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."
    sugata.ghosh@timesgroup.com