Extended Factory Shutdown In China; Production Line Affected In India

Extended Factory Shutdown In China; Production Line Affected In India

The outbreak of Coronavirus in China has not only left the medical industry worried, but other industries such as tourism and trade have also been deeply affected. It is true that China supplies vast industrial components and raw materials to the global market, and shutting down plants in China has started showing its effect.

India’s third-biggest two-wheeler maker, TVS Motor Co. on Tuesday, stated shortage of some parts which are generally shipped from China, might affect their further production in this month with their shares tumbling as much as 6.7%. Apart from TVS, Swathes is also expecting a hit in its production due to the situation at hand.

Though there are over 82,000 cases recorded globally, India has only three confirmed cases to worry about. However, considering India’s current economic condition and the necessary measures taken to revive the now 11 years of low economic growth, the prolonged disruption in sourcing raw materials may further elevate the situation. 

A way out of the current situation might be shifting overnight to other traders of raw materials in Asia, but that would further increase the cost of components and finished goods up to 5%-6% due to airlifting parts for transportation, according to ICICI Direct. It is also expected that sales of ACs, Fans, LEDs, and Kitchen appliances in April-June quarter might be severely impacted. ICICI Direct also stated that the month of March might not see any immediate impact as such due to the upcoming Chinese Lunar New Year.

According to Nomura, 14% of India’s imports are made from China, and it is easy to guess how much it will affect domestic production. Apart from that, over 60% of Chinese shipments include machinery and equipment and organic chemicals, while another 7% consists of plastic articles and fertilizers. On one hand, pharmaceutical, electronic, solar and auto sectors are expected to get hurt, while on the other hand, textile, mid and small size firms, as well as, fertilizers will face a lower amount of problems from Chinese imports.

Agro-companies such as Dhanuka Agritech Ltd., Vinati Organics Ltd., Rallis India Ltd., and Camlin Fine Sciences Ltd., look vulnerable in this situation, and peak summer sales are also to be disrupted with the risk of delay in supplies. Other companies like Tata Motors Ltd. and Motherson Sumi Systems Ltd among the auto sector and Oil & Natural Gas Corp may also get affected according to Emkay Global Financial Services.

It is expected to lower the oil prices which may benefit companies like Pidilite Industries Ltd., Asian Paints Ltd., Gujarat Gas Ltd., Gujarat State Petronet Ltd., and Apollo Tyres Ltd. There is also an expected chance of a rise in API prices which may benefit Divi’s Laboratories Ltd. and Granules India Ltd, among other players. 

Citi Research states that beyond supply chains there is limited vulnerability from Coronavirus in India, as only less than one-fifth of India’s real GDP is accounted for from manufacturing sectors. All in all, Coronavirus has not only affected the health of affected individuals but it has also expected to impact the global trading platform severely if the situation persists for a long time.

Though the textile industry might face lesser competition from Chinese imports but importing intermediary goods might get affected which is bound to impact textile and electronic sectors, which is believed by Capital Economics.

Rohan Mukherjee
Strategic Planning, Online Marketing, Off & On-Page SEO, Social Media Marketing.

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