China’s energy crisis to help Indian chemical and steel companies

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China’s deteriorating energy situation has impacted global coal prices and logistics costs and raised raw material costs in all sectors.

However, the order books of Indian chemical and steel makers are expected to grow due to a reduction in supply from their Chinese counterparts, industry analysts say.

“China’s energy crisis and the resulting likelihood of Chinese companies shutting down or intermittent manufacturing restrictions would prove beneficial to Indian companies, as demand for their products is set to increase both on domestic and international markets, ”said India Ratings and Research (Ind-Ra), a Fitch group company.

Domestic industries of end-users of chemicals such as dyes and pigments, pharmaceuticals and agrochemicals will pass the overall cost increase on to consumers, thereby maintaining profitability, said Ind-Ra.

The rebound in global economic activity with the lifting of covid restrictions has exposed shortages of fuels used for power generation in China and other countries.

Industries in India are scrambling to source coal as Coal India Ltd, the world’s largest coal miner, has temporarily halted deliveries to all consumers in the country except power plants.

Indian aluminum factories are grappling with extremely low coal inventory levels.

“If the coal supply is not restored immediately, it would cause irrevocable collateral damage to these national assets,” said the Indian Aluminum Association on October 15.

Any power failure at an aluminum plant will result in a catastrophic impact and a complete shutdown and recovery will take at least 12 months, he said.

Internationally, the coal shortage is mainly attributed to erratic rainfall, which has resulted in flooding in mines and strict mining safety standards in China. China is the world’s largest producer and consumer of coal.

As coal prices have skyrocketed in international markets, Chinese producers have sought alternative energy sources such as petroleum and diesel, causing oil prices to rise in world markets.

Changes in China’s energy policy related to the price bracket for electricity could trigger a key structural change within the sector, thereby supporting steel prices in international and domestic markets, according to Ind-Ra.

To reduce industrial carbon emissions and improve air quality, China is expected to cut steel production in the second half of this fiscal year after recording crude steel production of 560 million tonnes in the first half, or 10.5% year-on-year. to augment.

The fall in China’s steel production and Indian imports of intermediate steel products would benefit Indian steel players by reducing import risks and providing greater export opportunities. Added to this is the strong demand for steel from the European Union.

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