Indian PP surges by 11% on tight supply, high costs

03 June 2008 05:47  [Source: ICIS news]

By Prema Viswanathan

SINGAPORE (ICIS news)--Prices of polypropylene (PP) imports into India have risen by up to $180/tonne or over 11%  in the past month, due to extremely tight supply and surging feedstock costs, producers, traders and end users said on Tuesday.

"Most suppliers into the Indian market have little supply, preferring to target other markets in Asia where they can achieve higher netbacks," a Delhi-based trader said.

Prices in southeast Asia, for instance, have been up to $25/tonne higher than those in India, in a reversal of earlier trends.

"Naphtha has rocketed by 15% in the past month to above $1,100/tonne CFR (cost and freight) Japan, while propylene has gone up by 6% to 1500-1,550/tonne CFR northeast Asia. This has severely affected PP producers’ margins," a PP supplier said.

Climbing crude values has strengthened buying sentiment in the Indian PP market, an end user said.

"We maintained low inventories in the hope that PP prices would come down. But with crude continuing to remain high, that looks unlikely. So we have no option but to accept the current price levels," said an Indian processor.

Rock bottom inventories among end users have also boosted sentiment.

A second processor, who was scrambling for PP cargoes to replenish its dwindling inventories, said that it was hard to find material even if it was willing to comply with the supplier’s offers.

"I had negotiated with a supplier to procure around 300 tonnes at $1,710/tonne CFR India, but the next day the offer was withdrawn and I was presented with an offer that was $15/tonne higher than the last one," the processor said.

End users had been waiting for supply to ease in anticipation of increased supply from the Middle East.

More than 3m tonnes of PP is set to go on stream in the Middle East this year, but not much material has yet been seen in the Indian market.

Output from plants which have started up has been exported to more strategic markets such as China and southeast Asia, where the producers can achieve higher prices.

The price surge has been supported by robust Indian demand for PP, especially from the country’s booming retail sector. "We expect Indian demand for PP to grow by at least 10-12% in the coming year," an Indian producer said.

Surging domestic prices has also supported the surge in import prices. Local producers hiked prices of PP in the domestic market three times in May, citing higher feedstock costs.

($1 = Rs 42.38)

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By: Prema Viswanathan
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