The coronavirus (COVID-19) outbreak further hit the possibility of revival in the global economy as the death toll rises to more than 3200 in 86 countries with number of positive cases rising to more than 87,000 as of March 2020. Taking into consideration the ongoing economic disruption and prolonged suffering to the human life due to the deadly outbreak, the annual global GDP growth is expected to fall to 2.4 per cent in 2020 as a whole, from an already low percentage of 2.9 in 2019. Output contractions in China have adversely impacted the financial markets, travel sector and supply chains across the globe.
The containment efforts of the virus which involve quarantines, trade restrictions and curtailed production activities have severely impacted almost all the economy driving sectors such as steel, oil & gas, consumer durables, pharma, IT and Chemicals. India holds deep trade linkages to China, and the outbreak of the virus at a time when trade between India and China has increased to $93 billion, has obviously not spared the Indians. As an effect of this, the Indian chemical industry, has become susceptible to volatility in the prices of various imported chemicals and supply chain disruptions. According to ministry of commerce data, China accounted for 13.7% of India’s total imports in FY19 while export volumes to China had 5.1% share.
Extended plant shutdowns in China and restrictions on shipments or logistics are imparting shivers to the traders and has put a significant impact on the operations throughout the Asia-Pacific region. Consequently, India’s chemical and petrochemical sector would have to depend on alternate geographies for importing important raw materials. This would also mean higher exportable surplus than usual which would eventually lead to higher dumping of goods in other countries. The outbreak seems to hit hard India’s pharmaceutical sector which currently imports 80% of Active Pharmaceutical Ingredients (API’s) required for manufacturing medicines, from China. The India’s drug pricing regulator has already reported and undue rise in retail prices of medicines due to surge in the prices of chemical price like paracetamol, aspirin, azithromycin, amoxicillin etc. and the pharma industry fears that they could soon run out of stock if the supply shortage persists. However, some of India’s chemical industry players are optimistic about the virus impact as it has given way to the domestic players to increase their profit margins and boost their manufacturing activities. Thorough analysis of international competitors’ supply chains and loopholes in the domestic market would help the domestic players to benefit at this crucial moment.
As per the analysts, the situation can act as a silver-lining for Indian manufacturers who would have to look for where the opportunity may lie. India is self-sufficient in naphtha, the feedstock for petrochemical building blocks and bulk polymers, however due to shortage of many petrochemical intermediaries, India’s dependence on China has increased since past few years. This has created an urgent need among the Indian chemical industrialists to develop a far-sighted approach towards enhancing their footprints in the Indian Chemical and Petrochemical industry and analyze the risks involved.
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