28 May 2012 06:09 [Source: ICIS news]
While a boon for exports, a much weaker rupee is detrimental to Indian manufacturers that rely on imported raw material for production.
The Indian currency is being battered in the foreign exchange markets, sliding to an all-time low of 56.40 to the US dollar last week, on concerns that the country’s economy –
The rupee has shed about 14% of its value from early February this year. This meant that more rupees will have to be shelled out for an imported cargo that is usually priced in US dollars.
“The rupee has depreciated, so imports are not viable,” an India-based polyols importer said.
While offers for flexible slabstock have actually gone down last week to $2,050/tonne (€1,640/tonne) CFR (cost and freight)
“We will wait and see,” the importer said.
This uncertainty is also plaguing the polymers market, where import activities came to a standstill in the middle of last week, when the rupee hit a record low of above Rs56 to the US dollar.
Market players estimated that polyethylene (PE) and polypropylene (PP) cargoes arriving this month would cost around 3-5% more than when they were purchased in March, when the exchange rate was at about Rs53 to $1.
Local distributors and traders are hard pressed to clear their inventories, while local converters are refraining from beefing up stocks – keeping just enough material to cover their requirements, market sources said.
In the fertilizer market, Indian producers are seeking discounts of up between $25- $40/tonne with suppliers, in light of the sharp depreciation of the rupee, citing their inability to pass on the high cost of urea, phosphate and potash to farmers.
The country imports about a third of its 30m-tonne annual urea requirement, and also procure raw materials potash and phosphates – raw materials for fertilizer production – from abroad.
If the rupee continued on a free fall,
In April to December 2011 – the first nine months of its 2011-2012 fiscal year –
Its total imports grew by 30.4% to $269.2bn, while exports were up 25.8% to $217.7bn, data from the country’s Ministry of Finance showed.
The country’s fiscal fourth-quarter GDP (January-March 2012) data is expected to be released later in the week on Thursday.
Its economic expansion has steadily decelerated in the first three quarters of its fiscal year ending March 2012, with the full-year number expected at 6.9%, down 1.5 percentage points from the previous year’s actual growth, official statistics showed.
“The downside risks to growth are high because of the risks to global growth from the precarious situation in Europe,” the global financial stability watchdog – the International Monetary Fund – said in its country report on
Europe, which is currently wallowing in a sovereign debt crisis, is
While a country’s exports generally benefit from a weaker currency, weak external demand will likely cap
“Trend GDP growth [in
“As fiscal expansion is pared back, the underlying slower trend rate of growth will be visible. This will be the story in the year ahead,” DBS Bank said.
International investment banks such as Goldman Sachs, Bank of America-Merrill Lynch and Morgan Stanley have pared down their GDP forecast for
Additional reporting by Ong Sheau Ling, Ajoy K Das and Helen Lee
($1 = €0.80 / $1 = Rs55.31)
Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections
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