Paint stocks surge up to 6% as crude oil prices plunge; Asian Paints hits 8-month high

Indian paint stocks surged today even as major indices traded in the negative due to weak global cues. This bullish rally in paint stocks followed a sharp decline in crude oil prices during Tuesday's session, driven by concerns over weak demand.

Shares of Indigo Paints jumped 6 percent, reaching their highest level since late July. Asian Paints also climbed 3 percent, hitting an eight-month high. Berger Paints (India) saw its stock rise 2.6 percent to ₹591.80 per share, while Kansai Nerolac Paints and Akzo Nobel India experienced increases of 2.5 percent and 1.1 percent, respectively.

Similarly, Shalimar Paints ended a two-day losing streak with a 4.4 percent gain, bringing its share price to ₹139.50.

Industries that rely on crude oil as a raw material, including the paint sector, benefit from the price drop. Paints are derived from petrochemicals, which come from crude oil. As crude oil prices decrease, the costs of raw materials such as solvents, resins, and additives also drop.

Lower raw material costs enable paint companies to produce their products more cheaply, boosting their profit margins.

Falling demand, rising supply, and recession fears pressuring crude oil

Brent and WTI crude oil futures each fell more than 5 percent Tuesday, reaching a nine-month low. Reduced demand signals from China, the world's largest crude oil importer, and news of a potential deal to resolve a dispute disrupting Libyan production and exports drove the decline.

Additionally, the recent release of US economic data also resurfaced recession fears, further putting pressure on crude oil prices, which continue to decline today. These factors have pushed the crude prices into negative territory for the calendar year 2024.

A Bloomberg report suggests that Libya's rival governments might be nearing an agreement to resume oil production following recent disruptions. This potential deal could bring over 5,00,000 barrels per day back into the market.

Moreover, OPEC is poised to ramp up production in the coming weeks. Recent data from China has raised doubts about whether economic growth in one of the world’s largest oil consumers will recover this year, as key factory demand indicators fell sharply in August.

A private survey revealed that the country's services sector grew less than anticipated, raising concerns about the overall health of the economy. The Caixin China Services Purchasing Managers' Index (PMI) dropped to 51.6 in August, down from 52.1 in July, according to a statement from Caixin and S&P Global released on Wednesday.

Furthermore, the ISM Manufacturing PMI reported that US factory activity has contracted for the fifth consecutive month at a slightly faster rate than anticipated.

Investors will closely monitor the upcoming job openings and jobless claims reports in the US due on Friday. These figures could determine whether the anticipated rate cut this month will be standard or more significant.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.