Indian companies, which have substantial operations in Europe, are bracing for the impact of a complete lockdown in the region due to the coronavirus pandemic.
The outbreak has already disrupted supply chains as well as production and would lead to job losses, warn analysts.
The Tata group, the Aditya Birla group, the Essar group and the JSW group are among conglomerates which have production units in Europe.
These companies are under tremendous pressure because of their reliance on international supply chains and owing to the falling demand.
Tata Steel Europe, which has substantial operations in Europe, had already announced plans to cut 1,250 jobs just before the corona pandemic hit the continent.
A company official said on Tuesday that its operations in Europe are normal and production has not been impacted.The media had reported earlier this month that an employee at its Netherlands plant tested positive for the virus. 'We will continue to carefully manage our production to ensure it is aligned with market demand. At the same time we are working with both customers and suppliers to reduce possible impacts from the Corona virus outbreak and restrictions,” said a Tata Steel Europe spokesperson.
The disruption for the steel firm comes at a time when Henrik Adam, chief executive officer (CEO) of the company warned earlier this month that its financial situation is gloomy. He added that there’s an urgent priority to improve the performance of business and its cash position, FT reported recently.
The Tata group-owned Jaguar Land Rover, maker of luxurious cars, has already warned of supply disruptions when the coronavirus pandemic broke out in China – its supplier of raw materials. With the virus not threatening its UK-based plants, the company will have to look for a Plan B. It has a plant in Slovakia where it makes Land Rover Discovery, a luxury sports utility vehicle (SUV).
Earlier this year, the company announced that it will cut 500 jobs at its Halewood plant near Liverpool, Northern England. This will be part of the 4,500 job cuts announced last year.
“Automotive manufacturers are also highly exposed because of their reliance on international supply chains, many of which are being disrupted, as well as some direct exposure to China. We expect this to have a knock-on effect on automotive suppliers in many countries,” said Benjamin Nelson, Moody’s vice-president - senior credit officer.
Endurance Technologies, makers of auto components, told analysts that its nine plants (six in Italy and three in Germany) in the EU are operational. The company plants in Italy are primarily located in the Turin region, while Lombardy and Venice regions are facing shutdowns due to quarantine. The EU operations are meeting 100 per cent of its production schedules and have not lost any business, though operating rates have reduced.
Apart from the Tata group, Hindalco’s Novelis has substantial operations in the continent with plants in Germany, Italy, Switzerland, the UK and France. Analysts said with supply chain disruption and lockdown announced by the local governments, production of the plants will be impacted. Novelis is currently in the process of buying Aleris Corp, a US-based can maker and needs to sell its Belgium plant to get approval from the European Commission.
Ratings firm Moody’s warned that credit quality around the world will continue to deteriorate, especially for companies in the most vulnerable sectors with prospectively reduced revenues, margins and disrupted supply chains.
At this time, the sectors most exposed to the shock are those that are most sensitive to consumer demand and sentiment. These include global passenger airlines, lodging and cruise, autos, as well as those in the oil & gas sector (that has been affected by the oil price shock). Steel producers, metals and mining sectors are in moderate exposure to the corona pandemic.
The JSW group operates a small steel plant in South Italy, which is not impacted due to the ongoing crisis. The Essar refinery units in the UK are running as per schedule, said a spokesperson.
MADE IN EUROPE
Tata Steel: Has steel production facilities in the Netherlands, the UK
Tata Motors: Makes luxury cars in the UK, Slovakia
Hindalco: Subsidiary Novelis makes aluminium cans and car sheets
JSW Steel: Makes steel in South Italy with low capacity
Essar: Refinery and retail outlets in the UK
(with inputs from Ishita Ayan Dutt)