Will the spike in natural gas prices affect related stocks?

The government hiked prices of domestically-produced natural gas prices by 40 per cent to $8.5 per metric million british thermal unit from $6.2 per metric million british thermal unit, as global prices firmed up.

Additionally, over 26 per cent jump was applied to high pressure, high temperature gas prices to $12.5 per mmbtu.

Analysts believe this would create pressure in the inflationary economy, as the component is used to generate electricity, make fertilizers, and also converted into compressed natural gas (CNG) to run automobiles. So far this year, prices of natural gas have soared over 81 per cent to $6.65 in the global markets. 

Back home, spot natural gas prices have surged nearly 100 per cent to 551 rupees per mmbtu, during the same period, data from MCX suggested.

For upstream producers like ONGC and Oil India, analysts expect every $1 rise in gas prices will lift their Ebitda levels in the range of 4 per cent to 7 per cent.

Analysts peg 19 per cent upside in Ebitda levels for ONGC and 27 per cent upside for Oil India by FY25.

On the other hand, for city gas distribution companies, analysts do not expect these companies to absorb all cost increases.

“For each $/mmbtu gas price rise, CGDs need to raise CNG price by Rs 4.7-4.9/kg. For $2.5/mmbtu price rise, and also for recent currency weakness, CGDs will need an immediate CNG price increase of Rs 12-14/kg (15%-19%),” says Bhaskar Chakraborty and Niraj Todi of Jefferies.

For fertiliser companies, analysts believe that the government’s subsidy bill will soak higher costs and no impact on related-stocks will be seen for the near-term. However, the margin profile of tile manufacturers is likely to take a hit.

AK Prabhakar, Head of Research, IDBI Capital, says no impact is likely on fertiliser stocks. Fertiliser subsidy bill to absorb the cost-rise. Margin of tile manufacturers to take a hit. Higher tile exports may offset cost-increases. 

As regards today, FII flows, crude oil prices, rupee movement and global cues will continue to guide markets on Tuesday.