Panic in markets: If Coronavirus is not tamed, trade with China may slump

The real impact of trade can be gauged after February 8 when the Chinese New Year holidays end

With the outbreak of coronavirus causing panic in the global financial markets, Indian exporters see a reason to worry if the situation in China deteriorates and the virus is not tamed soon.

The real impact of trade can be gauged after February 8 when the Chinese New Year holidays end. However, import of fertiliser, plastics and chemicals could be impacted as China is major supplier globally. Many New Year celebrations have been cancelled in China following reports of the coronavirus spreading and claiming more lives.

Fertiliser imports may cost more

Fertilisers and organic chemicals along with plastic materials are among the top five items in the list of imports from China. The outbreak of the virus is sending ripples across global financial markets. This is because there are fears that China’s economic growth could be hit. India’s non-urea or diammonium phosphate (DAP) fertiliser imports could be a casualty.

If the situation in China worsens, then plant closures as well as employees extending leave may lead to a fall in China’s production. This would reduce China’s supply in the global market.

DAP prices have already been falling in the last one and half years from $425 to $295 per tonnes. “There is a possibility that if China’s export of fertilisers to the global market reduces, it will see equilibrium improving. Prices will start rising after some stability,” said a fertiliser and chemicals analyst with a large foreign broking house.

He sees a similar impact on organic chemicals and plastic material as China is one of the major global suppliers. In April-November 2019, India imported more than $9 billion worth of fertilisers, chemicals and plastic materials from China. He, however, said that domestic companies manufacturing these commodities will be in an advantageous position.

Apparel exports

A leading apparel exporter said that, in 2003, when SARS virus hit China, which later spread to 17 countries, it did not lead to significance damage. It was controlled with new medicines and vaccines. This time, too, it is too early to gauge the damage to India’s exports in such a short time. “It could be a cause for worry if the situation doesn’t come under control and continues for a longer time,” he stated.

Also, the apparel industry imports accessories like button, zip, hook and hanger, apart from blended fabrics. A south India-based textiles company executive said, “We have to see whether any order can be placed there (in China) in near future.”

Cotton exports

India also exports cotton to China, and last year, 8-9 lakh bales were exported. This year, in the first four months of the cotton year (October-January), 6-7 lakh bales were shipped to China. Further, exporters have orders worth 3-4 lakh bales for exporting to China.

“There is no panic as of now and we feel these export orders will also be shipped by February,” said Atul Ganatra, president, Cotton Association of India. There was a report that one large player has decided to stop cotton exports to China fearing some action by the government there to close ports, among others, to control the spread of virus. However, Ganatra says this is a one off case and exporters in general are not seeing any kind of panic.

Coffee exports may be hit

Coffee exports to China are set to fall due to the coronavirus outbreak. Ramesh Rajah, president, Coffee Exporters Association said it will have some impact on coffee consumption in China, leading to lower demand.

Two leading global retail coffee chains have temporarily closed over 2,000 coffee shops. India exports $336 million (April-November 2019) worth of coffee, including tea and spices to China.

Leather industry hopes to gain

India exports $223 million of leather tanning and dyeing extracts while its import of these items from China is worth $394 million. If China’s exports of these items in the global market are impacted, then the Indian leather industry can look to gain by filling up this sudden vacuum. “The Indian leather industry, especially finished leather segment, will gain if exports from China slump due to the coronavirus phenomenon. However, this is yet to be quantified by the domestic industry,” Kanpur-based Small Tanners’ Association member Nayyar Jamal told Business Standard.