26 March, 2018
As PVC players in India are mostly busy with their year-end bookkeeping during the last working days before the new fiscal year, they are discussing how the central bank’s recent regulation on loan instruments will affect demand for imports in the upcoming term.
Following a $2 billion fraud at the country’s second-biggest loan lender, Punjab National Bank, the Reserve Bank of India (RBI) barred all Indian banks from issuing letters of undertaking (LoUs) and letters of comfort (LoCs), which are instruments used by importers to raise short-term loans and fund their overseas purchases.
According to several traders, the bank’s move is likely to raise the cost of imports as importers will have to use foreign currency, namely US dollars, instead of rupee in their payments to overseas suppliers.
“Following this move, liquidity in the market will reduce and imports for all kinds of goods will also show a decrease as buyers’ credit for import trade mostly depends on these LoUs and TT payments,” a trader opined.
In the country’s PVC market, demand towards imported materials traditionally revives in April in line with the start of the new fiscal year. “However, we may not see a notable pickup in demand this time since small and middle sized buyers are already worried about their next purchases due to the new regulation which will affect them most,” some players argued.
A trader operating in China commented, “The bank’s decision has already weighed on India’s appetite for import PVC as buyers are now facing liquidity problems. This may exert downward pressure on PVC prices over the near term.”
As the largest importer of PVC in the world, India meets around 50% of its PVC demand through imports, largely from Taiwan, South Korea and China.
An Indian trader said, “Demand for import PVC is likely to be slow in the next couple of months due to the bank’s move while it may not recover after that as the monsoon season will start by around mid-May.”