Winners and losers from rising fuel prices

Prices of oil and coal have gone up sharply during the past few weeks and are now higher by 57.2 percent and 185.7 percent, respectively, for the year-to-date period. Numerous factors are causing prices to increase including the global economic recovery, weather related factors, and lack of investments resulting in lower supplies.

Higher prices of oil and coal will lead to higher costs for many businesses, pushing up inflation as companies raise prices to pass on higher costs. This might also force the Bangko Sentral ng Pilipinas to raise interest rates, assuming that price increases are persistent enough to push up inflation expectations among Filipinos.

However, not all companies will be affected the same way. Some will be hurt, while others will benefit. Still, some will hardly be affected.

Among the numerous companies listed on the stock market, airlines will be hurt the most. Note that oil accounts for more than 30 percent of airlines’ operating expenses.

Cement companies will also be negatively affected since fuel costs, mainly coal, account for more than 20 percent of total operating expenses.

Consumer companies, particularly consumer goods manufacturers and restaurants, will also be hurt by rising oil and coal prices. Although consumer goods manufacturers and restaurants do not purchase oil and coal directly, rising fuel costs will push up the prices of other commodities they use as raw materials, hurting margins.

Moreover, if domestic inflation stays elevated, consumer demand will weaken, negatively affecting sales. The combination of weaker sales and lower margins will pull down profits.

On the other hand, companies engaged in coal mining will benefit the most from higher coal prices as they sell their products at much higher prices. Oil companies will also benefit as they enjoy inventory holding gains.

Although almost all domestic power companies use coal to fuel most of their power plants, they will not be affected by rising coal prices. This is because of the fuel pass through provisions contained in most of their power contracts, protecting them from the impact of rising fuel costs.

Over the longer term, power companies that own renewable energy plants will benefit from higher fuel prices as this will enable them to sell their power at higher prices even though they do not have to buy expensive fuel. INQ