Indian firms hit as China plants shut

By Neil Heathcote
Editor, BBC India Business Report

Indian firms are pointing the finger at China for shortages of materials

At the Alok Industries plant on the outskirts of Mumbai, thousands of metres of material are dyed red, blue and green, each day, ready to be made into clothes.

But colours that used to be freely available are suddenly in short supply.

Dye prices have risen rapidly.

The company has increased its stocks to avoid running into problems, but other firms are struggling to find enough money and supplies to keep going.

"For the country as a whole and for the industry as a whole, it's a major problem," says company head Dilip Jiwrajka.

"Dyes - particularly the lower and the middle end - are not available. If they are available they're very expensive, resulting in the closing down of some small and medium-size units."

Cornered market

The industry is buzzing with allegations of speculation and profiteering, but most point the finger at the Olympics.

"We've been given to understand by the dye manufacturers that the Chinese government has banned dye manufacturers within a radius of about 200 kilometres from the Olympic game village," says Mr Diwrajka.

"That's the reason why dyes are in short supply in India."

China has taken decisive action to clear the Beijing air

Chinese suppliers cornered much of the global dye market a few years back.

So this should be a golden opportunity for India's dye makers to step into the breach.

But they cannot produce more colours to meet demand, because these days they source their raw materials from China.

And at the moment those ingredients are not available either.

Controlled market

The head of Jaysynth Dyestuff, SC Sharma - who has just returned from visiting his Chinese suppliers - says production has clearly been cut back.

What he really wants to know is whether it will all be back to normal after the Olympics.

Beijing, he thinks, may decide these restrictions are a good way to cut environmental pollution, and that the controls will stay in place.

"In the last decades, China started controlling almost 85% of world demand," he insists.

"They saw this opportunity. Even if they increase the price, the world has to come to them for their requirements."

Manufacture in India?

Whether prices eventually fall will decide what Jaysynth does next.

A couple of hours drive from Mumbai lies a deserted factory complex the company closed down a few years ago.

Employers say the problems highlight China's status as a global supplier

At the time, it simply could not match Chinese prices.

Now it is thinking of re-opening the plant.

"People will wait and watch," he says.

"If prices really come down, then people will forget, and they'll probably again start buying from China. But if Chinese pricing strategy is unreasonable, many Indian manufacturers may revive their old plants."

It all underlines just how much China has become a supplier to the world - even to Indian manufacturers.

But as long as China is the only source of dyes, textile firms say they have little option but to pay up for now and wait for the day the colour comes back to their markets.