Sensex Drops 230 Points as Trade War Fears Resurface

Tue, 19 Jun 12:30 pm

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After opening the day flat, share markets in India witnessed choppy trading activity throughout the day and are presently below the dotted line. Sectoral indices are trading on a negative with stocks in the metal sector and stocks in the realty sector leading the losses.

The BSE Sensex is down by 227 points (down 0.6%) and the NSE Nifty is trading down by 77 points (down 0.7%). Meanwhile, the BSE Mid Cap index is trading down by 1.1%, while the BSE Small Cap index is trading down by 1.3%. The rupee is trading at 68.25 to the US$.

In news from across the globe, the US-China trade war is showing no signs of slowing down, as US President, Donald Trump is threatening to slap more tariffs on Chinese imports.

Donald Trump instructed the US Trade Representative's office to identify US$200 billion in imports from China for additional tariffs of 10%.

The US President said the 10% tariffs would come into effect if China refuses to change its practices.

Trump's latest salvo in a brewing trade war would mean a sizable amount of Chinese goods shipped to the U.S. would be exposed to tariff threats and raises new questions about the impact on American consumers.

Last week he threatened 25% tariffs on $50 billion in Chinese products with another $100 billion targeted beyond that.

The move would be a major escalation of the dispute. World stock markets have suffered sharp falls as a result.

China responded by accusing the US of blackmail, raising fears of a full-blown trade war.

Trade wars and the resultant tariffs affect India too. India's steel industry could fall victim to Donald Trump's trade wars.

India's steel industry was just coming out of a rough patch.

Demand was picking up. Steel prices were on the rise. Buyers were lining up to pick up stressed assets. With the expected pick up in the investment cycle, the sector was on the upswing.

India's Steel exports were on a roll.

Is the Steel Sector's Recovery Under Threat?

Then Donald Trump spoiled the party. The US government plans to impose a 25% tariff on steel and a 10% tariff on aluminum.

India produces a lot of both commodities but internationally, we are not a big player. The US imports only 2.4% of steel and 2% aluminum from India.

But it's not so simple.

With the new US tariffs, major exporters like South Korea will look to sell in other countries. This would lead to a glut and as a result, lower prices.

This could threaten the nascent recovery in the industry.

Moving on to news from stocks in the oil & gas sector. India Oil Company (IOC) share price is in focus today after it was reported that the state-run oil major is in talks with US producers for oil purchases.

IOC is exploring term deals with producers in the United States for the purchase of about a million tonnes (MT) of crude oil, a move that could turn the US into one of its regular suppliers and counterbalance traditional producers in the Gulf.

Term deals are usually annual contracts for the purchase of predetermined quantity at a price that varies with international rates during the period of contract. IOC and other state-owned refiners source about 70% of their crude oil via term deals with multiple suppliers across producing regions.

The balance 30% is procured from the spot market. Term deals ensure certainty in supply for refiners, and such firm supplies from the far-off US to India could bring traditional suppliers from West Asia under pressure and could help keep prices in check.

Notably, Indian refiners began buying US crude in the spot market last year and the IOC's term deal, when it happens, will be the first regular supply deal with the US. IOC has so far struck deals with US suppliers for buying 10 million barrels of oil, or six cargoes, in the spot market. About 60% of the contracted volume has already been delivered.

At the time of writing, IOC share price was trading down by 2.9%.

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