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13.11.08, 02:17
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Commodity traders stare at big losses
Sudden Drop In Prices Catches Importers, Exporters Off-Guard
Sugata Ghosh & Deepa Krishnan MUMBAI
COUNTLESS Indian traders have been trapped by a brutal commodity market.
Consider these examples: A small-time importer in Coimbatore is fighting
bankruptcy after placing an order for two shiploads of iron scrap. By the time
the cargo reached India in little over a month, prices had crashed 70%. His
buyers have backed out and the man is facing a Rs 100-crore loss. Across the
state border, cashew kernels which have reached Kerala from Ivory Coast are
piling up. The kernels have to be processed for re-export. But there’s a
problem: many overseas buyers are no longer interested since prices have
dipped. In Mumbai’s chemical mart, a sulphur importer is refusing to lift the
cargo from the port. In less than two months, prices have crashed from $700 a
tonne to $65, and he has nobody to sell to.
These aren’t isolated instances. Across the spectrum of commodities —
scrap, iron ore, sulphur, solvents, dyes, soda ash and even edible oil — local
traders have been caught on the wrong foot. There are instances where
importers have preferred to pay the penalty rather than pick up stocks from
docks at a price which they can’t recover.
Some of them, like the Coimbatore-based scrap trader, are picking holes in
the shipping and letter of credit documents to wriggle out of the contracts. A
few are even willing to surrender the collaterals to banks with whom they had
opened letters of credit.
“The drop in price was sudden. Sulphur importers who had booked
consignments in advance are finding no takers,” said Chandrakant Sanghvi, a
liaisoning agent in Mumbai.
Many exporters are also firefighting. Some iron ore exporters have now
discovered that their Chinese buyers have disappeared with prices dropping to
$55 a tonne from last year’s high of $135. Crash in commodities hits
importers, exporters alike
“A MONTH ago, Chinese buyers had asked for a steep cut in price and some
even went back on contracts. But there have been some negotiations of late,”
said Rahul Baldota of MSPL, a large exporter.
The impact is being felt even in relatively smaller items. Ravi Adukia, an
exporter of dye intermediates, said that his Korean and Taiwanese clients are
pushing for discounts. “In 45 days, prices have dipped from $1,700 a tonne to
$1,100. To maintain the relationship, I may have to lower the price.”
With local buyers unwilling to honour commitments, some fear the pile-up
of cargo is a logistical disaster waiting to unfold. Nearly 45,000 tonne of
edible oil is lying idle in custom-bonded tanks. Of this, about 7,000-8,000
tonne is in JNPT. “Not even 10% of these have been lifted. Some cleared their
stocks on rumours of a duty hike that is currently at 7.5%,” said Jayant
Lapsia, president of the All India Liquid Bulk Importers and Exporters
Association. Local edible oil is proving cheaper, he added. Palm oil — India’s
primary edible oil import — had been witnessing heavy import defaults since
June when the price rose sharply. Even though the price eased in October,
matters have improved little.
Exporters have realised that many of their overseas buyers have not hedged
by offsetting positions at the London Metal Exchange which they used to do
previously. This is because most commodity futures brokerages have stopped
giving exposure limits due to the financial turbulence. The drop in prices,
coupled with the crash in shipping freights — as reflected in the Baltic
Freight Index touching a 5-year low — has lowered the landed price of hundreds
of commodities.
Familiar echoes ring out across sectors. Minesh Shah, president of All
India Plastic Dealers Association said: “In the 30 years of my career, things
have never been worse. Since the last batch of imports, plastic prices have
shrunk by half. We are having to sell our goods at losses, and will not import
till demand picks up.” The price of polyvinyl chloride is down to Rs 36 a kg
from Rs 73 in July, polypropylene is down to Rs 45 a kg from Rs 115. The
landed price of PP is down to $650 a tonne from $2,200.
Metals, which have hit multiyear lows in a matter of months, are seeing
importers running for cover. Surendra Mardia, president of industry body
Bombay Metal Exchange in Mumbai said: “Traders are helpless. Some have mopped
up funds just to honour commitments to save their international image. Others
have been unlucky. Banks are not allowing them to withdraw even funds coming
in as payments,” he said.
Chemicals like acid slurry and soda ash, used in detergents and soaps,
have seen a decline of nearly 30% in price in two months. Acid slurry (Linear
alkyl benzene sulphonic) is currently quoting at $1,500 a tonne, down from
$2,300. Sanjay Trivedi, head of Oil Technologists Association of India said:
“The sudden decline in input costs may have caught the bulk importers unawares
but this is temporary.”
