Nepali Factories Scale Back Output as West Asia Conflict Hits Raw Material Imports

Escalating tensions between the United States and Iran in West Asia have begun to affect Nepal’s industrial sector, as disruptions in the supply of petroleum products and their by-products tighten the availability of key raw materials.

Industrialists in the Sunsari–Morang industrial corridor say the supply of essential raw materials has become increasingly uncertain, while prices have risen significantly even when materials are available. The situation has pushed up production costs and begun to drive up the prices of consumer goods in the domestic market.

According to industrialists, the prices of food products, edible oil, slippers, shoes, yarn, textiles, cement and iron products are likely to rise. Apart from possible increases in the prices of cooking gas and petroleum products, shortages and price hikes of plastics used in transportation and packaging have further raised production costs for many industries.

Industries heavily dependent on petroleum-based raw materials have already begun cutting production. Industrialists say some factories have reduced output by around 40 percent. Delays in shipments under previously opened letters of credit (LCs) and difficulties in opening new LCs for importing raw materials have forced industries to scale down operations.

Anupam Rathi, president of the Morang Chamber of Commerce and Industry and owner of SPL Plastic, said plastic industries have started reducing production due to disruptions in plastic imports.

According to him, rising plastic packaging costs have compelled manufacturers to increase the prices of goods supplied to the market.

“Packaging sacks alone have become at least Rs 20 more expensive, and the impact is already visible in food products and cement,” he said.

The higher packaging costs have raised the price of cement bags, while increased transportation expenses have pushed up the price of iron products by about Rs 3 per kilogram. Rathi added that international freight charges have also increased.

“Even vessels that had already been loaded are seeing freight costs rise by as much as $300 per ton, and we are receiving notices for further price adjustments,” he said.

Industrialists say rising transportation and packaging costs will inevitably affect the prices of daily consumer goods.

Amit Rathi, secretary of the Morang Chamber of Commerce and Industry and owner of Bagmati Plastic, said plastic factories have cut production by nearly 40 percent due to shortages of raw materials.

“If the conflict escalates further, industries may have to reduce production even more due to raw material shortages,” he warned.

Nandakishor Rathi, president of Chamber of Industries Morang and owner of Lotus Plastic Industries, said the price of plastic has already increased by about 40 percent since the conflict began.

Before the conflict, high-density polyethylene (HDPE) and polypropylene (PP) were available at around $900 per ton, but the price has now risen to about $1,250 per ton.

“It is not only the price that has increased; even when we are willing to pay the higher price, the raw materials are not readily available,” he said.

Nepali industries mainly import plastic from companies such as Reliance Industries, Opal and Indian Oil Corporation in India. Raw materials are also sourced from countries including Vietnam, South Korea, Thailand and several countries in West Asia.

However, industrialists say many suppliers have begun refusing new orders due to the conflict, while shipments under previously opened LCs are also facing delays.

The shortage of plastic raw materials has begun affecting a wide range of industrial products. Industries producing plastic utensils, toys, furniture, tarpaulins, sacks, pipes, bottles, packaging materials and footwear have all been affected.

Industrialists warn that prolonged disruptions in raw material supply could threaten the operation of many factories.

Rising crude oil prices have also affected edible oil industries. Industrialists say the price of crude soybean oil has increased from about $1,220 per ton before the conflict to around $1,280 per ton. This raw material is mainly imported from Argentina and Brazil.

Similarly, the price of crude sunflower oil has risen from about $1,400 per ton to around $1,520 per ton. This oil is primarily imported from Ukraine and Argentina.

Amit Sharada, owner of Pashupati Edible Oil Industries, said exporters are now reluctant to accept new orders due to rising prices and uncertain supply conditions.

Export-oriented industries have also been affected. Anuj Poddar, owner of Magic Footwear, said the price of ethylene vinyl acetate (EVA), a key raw material used in footwear production, has surged in the international market.

The price has jumped from about $1,150 per ton to around $1,600 per ton.

“It is not only the price increase. Suppliers are currently unwilling to export,” he said.

According to Poddar, existing stock will allow the industry to operate for only about two months.

Industrialists warn that if the supply of raw materials does not improve soon, industrial production will continue to decline, leading to higher prices and possible shortages of goods in the domestic market.