| Subject: |
Indian corporates not immune to adverse economic developments in China: India Ratings |
|
COIMBATORE: Adverse economic developments in China could have a directionally negative impact on the Indian metals industry as well as on sectors with an export focus, India Ratings and Research has said.
China accounts for over 40% of the global consumption of major metals.
Base metals prices declined by 2%-21% in the first six months of 2015 due to the poor demand in China. In the last one month, iron ore prices have fallen by 20%, Shanghai steel prices by 16.4%, zinc prices by 7%, copper prices by 5.6% and aluminum prices by 2.9%.
"The Indian non-ferrous base metal industry is somewhat oligopolistic and commands a strong physical premium. In the event of a sharp fall in metal prices as well as in metal import from Chinese players, the physical premium is likely to fall, impacting industry margins," India Ratings said.
"If metal prices do not recover in the short-term, the industry may incur an inventory loss and a 2%-5% fall in operating profits," it said.
India's steel imports from China grew 18.4% year-on-year during 2014-15 and iron and steels imports rose the most among the top-10 imports from China. While the government increased import duty last month with a lag, it may not be sufficient to increase the competitiveness of Indian steel manufacturers, India Ratings stated.
With Indian manufacturers struggling with low capacity utilisation due to the lukewarm domestic demand, the fall in commodity prices is unlikely to benefit the profit margins of manufacturing units in the short-term, it said.
"They may pass on the benefit to customers in an effort to garner higher volumes. Besides, Indian manufacturers may face increased competitive pressure from Chinese manufacturers," the agency said.
China had tried to export its way back to growth in the past. "In the event of a slowdown, Chinese producers are likely to increase export quantities and hurt producers elsewhere," India Ratings, which is part of the Fitch Group, said.
"Imports from China at lower prices will further affect Indian players' volumes and operating (profit) margins," it said.
A sustained slowdown of the Chinese economy would dampen economic activity of other Asian countries since trade linkages of Asian countries with China are fairly high, the agency stated.
If the turmoil in Chinese market continues, emerging market ETFs (exchange traded funds) may face redemption pressure. This would result in these funds selling Indian stocks putting depreciation pressure on the Indian currency, according to India Ratings.
Source : timesofindia.indiatimes.com
|