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The Indian government imposed the 21-day nationwide lockdown beginning Wednesday, which includes strict curfew measures on the country’s 1.3-billion-strong population.
LCs are commonly used by companies exporting metals to India and are designed to guarantee payment to a seller if all conditions in the letter are met. Buyers can also receive a refund in the event that they upheld their end of the deal but the seller was unable to deliver or perform.
“There is still a lot of paper pushing in Indian banking. For people to open an LC, they need to get an authorized signature in hard copy,” an Indian trader who deals in both ferrous and non-ferrous metals said.
With bank branches operating at reduced rates, obtaining such a signature is difficult, he said. Banks in Pakistan are facing similar problems due to an impending lockdown in that country too, he added.
A second Indian trader – whose interests span from ferro-chrome and stainless steel to ferrous scrap – said that the new curfew laws were the largest problem in dealing with LCs.
“Most banks are working with minimum staffing levels but customers will need to go to the bank to deal with LCs and the movement of people is restricted,” he said.
“These issues are a big bother and – you realize – the ferrous markets are still nowhere near the bottom,” he added.
Fastmarkets’ price assessment for steel scrap shredded, index, import, cfr Nhava Sheva, India was $291 per tonne last Friday, down by $6.50 per tonne from a week earlier.
But amid lower demand and the hurdles for concluding transactions, market sources are expecting prices to experience further weakness, at least in the short term.
A scrap trader in the United States told Fastmarkets that he was awaiting payment for material sold into India through a third party and that this payment was being obstructed by the buyer being unable to send hard copies of documents to his Indian bank.
Ferro-alloy markets have also performed poorly in India of late. For instance, Fastmarkets’ price assessment for silico-manganese 65% Mn min, min 16% Si, fob India fell $20-30 per tonne to $910-920 per tonne fob last Friday.
India’s lockdown – together with falling metal prices – will also cause ample logistical problems in the delivery of material, according to the first trader.
“Trader cash flow is getting stuck. Suppliers are trying to get rid of material and buyers are trying to delay payment,” he said.
“Buyers also don’t want to clear cargoes because nobody is in the factory to receive the material. Who will clear the cargo?” he said.
Furthermore, Indian customs offices are operating at reduced levels and there is a shortage of lorry drivers in the country, he added.