Impacts on the steel and scrap industry
A major trading house with ties to key steel mills in Bangladesh has indicated that the market will likely remain sidelined for some time. The unrest, driven by student protests and political instability, could lead to a temporary government arrangement until reelections or until the situation stabilises. This uncertainty is expected to continue disrupting trade and market operations in Bangladesh.
For Indian exporters, the situation is a growing concern. The unrest, combined with violent protests and a severe foreign exchange shortage in Bangladesh, is already causing notable disruptions. Since exports contribute about 23% to India's GDP, up from 19% in 2020, the sector's significance is clear. Despite the current turmoil, there's cautious optimism that things will improve soon. The close economic and geographical ties between India and Bangladesh make it essential for the situation to normalise quickly to prevent further trade disruptions.
Industry reports and local market insiders suggest that an interim government is anticipated to be established shortly, which has pledged to minimise disruptions to the steel industry. Noble laureate Muhammad Yunus is expected to serve as the chief adviser to this interim government. As of now, all government, semi-government, autonomous, semi-autonomous, and private organisations, and factories are operational.
Trade impacts with India
Earlier in July, the unrest has led to increased security at land ports and calls for political factions to protect factories and keep supply lines open. The disruption has contributed to a decline in trade volumes, with Bangladesh's exports dropping to USD 542.1 million in April-June 2024, an 8.2% decrease from the previous year as per industry reports. India's exports to Bangladesh fell to $11 billion in 2023-24, and imports decreased to $ 1.84 billion.
Recently, trade through Bangladesh's land ports in West Bengal, including Petrapole and Fulbari, has been disrupted due to violent protests against the government. This has halted essential trade activities and caused significant delays, with hundreds of trucks queued for customs clearance.
India remains Bangladesh's second-largest trade partner in Asia, while Bangladesh is India's largest trade partner in South Asia. Major exports to Bangladesh from India include vegetables, chemicals, and steel, while imports from Bangladesh primarily consist of fish, plastic, and textiles.
In a recent conversation with a mill representative in Dhaka, it was highlighted that the Indian government has tightened security in the border area. This measure is expected to halt the sponge iron trade and potentially have a significant impact on the market. However, there is optimism about trade activities which is expected to resume next week, and that the situation will improve soon.
Outlook: The announcement of the new interim government is anticipated by the evening of 6 August 2024. This development is expected to have minimal impact on future bookings and shipments to the Bangladesh market, with trade partners expressing optimism about a return to improved conditions in the near term.
