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China’s worsening energy situation has impacted global coal prices and logistics costs and increased raw material costs across sectors.

However, the order books of Indian chemical and steel manufacturers would witness growth because of a reduction in supply by Chinese counterparts, according to industry analysts.

“China’s energy crisis and resultant likelihood of shutting down of Chinese companies or intermittent curbs on manufacturing would prove advantageous to Indian companies, as the demand for their products is bound to rise in both the domestic and international markets," said India Ratings and Research (Ind-Ra), a Fitch Group company.

The domestic end-user industries for chemicals such as dyes and pigments, pharmaceuticals and agrochemicals will pass on the overall increase in costs to consumers, thus maintaining profitability, Ind-Ra said.

The rebound in global economic activity with lifting of covid-led restrictions has exposed the shortages of fuels used for power generation in China and other countries.

In India, industries are scrambling for coal supplies as Coal India Ltd, the world’s top miner of coal, has temporarily stopped deliveries to all consumers in the country other than power stations.

Indian aluminium plants are grappling with critically low levels of coal stock.

“If coal supply is not restored immediately, it would lead to an irrevocable collateral damage of these national assets," the Aluminium Association of India said on 15 October.

Any power outage in an aluminium plant will lead to catastrophic impact and complete shutdown and the recovery will take at least 12 months, it said.

Internationally, the shortage of coal is mainly attributed to irregular rainfall, which led to flooding in mines and the strict mining safety norms in China. China is the largest producer and consumer of coal.

As coal prices have soared in the international markets, Chinese producers have been looking for alternative energy supplies such as oil and diesel, leading to an increase in oil prices in global markets.

The changes in China’s energy policy related to the price band for power could cause a key structural shift within the sector, thus supporting steel prices in the international and domestic markets, according to Ind-Ra.

To reduce industrial carbon emissions and improve air quality, China is likely to cut its steel output in the second half of this fiscal after having recorded crude steel production of 560 million tonnes in the first half, which is a 10.5% year-on-year increase.

The fall in China’s steel output and India’s imports of intermediate steel products would benefit Indian steel players by lowering import risks and providing greater export opportunities. Added to this is the healthy demand for steel from the European Union.

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