Coronavirus: Spurt in fertiliser import costs seen due to plant closure

While the outbreak of the coronavirus has caused a great deal of panic in the financial markets, Indian exporters believe they would have reason to worry only if the situation in China deteriorates further and the virus isn't brought under control in the near future. The real impact on trade with China will be known after February 8, when the Chinese New Year holidays end.

That said, many New Year celebration events have been cancelled across China, following reports of coronavirus spreading and claiming more lives.

Fertiliser imports may cost more

Fertilisers, organic chemicals, and plastic material are among the top five Indian imports from China. India’s non-Urea or DAP fertilisers import could take a hit if the outbreak of the virus is unbridled and starts impacting China's economic growth. In any case it has created huge ripples across global financial markets already.

If the situation worsens in China, some plants could face closures, and employees on new year's leave may seek extensions, causing a decline in China’s production and, therefore, reduced supply in the global market. DAP prices have already falled during the past year-and-a-half, from $425 to $295 per tonne. “There is a possibility that if China’s global fertilisers exports reduce, equilibrium in the international global will improve and prices will start rising after some stability,” says a fertiliser and chemical analyst with a large foreign broking house.

He sees a similar situation in organic chemicals and plastic material which, together with fertilisers, account for more than $9 billion in Indian imports from china. He, however, says domestic companies manufacturing these items will be in an advantageous position.

Apparel exports

A leading apparel exporter said that in 2003, the SARS virus that hit China and later spread to 17 countries hadn't caused significant damage and was brought under control 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 situation doesn’t come under control and continues to drag on,” he said.

The same outlook applies to apparel accessories such as buttons, zips, hooks, hangera and such like, apart from blended fabrics. A south-based textile company executive said, “We have to see whether orders can be placed there in the near future.”

Cotton exports

India also exports cotton to China and last year nearly 900,000 bales were shipped to that country.

In the first four months of the current cotton year (October-January), some 600,000 to 700,000 bales have been shipped to China and exporters have further orders for 300,000-400,000 bales from China.

"There is no panic as of now and we feel these export orders will also be shipped in February,” said Atul Ganatra, President, Cotton Association of India.

There was a report of one large player deciding to stop cotton exports to china, fearing some action by the government there to close ports in order to control the virus from spreading. However, Ganatra says that is a one-off case and exporters in general aren't really panicking.

Also there is good demand for Indian cotton from Bangladesh, Indonesia, Vietnam and other nations at current price, as the Indian variety is the cheapest in the world market, says Ganatra.

Coffee exports may be hit

Coffee exports are set to fall to China due to the coronavirus. Ramesh Rajah, President, Coffee Exporters Association said the virus issue will have some impact on coffee consumption in China, leading to lower demand. Two leading global coffee retail chains have temporarily closed over 2,000 coffee shops. India exports $336 million worth coffee, tea and spices to China.

Leather industry hope to gain

India exports $223 million worth 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 global market is impacted, then the Indian leather industry could 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 on Friday.