FocusIndia budget disappoints polymer makers

03 March 2008 13:13  [Source: ICIS news]

By Prema Viswanathan

 

SINGAPORE (ICIS news)--Indian producers' margins would be hit by the proposal to remove the duty exemption on naphtha for polymer production as announced in the 2008-2009 budget last week, the producers said on Monday.

 

“Our company imports most of its naphtha requirement, so the proposal to re-impose the 5% tariff on naphtha will be bad news for us,” a polymer producer said.

The 5% naphtha tariff was withdrawn two years ago to boost polymer production and demand, the source added.

The budget proposal, which was announced by the Indian Finance Minister Palaniappan Chidambaram on Friday, proposed the withdrawal of the tariff exemption on naphtha for all sectors except fertilizers.

 

Even the country’s No 1 polyolefins producer, Reliance Industries (RIL), which is relatively less reliant on naphtha imports, would be adversely affected, said a RIL source.

 

“We are very disappointed that the government has removed the exemption, as it will increase our production costs,” the source added.

 

RIL procures most of its naphtha requirement captively from its Jamnagar refinery.

 

However, the budget proposal for a 2% reduction in excise duty was welcomed by producers, as was the raising of the income tax ceiling which was expected to boost polymer consumption.

 

“Consumers will now have more disposable income, so we expect spending on consumer durables to increase, which in turn will boost demand for polymers,” said a source in Supreme Petrochem, India’s biggest polystyrene (PS) producer.

  

The government’s decision to keep import tariffs on polymers unchanged at 5% was, however, welcomed by producers.

 

Polymer converters found little to applaud in the budget proposals.

 

“The 2% reduction in excise duty is too minimal to make a difference to our profit margins,” said a polypropylene converter. “We expected at least a 4-8% reduction.”

 

Following the 2% reduction, polymer industry players would still pay duties of around 25.6%, said a trader. 

 

By: Prema Viswanathan
+65 6780 4359

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