MUMBAI: The metals and mining sector might face high cash flow constraints if lockdown extends beyond a month, said a report by one of the big four audit firms, KPMG on Monday. As China is fast reviving, it might recapture other markets if at all there is any, it said in a report titled, potential impact of COVID-19 on the Indian economy.
“The sector is dependent on raw materials which are procured on a cash-and-carry basis. Cash flow constraints will happen sooner than later and sales will be impacted due to distress in the auto and construction sector,” the report said.
Throwing light on the overall consumer sentiment, the report added that the consuming industries are slowly coming to a halt, which has reconciled to a deep recession, globally.
Indian raw material market is generally de-linked from international prices, however they will decline sharply too if turnaround gets delayed beyond a month, said the report.
Metals are considered a process industry and exempted from complete shutdown. However all the production units are running with lower capacities and lesser numbers of staff.
“If turnaround takes time, furnaces and smelters too will be shut down, which will have an impact in the metals and mining industry,” the report said.
As per KPMG after the announcement of mandatory lockdown, several reports have indicated trucks and logistics being held back, due to which there is also a risk of pilferage, which might lead to losses for the companies.
The report observed that the employment in the logistics sector, driven by the metals and mining industry will have a major hit with a pay suspension if not retrenchment.
Commenting on the base metals, the report said that players might benefit from low imported prices on copper, however, Demand will slow down before inventory comes down heavily and supply hits happen.
With steel companies dependent on import of coking coal, port restrictions and vessel constraints may hinder availability. “Worsening exchange rates could make imports costlier too,” added the report.
Providing a moratorium for loan repayment, reducing the cost of trade-finance and providing wage subsidies for labour intensive mining projects is recommended by KPMG for short-term revival of the sector. The firm also recommends avoiding allocation of mines through auctions and suggested exploring other methods like single-stage bids.
The report also suggests immediate release of funds for projects worth Rs 102 trillion under
national infrastructure pipeline and providing relaxation in statutory and employee related tax payments as other key short-term policy recommendations.
India’s real GDP decelerated to its lowest in over six years in 3Q 2019-201, and the outbreak of the COVID-19 posed fresh challenges. The three major contributors to GDP, private consumption, investment and external trade will get affected, added the report.