Slowing China not bad for India

Given that India is not a big player in the world commodity markets, weak base metal prices are unlikely to hurt

Ever since the developed world hit an air pocket last year, world markets have been bracing themselves for some kind of a slowdown in China. The formal communication came on Monday, with Chinese Premier Wen Jiabao stating the government was targeting to grow at 7.5 per cent this year. While this is no hard landing, the world has become accustomed to China growing at a scorching pace. So, any slowdown would evidently have global repercussions. Also, as China is the largest importer of base metals, the spectre of slowing growth has made the commodities market skittish.

How does slowing Chinese growth affect India? Given that China is the world’s largest consumer of base metals (lead, zinc, aluminium, copper and nickel), any slowdown in growth would impact the consumption of these metals and, consequently, their prices. Commodity experts expect aluminum and copper prices to come under pressure. Nickel, too, is expected to remain weak. Besides, higher stocks of nickel at the London Metal Exchange warehouses are expected to weigh on prices.

However, this may not be such a bad thing for India, given that overall commodity prices would inch lower. Commodity experts say India is not a big exporter of base metals. It is a net exporter of iron ore, but since most of these are to Japan, a slowing Chinese demand may not hurt iron ore exports. According to Sushil Sinha, country head, Karvy Comtrade, with the Chinese demand for base metals slowing, there will be a surplus in international markets, which would impact smaller countries like Chile and Zaire. Given that India is also an importer of base metals, weaker prices of commodities will be beneficial. Despite base metal prices coming under strain, experts do not expect any crash yet, given the US economy is recovering and Europe is not in as much trouble as was anticipated a few months ago.

Jayant Manglik, president (retail distribution) at Religare Securities, expects slowing Chinese growth to affect commodity-exporting countries like Canada and Australia. “India is not a big producer in the commodity market. Therefore, the impact would be limited to metal producers. But, the commodity cycle has not yet run out of steam. The slowing Chinese demand could well be compensated by a pick-up in demand from the US, Europe and other BRIC economies,” he explains.