INSIGHT: An extended summer for Indian polyolefins

31 August 2009 11:00  [Source: ICIS news]

By Malini Hariharan

MUMBAI (ICIS news)--The Indian polyolefins (PO) market is going from strength to strength with recent demand estimates confirming a trend noticed earlier this year.

India was one of the few countries that did not see a decline in polypropylene (PP) and polyethylene (PE) demand last year, mainly because the downstream industry focuses on the domestic market rather than exports.

The growth story has continued with producers estimating a 22% increase in PP demand in the past four months to 720,000 tonnes, while low density PE (LDPE) was up 30% at 130,000 tonnes.

Demand for high density PE (HDPE) and linear low density PE (LLDPE) also expanded but at a slower rate of 11-14%. HDPE demand was estimated at 417,000 tonnes and LLDPE at 307,000 tonnes.

The sectoral demand numbers for April to July show that packaging, both flexible and rigid, was the key end-use sector. Demand for film, blow and injection moulding grades was robust during the period.

For instance, around 175,000 tonnes of HDPE was used for moulding applications, 23% more than last year’s figure for the same period.

High molecular weight (HM) HDPE film sales were up 19% at 65,000 tonnes. In PP, sales of tubular quench (TQ) film grade were up 33% at 33,000 tonnes and biaxially oriented PP (BOPP) grade demand was higher by 26% at 67,000 tonnes.

The BOPP market is poised to expand further as new lines are due to come onstream over the next 12 months.

“We see a great market for BOPP film in India for food and textile packaging. Exports should also increase, especially to Japan and Europe where companies are operating very old machines. The average age of BOPP lines is 30 years in Japan and 23 years in Europe. In comparison, the average age for India is 13 years and 7 years for China,” explained one BOPP film producer.

PP also saw strong demand from the non-woven sector, where sales grew by more than 60% to 44,000 tonnes during the April-July period. The swine flu scare spurred demand for face masks which are made of non-woven PP.

This sector is still new in India and the market has yet to be fully penetrated.

“Non wovens have a great potential; most of the capacity in country has come up only in the last 18-24 months,” said a second producer. He expected demand growth of over 20% in the medium term.

The strong contribution of the packaging segment was also evident in LDPE. Demand for this polymer was also supported by a narrowing price differential with LLDPE.

Processors are still comfortable with LDPE and the polymer has made a strong return this year, said a second producer.

Among the sectors showing weak growth was pipes and this was attributed partially to a delay in government orders. But the long-term prospects are healthy, as the government is investing heavily in upgrading urban infrastructure which should result in demand for pipes for water distribution and sanitation.

The raffia sector, which is the mainstay for PP, saw demand expand by only 5% in April-July despite an 11% growth in cement production.

This was attributed to higher sales in the same period last year when PP prices were steadily rising. “We had super sales last year when processors were stocking up; it is relatively slower this year,” explained the first producer.

Despite the healthy growth numbers posted by most sectors, PO producers were reluctant to paint a very rosy picture for the rest of the year.

Insufficient rainfall in most parts of the country has raised concerns of a drought and its impact on the Indian economy.

There could be erosion in rural incomes and spending, pointed out a third producer. This would be a major setback as the rural market has so far played an important role in boosting demand for a wide variety of consumer products.

Another worry is the inflationary pressure that the Indian economy was witnessing. Food prices have risen sharply in the last few months and lower food grain production due to poor rains could push prices even higher. The government recently raised its inflation forecast for the year to 5% from 4% and indicated that it may have to reverse its expansionary monetary policy.

“PE demand may take a hit but we are unlikely to see a collapse. Certain end-use sectors will be more affected than others,” pointed out the second producer.

“I can’t see PP maintaining 20% plus growth for the rest of the year. We will have to wait until September to see what impact the drought will have on demand. But we should still see good growth for the full year – a number over 10% is absolutely achievable,” said the second producer.

Although PO demand growth is expected to taper off it is unlikely to slip below 10% and it will be much higher than forecasts made at the start of 2009. Any double-digit number will be a good showing especially during difficult times.

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