing diesel by Tk 15 per litre, octane by Tk 20, petrol by Tk 19, and kerosene by Tk 18.

The latest adjustment is expected to push up production, transportation, and distribution costs across industries, potentially eroding corporate profitability in the upcoming quarters unless companies pass on the increased cost burden to consumers.

Akramul Alam, head of research at Royal Capital, said the fuel price hike is likely to stoke inflationary pressure across the economy, raising input costs and squeezing household purchasing power.

"This could translate into slower earnings growth for many listed firms and cautious investor sentiment in the equity market," he said.

In the near term, the stock market may see clear sectoral divergence, with energy-linked stocks showing relative strength, while manufacturing and consumption-driven sectors face headwinds.

The country's automobile sector is likely to face the highest impact of the fuel price hikes.

Companies such as IFAD Autos and Runner Automobiles, businesses depending on vehicle sales and transport demand, may face slower growth as higher fuel prices threaten to dampen mobility and increase operating costs.

Asked, the president of the Bangladesh Automobiles Assemblers and Manufacturers Association (BAAMA), Hafizur Rahman Khan, said the sales of fuel-run automobiles have already declined.

"So, the sector is affected. However, we expect to overcome the situation following a normalcy in the fuel crisis," Mr Khan said.

The cement sector, one of the most energy-intensive industries, is also likely to come under pressure. Firms including Crown Cement, Heidelberg Materials, and Premier Cement Mills rely heavily on fuel for clinker production and transportation of raw materials.

Mr Alam of Royal Capital said rising freight and production costs could significantly squeeze profit margins if retail cement prices are not adjusted.

The textile and garment sector, a major export-oriented segment, is also exposed. Companies such as Envoy Textiles and Far East Knitting and Dyeing Industries may see cost escalation in both logistics and captive power generation.

Industry insiders said global buyers are unlikely to absorb higher prices quickly, leaving exporters to shoulder the burden in the short term, which would weigh on earnings.

Asif Moyeen, managing director of Far East Knitting, said they had at least 20 per cent energy dependency on diesel. So, the crisis of diesel will have an impact on production.

The fuel crisis will also increase freight charges.

If the fuel crisis persists, the overall production costs of garment makers will increase.

The impact will be heavily felt if garment makers fail to negotiate hikes in product prices with buyers, said Mr Asif. "Ultimately, the fuel crisis will erode the companies' profits."

The food and allied sector, including fast-moving consumer goods (FMCG) companies, is feared to face a dual challenge of rising distribution costs and weakening consumer demand.

Firms such as British American Tobacco Bangladesh and Unilever Consumer Care may attempt partial price adjustments, but analysts caution that higher inflation could reduce consumption volumes, particularly in rural markets.

The managing director of Agricultural Marketing Company Ltd. (Pran), Md. Eleash Mridha, said the freight charge for their exports to Gulf countries such as Dubai and Qatar had already surged to $7,000 from $2,000 per container.

The distribution of products across the country has also been affected, as the daily trips of carriers declined following the fuel crisis.

Because of disruptions in electricity supply, the boilers of Pran's factories in north Bengal are mostly dependent on diesel-driven generators. "The bottom line (profit) will face a decline due to the ongoing fuel crisis," Mr Mridha said.

A situation like this may trigger a period of earnings downgrades and cautious trading on the bourses, as investors reassess sectoral exposure to rising cost pressures.

Defensive sectors show resilience

Mr Alam said well-performing banks may remain largely unaffected, as lenders could park funds in Treasury bills and bonds to secure steady income.

In the power sector, the effect will depend on contract structures. Independent power producers such as Summit Power and United Power Generation, operating under cost-plus agreements, may be able to pass on higher fuel costs, limiting margin erosion.

State-owned fuel marketing and lubricant companies could benefit in the short term. Firms like Padma Oil Company, Meghna Petroleum, and Eastern Lubricants Blenders may experience higher revenue in value terms, with potential inventory gains from existing stock purchased at lower prices.

The pharmaceutical sector is likely to remain relatively resilient. Companies including Square Pharmaceuticals and Beximco Pharmaceuticals may face higher distribution costs, but steady demand for essential medicines should cushion the overall impact.

babulfexpress@gmail.com

mufazzal.fe@gmail.com