ANALYSIS. Does Chinese slowdown alter the Indian commodities scene?

China’s stock market crash on Monday, which sent equity markets across the globe cracking, has turned investor sentiments negative.

A slowdown in China is a global worry, particularly for commodities, as the dragon country consumes about half the world’s metals output and is also the second largest market for oil. However, for India, which is a net importer of commodities, lower prices can be a blessing.

In 2014-15, India’s total commodity imports were $448 billion while exports were $310 billion. Of the total imports, about 13.5 per cent, or $60.4 billion, was from China.

With a slowdown in China and a slump in commodity prices, mainly metals, Indian steel and iron ore manufacturers may suffer as their realisations take a knock.

But, companies that use crude or its derived products or other imported inputs stand to benefit. Automakers, consumer durable companies, FMCG manufacturers (on cost of raw materials used for packaging that are crude derivatives), fertiliser producers and makers of paints and plastic products are some who can expect cost savings.

An analysis of data from Nifty 500 companies shows that the raw material cost-to-sales ratio has come down sharply over the past year.

Shanthi Gears, Balkrishna Industries, HSIL, Godrej Industries, Camlin Fine, Finolex Industries, Pidilite Industries, Marico and Emami are some that have seen benefits.

A few domestic industries, however, may face higher competitive pressure.

For instance, the import of truck and radial tyres increased to 7.8 lakh tyres in 2014-15, up over 60 per cent from 2013-14. Imports from China saw a three-fold jump to 5.5 lakh tyres.

With the possibility of the yuan depreciating further, the market may get flooded with Chinese tyres, making it even tougher for domestic players, already running at very low utilisation levels.

Makers of power equipment and tiles may also find it difficult to compete with cheaper imports.

In exports, services make up for a chunk of India’s trade bill, shielding the country from any direct impact of a global commodity meltdown. In 2014-15, while India’s total merchandise exports stood at $310 billion, services exports were $155.4 billion.

India’s top trade partner for exports is the US, and about 3.8 per cent of the country’s exports are to China (a drop from 5.9 per cent in 2011-12).

But, if China’s woes drag its currency down further in 2016, their exports will become more competitive in the global market. Indian exports of handicrafts, leather goods and gems and jewellery may then take a hit.

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