A lockdown in China’s tech and manufacturing hub Shenzhen will likely disrupt global supply chains and ship availability, causing a spike in freight rates and potentially affecting India‘s steel companies, electronics assemblers and carmakers.
China locked down 17 million residents of the tech hub after 66 cases of Covid infections were detected.
“There will be a definite impact if there is a shutdown for more than three weeks,” said Navkendar Singh, research director , IDC, a global provider of market intelligence.
“While there is sufficient stock for April and May, the impact, if Shenzhen doesn’t open up, will be felt from June,” added Singh.
Indian electronic device makers import a large chunk of parts from Shenzhen. Singh said the disruption will compound the problems caused by the Russia-Ukraine conflict. Ukraine is a big supplier of raw materials, including semiconductor-grade neon used in manufacturing. Russia is an important source of palladium used in memory and sensor chips.
Ravi G Bhatia, president of automotive consulting firm JATO Dynamics, warned of a “big supply impact” due to the Shenzhen closure.
“Things are going to get difficult in the next quarter. However, we are better off as we tried to cut down on any trade/input from China or the Shenzhen port,” said the top executive at an Indian steel maker.
“The margins may come under pressure in the next quarter, as demand will be higher and inputs would be in short supply, especially coal,” he added.
India’s steel makers import a chunk of coal that is shipped via the Shenzhen port. A supply crunch will add to prices already impacted by disruptions due to the Russia-Ukraine conflict. “Around 20-30% of our supplies touch upon Shenzhen port – be it for coal or scrap. We estimate the situation will deescalate in a week’s time” said an executive at a global steel maker.
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