Caaitong Securities: Middle East Geopolitical Conflict Pushes Up Oil Prices, Building Materials Industry Faces Cost Pressure

Caitong Securities released a research report stating that Middle East geopolitical conflicts are driving up oil prices, which are impacting the building materials industry through a cost transmission mechanism. Among them, raw materials such as waterproofing, coatings, pipes, insulation boards, and water reducers are closely linked to oil prices. Fluctuations in oil prices can significantly affect the cost structure and profitability of these industries. Currently, companies still have inventory buffers, and the subsequent impact depends on the extent of price transmission.

Caitong Securities’s main points are as follows:

Middle East conflict causes oil prices to rise, what is the impact on the building materials chain?

As a typical resource-processing industry, the building materials sector relies heavily on the petrochemical industry chain for raw materials. Recently, escalating geopolitical conflicts in the Middle East have caused international crude oil prices to fluctuate upward, exerting cost pressures on various segments of the building materials industry through a cost transmission mechanism. From the upstream raw material perspective, most building materials are derived from petroleum refining or deep processing, with a high proportion of oil-related raw materials in their cost structure, making them highly sensitive to oil price fluctuations. Among these, waterproofing, coatings, pipes, insulation boards, and water reducers are most closely linked to oil prices, and their costs and profitability are significantly affected by oil price volatility.

Different “oil” content in raw materials leads to varying product cost impacts

In the waterproofing industry, main products include membrane and coating types. SBS-modified asphalt waterproof membranes and PVC polymer waterproof membranes see cost increases of 14% and 15% respectively due to oil prices, requiring price hikes of 10% and 11% to fully cover costs. In coatings, key products such as JS polymer cement waterproof coatings, acrylic waterproof coatings, and polyurethane waterproof coatings experience cost increases of 30%, 30%, and 20% respectively, requiring price increases of 19%, 21%, and 14% to fully cover costs. The coating industry’s main products are real stone exterior wall coatings and water-based latex interior wall paints, with costs rising 14% and 20% due to oil prices, necessitating price hikes of 10% and 11% to fully cover costs. The pipe industry’s main products, PVC and PPR pipes, see costs rise 13% and 5%, requiring price increases of 11% and 3%. The insulation board industry’s EPS insulation boards face a 33% cost increase, needing a 28% price hike to fully cover costs. The water reducer industry’s costs increase by 34%, requiring a 24% price increase to fully cover costs. Currently, companies still hold some raw material inventories, and the actual impact on profit margins will depend on the extent of price transmission. Recently, companies like Rainforest, Minjian, and Sankeshu have issued price increase notices for their coatings. If these price hikes are successfully implemented, the impact of oil prices on profitability will be limited.

Risk warnings: Escalation of Middle East conflicts, increased industry competition, and lower-than-expected implementation of price increases.