FocusChina production ban to benefit India firms

09 May 2008 14:13  [Source: ICIS news]

By Isha Jha

MUMBAI (ICIS news)--Indian chemical companies are likely to benefit from China's restrictions on chemical production in order to control pollution levels during the Olympic Games, producers and analysts said on Friday.

“The domestic price for banned chemicals in China is expected to go up by 10%, which is likely to be favourable for the Indian companies,” an Indian Chemical Council representative said.

The regulation on the production of 257 chemicals in Beijing would remain in place from 1 May to 17 October.

This move is aimed to ensure that pollution would be curbed ahead of the country’s showpiece Olympic Games in August.

The average import duty on chemicals in China is 6.5%, leading Chinese chemical firms to procure raw materials domestically, he said.

“This move would result in an increase in production costs and a gap in the supply chain which India could fill due to the proximity and industrialisation,” he added.

“If the prices in China’s domestic market rise enough to nullify the import duty, manufacturers are likely to import raw materials from India.”

The regulation would include chemicals such as caustic soda, polystyrene (PS), ethylene and acrylonitrile-butadiene-styrene |(ABS).

“The ruling is likely to raise prices and demand of chemicals in the region due to short supply,” said Pranay Bhargava, chief economist at the National Commodity and Derivatives Exchange.

ABS prices rose to the range of $1,810-1,850/tonne (€1,158-1,203/tonne) CFR (cost and freight) China by the end of first week of May compared with $1,800-$1,830/tonne a month ago.

PS also rose to $1,500-$1,520/tonne compared with $1,470-1,485/tonne a month-ago, according to global chemical market intelligence service ICIS pricing.

There could only be limited exposure to the Chinese customers as the Indian companies are increasingly adopting the strategy of diversifying their markets to other regions to minimise risk, Bhargava added.

“In commitment to supply to their customer base in Middle-East, Europe and America, the Indian companies could only increase their supply into the Chinese market by about 5-7%, despite the increased demand in the region,” he said.

Chinese producers do not seem to fear a strong supply crunch.

“Every year in China due to the weather conditions, the chemical firms produce little in the month of May and June and mostly shut down their plants for maintenance in July and August,” Marc Wang from China’s Zhengbang Group said. 

“It's only in the month of November and December that most companies produce near full capacity,” he added.

Import and margins into China were increasingly under pressure due to the rise in crude levels, and this ban would further aggravate the crunch, players said.

“Following the ban, prices of raw material chemicals in India imported from China rise further, thus adding pressure to margins,” an official from Gujarat Alkalies and Chemicals said.

($1 = €0.65)

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By: Isha Jha
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