Rising energy prices will squeeze company profits, says business consultant

Environment

Electricity pylons are seen in front of the cooling towers of the coal-fired power station of German energy giant RWE in Weisweiler, western Germany, on January 26, 2021.
Ina Fassbender | AFP | Getty Images

Rising energy prices will increase business costs and narrow profit margins of companies around the world, a management consultant said Wednesday.

Prices of energy commodities — including oil, natural gas and coal — soared in recent weeks as supply remains tight and demand rebounds from a Covid-induced slowdown. That has contributed to power and fuel shortages from Europe to Asia.

“It’s a big problem for companies. It will narrow their profit margins because as their input costs go up, the question is how quickly can they raise their selling price,” Richard Martin, managing director of IMA Asia, told CNBC’s “Squawk Box Asia.”

The squeeze on company earnings will likely come in the fourth quarter of 2021 and the first quarter of 2022, said Martin, who advises senior executives in charge of Asia-Pacific operations at major global companies.  

Higher energy prices have coincided with supply chain disruptions and a shortage of shipping containers — which have contributed to a rapid rise in inflation.  

India, China may be at risk

Companies in the U.S. have a better chance of protecting their profit margins thanks to a “very buoyant” consumer market, said Martin, adding that it will allow them to raise selling prices quickly.

But those in other countries face grimmer prospects, said the consultant.

“In many countries around the world, we don’t have such a buoyant consumer market. China is one, in fact a lot of East Asia is in that area. And as the costs go up, the profit margins go down,” said Martin.

India is also at risk. Martin noted that the Indian stock market has been on a tear, but the South Asian country will struggle to pass on costs to consumers.

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