FocusIndia-Pakistan row may slow chems trade

03 December 2008 05:54  [Source: ICIS news]

By Prema Viswanathan

 

SINGAPORE(ICIS news)--The escalating discord between the Indian and Pakistani governments over the recent Mumbai terror attacks has sparked worries about a possible slowdown in cross-border trade, market players in both countries said on Wednesday.

 

India has pinned the blame on Pakistan-based terrorists for the attacks in its financial district of Mumbai that killed close to 180 people last week.

 

The Indian government was not ruling out the option of military strikes against terror camps in Pakistan, external affairs minister Pranab Mukherjee said over Indian news channel NDTV, while Pakistan foreign minister Shah Mehmood Qureshi countered that such statements would only aggravate the situation.

 

"A breakdown of the peace process between India and Pakistan could have a disastrous effect on cross-border trade in chemicals," said a Karachi-based trader.

 

Increased tensions could translate into strained relations between banks on both sides of the border, which would make opening letters of credit (LCs) for imports difficult, said a source close to Reliance Industries, India's largest petrochemical producer.

 

Around 5,000 tonnes of polypropylene (PP) and 900 tonnes of polyethylene (PE) are shipped out every month from the west coast of India to Pakistani ports.

 

"Of course, it is too early to say what will happen, but these shipments could be delayed if scrutiny of the sea route is stepped up to pre-empt terrorist infiltration," said the source.

 

Pakistani buyers were apprehensive about the possible fallout of the India-Pakistan row.

 

Some purified terephthalic acid (PTA) buyers were seeking early deliveries, anxious about possible delays in shipments of Indian supplies.

 

“We’re asking that the [cargoes] if possible be sent as soon as possible, PTA is short in Pakistan,” said the procurement manager of a polyester fibre producer.

 

Reliance sells PTA and paraxylene sporadically to Pakistan, usually through trading houses. One trader however said that no delays had been noted so far and “enquiries were normal”.

 

Base oils cargoes from Pakistan are occasionally exported to India and some cargoes were slated for shipment in the coming weeks. It remains unclear if the increased scrutiny of business between the two countries would impact these shipments, said an Asian base oils trader.

 

The unfolding tensions could exert further pressure on Pakistan’s already depreciating currency, said a Singapore-based ethanol trader.

 

"The International Monetary Fund (IMF), under US influence, might pressure Pakistan to come clean on the Mumbai terror attacks before committing a loan to bail out Pakistan’s struggling economy and this could weigh on the Pakistan currency," he added.

 

Ethanol is one of the key commodity exports from Pakistan and sometimes Pakistani cargoes are also shipped to India.

 

The Federation of Pakistan Chambers of Commerce and Industry (FPCCI)was not so pessimistic about the situation.

 

"I don't think the Indian and Pakistani governments will allow relations to reach breaking point. I am sure a peaceful solution can be worked out, as Pakistan is as much a victim of terror attacks as India is," said Zubair Tufail, a polymer trader and acting president of FPCCI.

 

The Middle East could take up the slack should Indian polymer exports to Pakistan diminish, said a source close to a Middle-East supplier.

 

"As Pakistan does not produce any PE or PP, this would provide a great opportunity for Middle East suppliers to increase their share in the Pakistani market," he said.

 

Anu Agarwal and Salman Aidan Lee contributed to this article

 

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By: Prema Viswanathan
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