Coronavirus, construction and coffee
ROADS & HIGHWAYS

Coronavirus, construction and coffee

Coronavirus has put the brakes on growth in several industries. But it has also pummelled the ‘Make in China’ story. China produces nine times the volume of steel that India does; 40 per cent of this is used in construction. Over a third of Chinese steel mills are considering cutting production ...

Coronavirus has put the brakes on growth in several industries. But it has also pummelled the ‘Make in China’ story. China produces nine times the volume of steel that India does; 40 per cent of this is used in construction. Over a third of Chinese steel mills are considering cutting production because of rising inventories. Owing to slow construction activities, the outlook for domestic rebar demand is negative. JCB UK has already cut its production as over 25 per cent of its components and parts suppliers have been affected, in turn disrupting its delivery and production schedules. Komatsu, which sources components from its own plants and outside partners in China, is shifting production of metal parts used in the body of vehicles as well as wire harnesses to Japan and Vietnam.Japan's Daikin Industries is considering moving the assembly of commercial air-conditioners to Malaysia. Just about 30 per cent of the nation's 183 auto assembly plants were online by end February, according to the China Association of Automobile Manufacturers. A lot of the disruption above provides a window to the Indian auto component industry to perk up its backyard. Most analysts believe it takes a lot to be part of the supply chain and as this is only a short-term event, India does not have a chance. But I believe this is a ‘Black Swan’ event, as coined by Nassim Nicholas Taleb, meaning an unpredictable event that is beyond what is normally expected of a situation with potentially severe consequences. Companies are already scouting for alternate sources for supplies. Not having a fix on how long this will last, companies will want to secure an alternate supply chain route even as positive news on the containment of the virus begins to surface. Indian production facilities of construction equipment owned by multinationals are already set for exports, with many already established as export hubs for specific models. These could take some load off the demand of countries dependent on Chinese production facilities in the short run. China is the biggest exporter of ceramic products, especially vitrified floor tiles in Europe, the US, Far-Eastern countries and Africa. Indian tile manufacturers from Morbi and others can also look at a spike in demand from markets that hitherto preferred Chinese ceramics. For this to turn into an opportunity, the government must pull its head out of the rabbit hole. It must announce a revised package for exporters as an emergent tactic. Even contractors from India can expect to see a revision in tenders of some projects that have been awarded to Chinese contractors as it would be extremely difficult for them to now provide Chinese workers and machines to undertake the task. Meanwhile, the National Infrastructure Pipeline has an interesting line-up (see CW’s February 2020 Cover Story). The FM has set aside `220 billion towards the National Investment and Infrastructure Fund. This would be leveraged to raise funds from pension and sovereign funds, which would now find the deal worthwhile, given that the impact of the dividend distribution tax has been muted. They have also been provided tax relief when investing in infrastructure. Cube Highways has been agile and is already looking at offloading its road assets at a premium through an InvIT. Stepping in after construction and then offloading after the asset has gained traction could bring smart returns for the courageous. NHAI needs to follow suit by displaying some agility. We do not have anything to ‘Trumpet’ about during the latest visit by the US President; so far, it has only been a good PR exercise. Despite the Godsent opportunity, if we remain absorbed in ‘home’ matters, the world will pass us by. If we want to provide employment to the world’s largest and youngest workforce, we need to wake up and smell the coffee!

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Advait Energy and MEIL Partner for Energy Transition Projects

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