With the impact of the devastating tsunami in Japan on the already elevated global commodity prices ? and consequently, on the Indian industry ? yet to be fully assessed, the crisis in the Land of the Rising Sun could spell mixed fortunes for key sectors of the economy.
Coming on top of the unrest in the Middle East and North Africa, the humungous level of Japan?s reconstruction is expected to push up the price of crude oil. Seafood exporters in India would feel the pinch as their third-largest market wobbles and iron ore exporters from Karnataka and Jharkhand would face margin erosion as global prices dip. Public sector firm NMDC would be hurt too. Rubber farmers in Kerala and traders elsewhere in the country would have to share the pain as the commodity’s price falls thanks to depressed Japanese demand.
On the other hand, Indian steel companies, especially those which don?t have captive iron ore and coking coal, would stand to benefit from the fall in the prices of key inputs.
As it is, the external factor of global commodity prices is seen as a key determinant of inflation in India, which has remained at elevated levels in the last two years. The question is whether the crisis in Japan would make matters worse.
Automobile giants like Toyota, Honda and Suzuki shut their plants in Japan after the tsunami savaged the north-eastern coast of Japan, pulling down the price of domestic natural rubber. Seafood exporters from the country are worried that exports to Japan, a major destination, could be hit.
?There is a of lot of anxiety around auto manufacturers shutting production in Japan, which is pulling down domestic rubber prices,? Vinod Simon, president, All India Rubber Industries Association told FE. Natural rubber had fallen to Rs 185 per kg on Tuesday from the season’s high of Rs 240 per kg. However, with domestic tyre makers taking advantage of lower price and stocking up, prices recovered to Rs 201 on Wednesday. Japan accounts for about 15-17% of global rubber consumption. Its major bourse Tokyo Commodity Exchange (Tocom) plays a major role in determining the international price of rubber futures.
Seafood exporters too are a worried lot. Japan is a major importer of Indian seafood and ranks third in market share after the European Union and the United States. India exported Rs 1,290-crore worth seafood to Japan last fiscal. ?We are concerned about the developments in Japan. Most of the exporters are unable to contact Japanese importers and the future shipments look uncertain at the moment,? Anwar Hashim, national president of the Seafood Exporters Association of India said. One of the world’s biggest steel producers, Japan imports about 9 million tonnes of coking coal, a key raw material. In the face of the disaster which has crippled industrial activity, shipments of coking coal to Japan are expected to be hit hard. ?Japan’s import of coking coal would be affected. This could lead to some softening of its price in the international market,? Steel Authority of India chairman CS Verma said, adding that the existing price of coking coal at around $330 a tonne was not sustainable. Higher coking coal prices have been putting pressure on the cost of steel production in the country. Price of iron ore, another raw material in steel production, is also expected to come down in the short term. While Japan’s steel mills have largely been unaffected, the transport infrastructure connecting ports with production facilities are out of order.
NMDC, the largest Indian supplier of iron ore to Japan, however said that the situation in Japan is unlikely to impact its raw material trade. Indian miners export nearly 110 million tonnes of iron ore largely to Chinese steel mills. Shipments to Japan are in the range of 4.5-5.5 million tonnes.
Crude oil, which started its recent ascent with the harsh winter in Europe, got further dearer on account of the unrest in Middle East and North Africa at the beginning of this month. It looks set to turn costlier on higher demand from Japan as the country begins its reconstruction work and looks for alternatives to nuclear power. The Indian basket of crude oil that commanded an average $101.16 a barrel in February, has now gone up to an average $111.35 in March. On Wednesday, Brent crude, which is relevant to India, rose 1.8% in world markets to $111 a barrel after a brief respite.
?We have forecast that crude oil price would stay at an average $90 a barrel in 2011-12 due to the expected weak demand for oil later in 2011-12 as the global economic recovery is still sluggish. Depending on the unfolding events in Middle East and North Africa, we may revise the forecast,? said DK Joshi, Crisil director and principal economist.
?(With inputs from Gireesh Prasad, Rajesh Ravi & M Sarita Verma)