Economy

Covid-19: China’s loss could be India’s gain

Our Bureau Kolkata | Updated on March 08, 2020 Published on March 08, 2020

The recent outbreak of coronavirus (Covid-19) in China could present an opportunity for India as an alternative supply-chain market, particularly for electronics manufacturing and auto components sector.

According to TV Narendran, CEO and Managing Director, Tata Steel, the de-risking of supply chains originating from China, which had started following heightened concerns of a US-China trade war, is likely to be accelerated on the back of concerns over the recent outbreak.

“I feel this virus could be an opportunity for India because it accelerates the de-risking of supply chains which originates from China. That journey had started with trade issues between US and China and now with this (virus) there will be even more reason for people not to be over-dependent on any one country,” Narendran told newspersons on the sidelines of a conference on Competitiveness of India Inc – Business and Beyond, organised by the CII Eastern Region here on Saturday.

Virus not to negatively impact Indian economy

The impact of the virus has been less in India compared to other geographies primarily because the level of local activities is coming up from a pretty low base. While there are reports stating that China has brought it (the virus) under control now, Europe continues to be a “concern” following number of cases reported in Italy.

“In India, so far, the sectors which were positive continue to be positive,” Narendran said.

Post monsoon, the agri related sectors are expected to do well, construction of commercial property also continues to be strong. While residential looks a “bit shaky” but affordable housing and other such schemes are expected to play positive on the sector, he pointed out.

Automobile is the only sector which has still not been showing “great signs of recovery”; however, it is expected to start picking up post second half of FY-21.

Pressure on steel prices

When asked about the impact of the build-up of inventory in China on global steel prices, he said, it needs to be seen whether it is consumed locally or exported. The price of steel in the South-East Asian market has reacted the “most” to this (inventory build-up in China) as the expectation is that most of the inventory would end up in these markets. While there is some pressure on steel prices in Europe and India, they have not dropped.

“There is some pressure……it (prices) would have kept going up much faster but that has slowed down and there is a kind of push back,” he said.

I the virus scare was not there, the industry would have been in a position to push up prices every month as there would have been good demand and no pile up of inventory.

Domestic steel prices have been on an uptrend since last November in line with international trends. After touching a low of ₹32,250 a tonne last November, domestic hot-rolled coild prices have hit ₹37,000, implying an increase of 15 per cent in the last three months.

“In the next few weeks, we should know how bad this virus really is — if it settles at this level, then I think by September we should be fine, which is when the auto sector should also come back, and I think construction is already starting to happen and the government is going to spend more and more on infrastructure,” he said.

Reducing China dependence

Tata Steel, which is dependent on China for consumables such as refractory, refractory compounds, steel mill rolls, electrodes and manganese as a metal, has already done a risk assessment in the first week of this month and is “pretty comfortable” till the end of April, Narendran said.

The company has been sourcing some of its consumables from Turkey and Brazil, as a part of its strategy of not being over dependent on any one country.

“We needed to have some shipments, so we started developing alternative sources and placing orders in alternative countries. There are one or two critical items which we needed out of China and some shipments have started moving out so from our point of view there is no risk of operations getting affected,” he said.

When asked about the cost implications of such alternate sourcing, he said, while the price of the product sourced from other countries may be slightly higher than that in China, however, it is not likely to make much difference to the overall costs as the contribution of that particular product may not be much to the company’s total costs.

Published on March 08, 2020

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