IndianOil aims for expansion in petrochemical and polymers markets

13 August 2011 13:55  [Source: ICB]

 

After a rough patch, there are indications of a recovery in the Indian textile industry
The company seeks to resolve operational issues at its Panipat cracker and increase capacity in a number of downstream products throughout the country

India's state-operated Indian Oil Corp. (IndianOil), the country's largest refiner, is seeking to boost its presence in the petrochemical and polymers markets - at home and, via exports, abroad. Operational and market challenges abound but the company has an ambitious expansion plan to establish a larger presence.

India's petrochemical markets hold a lot of promise but tapping its potential can lead companies along bumpy roads. Unlike China, where demand has steadily expanded in the past decade thanks to a drift in global manufacturing, India's story is not straightforward.

Each period of a few years of solid growth has usually been followed by a year of lackluster performance, as is being seen in 2011. India recovered quickly after the 2008 global financial crisis but now an economic slowdown threatens to curtail growth.

The Indian government's battle to control inflation has led to 11 interest-rate hikes in the past 15 months and this has impacted industrial activity. The government remains confident that it will achieve GDP growth of 8% in 2011-2012 but many economists predict a lower number.

Against this background, IndianOil is ramping-up production at a new cracker complex at Panipat, Haryana, in the north of the country. Derivatives produced at the complex, which was brought onstream in March-April 2010, includes polyethylene (PE), polypropylene (PP) and monoethylene glycol (MEG).

Besides these products, IndianOil also operates plants for paraxylene (PX), purified terephthalic acid (PTA) at Panipat and linear alkyl benzene (LAB) at Vadodara, Gujarat.

ROUGH PATCH FOR TEXTILES
Siddharth Mitra, general manager of the company's petrochemicals division, acknowledges that the past few months have been difficult for petrochemical producers.

Take the case of the polyester market, where demand has been slow ahead of the festive season in October-November.

The Indian textile industry has been going through a rough patch. Volatility in raw-material prices and constraints in availability of labor and electricity, as well as lower orders from overseas, have affected operations.

There are indications of a recovery in the next few months but activity will remain muted, Mitra says. Demand for polyester raw materials expanded by 12-14% in 2010-2011 but growth in 2011-2012 is predicted to be below this level.

Polymer markets also underperformed in the April-June quarter as processors held back purchases in anticipation of lower prices.

However, July started off on a positive note, with a recovery in both buying and prices. The market has picked up as processors have exhausted their inventories. Processors are also moving away from worries about the health of the China market, Mitra says.

If the momentum continues, Mitra is confident of seeing 10-11% demand growth in polyolefins for the year ending March 2012 - a healthy performance but less vigorous than the previous 12-month period, when PP alone grew by 20%.

PRODUCTION CHALLENGES
IndianOil's immediate challenge is to boost production at the Panipat complex. The commissioning process has not been smooth and the average operating rate at the 857,000 tonne/year cracker is still in the 60-70% range even a year after start-up.

As a result, operations of derivative plants have also been affected.

The 325,000 tonne/year MEG plant is running at full capacity, while PE plants with capacity of 650,000 tonnes/year are running at 80-85% efficiency. Meanwhile, only one line at the 600,000 tonne/year polypropylene (PP) plant is operational.

However, the problem at the cracker, related to the cold section in propylene recovery, will soon be resolved, Mitra says. "We have diagnosed the problem and the corrective action that is needed. There will be a shutdown sometime in [the] near future," he adds.

However, Mitra points out that a decision on the shutdown has yet to be taken as its timing will have to be balanced with market considerations. Meanwhile, IndianOil has managed to dispose of most of the off-specification grades of PE and PP generated during the plant's commissioning phase and stocks of such grades have been reduced.

EXPORT EXPANSION
As well as a focus on the domestic market, the company is also placing an emphasis on its exports to neighboring countries. Agents have been appointed in Pakistan, Nepal and Bangladesh with the target to raise exports to 8,000 tonnes/month from the current level of 3,000-4,000 tonnes/month. In the longer term, the company is banking on an expansion of the polymers market in northern India. The Haryana state government has drawn up plans for a plastics processing zone at Panipat and has earmarked 900 acres of land for the project. Companies are looking at investing at the site but it could still take two to three years to develop, Mitra says. Until then, exports will continue because sales to nearby Pakistan and Nepal offer better realization of value than sales to customers in remote parts of India.

INVESTMENT FOCUS
This year's market setbacks have not dampened IndianOil's enthusiasm for more investments in petrochemicals. While the company is pursuing most projects on its own, it is open to joint ventures. "Some projects will have to be through JVs because of technology barriers - we are open to that," Mitra says.

The company has held talks with Kuwaiti and Saudi investors for a cracker downstream of a refinery under construction at Paradip, Orissa, on the Indian east coast, but the talks have not progressed.

The refinery's crude-distillation unit is scheduled to start in March 2012, while the remaining units will be commissioned in phases by November 2012.

The refinery's second phase will include petrochemicals and polymers such as PP, and a detailed study for a 700,000 tonne/year plant is being carried out, Mitra says.

Meanwhile, a proposal for a new PX and PTA project at Vadodara, Gujarat, will be put up for board approval in the next few months. If approved, the project - for 600,000 tonnes/year of PX and 370,000 tonnes/year of PTA - is likely to be completed during 2014-2015.

Also at Vadodara, IndianOil is looking at expanding its LAB plant by 30%. At Panipat, the company is evaluating production of C4/C5 derivatives downstream of the cracker and plans are likely to be firmed-up by the end of 2011. "We are also looking at various other chemicals, including methyl methacrylate [MMA], polymethyl methacrylate [PMMA], butyl rubber and butanediol [BDO]," Mitra says. Once operations at the cracker stabilize, a revamping exercise will boost its capacity by 25% to 1.2m tonnes/year under plans IndianOil disclosed earlier.

SPARE VOLUMES
Among the other projects under implementation, expansion of a fluid catalytic cracking unit at the company's refinery in Mathura, Uttar Pradesh, is due for completion in January 2013. The extra propylene will be moved to Panipat, where it will be used at the existing PP plant, which is designed to produce up to 700,000 tonnes/year of PP.

Work on a 138,000 tonne/year butadiene (BD) extraction unit at the Panipat complex has started and the company is likely to commence production in the first quarter of 2013, along with a joint-venture styrene butadiene rubber (SBR) plant. The 120,000 tonne/year SBR plant is a joint venture between IndianOil, Japan's Marubeni and Taiwan's TSRC.

The BD unit will have some spare volumes available, but this is likely to be recycled back to the cracker unless arrangements are made to move product from Panipat to a port for exports or sales to local buyers. Eventually, though, the SBR unit is likely to be expanded to absorb the surplus BD.

Successful completion of the projects will help IndianOil carve out a larger presence in India's petrochemical market.

For more on PP, as well as a wide range of other chemicals, visit our chemical intelligence pages at icis.com/chemicalintelligence


By: Malini Hariharan
+65 6780 4359



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