OUTLOOK ’12: India PE, PP prices may slip on increased supply

04 January 2012 08:16  [Source: ICIS news]

By Ong Sheau Ling

SINGAPORE (ICIS)--India’s polyethylene (PE) and polypropylene (PP) prices will be under downward pressure in the first half of this year, following an expected increase in supply from new capacities and the lifting of anti-dumping duties (ADD) for Saudi PP imports, industry players said.

Falling demand for PE and PP on high interest rates and slowing GDP growth will also affect prices, they added.

The start-ups of PP facilities in India as well as PE and PP plants in Saudi Arabia (see table below) will worsen the current oversupply, they said.

More Saudi cargoes will be exported to India after India’s Central Board of Excise and Customs announced on 30 December that the ADD imposed on PP cargoes originating or exported from Saudi Arabia will be lifted from this date.

“We will see some supply pressure as a result of the removal of ADD. This will weigh on prices,” a Mumbai-based trader said.

Some export-orientated converters said their PE and PP resins imports will be limited to a need-to-basis for the first quarter of 2012 as they had fewer orders from Europe and the US because of the weak macroeconomic conditions in these regions.  

In China, the world’s largest polyolefins consumer, the Lunar New Year holiday on 22-28 January is likely to slow down demand and affect sentiment in the Indian market, according to the converters.  

In addition, the volatile rupee, which has depreciated largely over the past few months, has dampened import interest, they added.

Domestic-orientated converters in India are also conservative about their resins consumption in 2012. Lower-than-expected domestic demand due to high interest rates and slowing GPD growth in the first quarter may contribute to the downward curve, market players said.

The official GPD growth forecast has been cut to 7.5% from 8-9% for the fiscal year 2011-2012, according to Indian players, while many economists have estimated the growth to be 7% or less.

There have been 13 successive interest rate hikes since March 2010 which has started to affect the Indian economy, including the demand for polyolefins, market players said.  

As a result, the purchasing power of Indian consumers remains weak, dampening demand from the construction and automotive sectors, they said.

The impact of low cement production and poor automotive sales in 2011 is likely to spill over into the first quarter of 2012, hitting the PP raffia and PP copolymer businesses respectively, Indian converters said.

Meanwhile, packaging demand from a vast variety of applications that use low density PE (LDPE) film, linear low density PE (LLDPE) film, high density PE (HDPE) film, isotatic PP (IPP film) and biaxially oriented PP (BOPP film) remains moderate.

“With the marriage season [from] last December to this June or July, demand from packaging, furniture and white goods that use various grades of PE and PP should improve,” an Indian polyolefins producer said.

“India’s strong economic fundamentals and robust domestic market are expected to partially offset the negatives facing the economy,” Indian polymer major Reliance Industries Ltd (RIL) said.

The low levels of per capita consumption reveal the potential of growth in demand in the Indian polyolefins market, Indian players said.

RIL’s plan to reduce the operating rate at its 900,000 tonne/year PP facility at Jamnagar by 10% in the first quarter of 2012 will prevent a supply glut and lend support to PP prices, they added.

In addition, new PE, PP plants will operate at lower run rates and the quantities of new material will not be significant enough to affect prices, traders said.

Both PE and PP prices have hit new lows and market players expect prices to bottom out soon, as Asian producers’ margins are being either eroded or squeezed.

The average weekly prices of PP raffia on 30 December were at a 16-month low of $1,280/tonne CFR (cost & freight) Mumbai, while prices of LDPE film were at $1,320/tonne CFR Mumbai, a 27-month low, according to data from ICIS.

Meanwhile, the prices of LLDPE film were at a 15-month low of $1,225/tonne CFR Mumbai, while HDPE film prices were at $1,295/tonne CFR Mumbai, a six-month low, the data showed.

“Although a price fall is expected, the difference will be small,” a Mumbai-based trader said.

New capacities in India and the Middle East in 2012

Company	Location	Polymer	Nameplate capacity (tonnes/year)	Commercial production
HPCL-Mittal Energy Ltd (HMEL)	Bathinda, north India	PP	440,000	Feb or Mar 2012
Mangalore Refinery and Petrochemicals Ltd (MRPL)	Magalore, south India	PP	440,000	Q2 2012
Saudi Polymers	Al Jubail, Saudi Arabia	HDPE	550,000	Q1 2012
		HDPE	550,000
		PP	400,000
Saudi Kayan	Al Jubail, Saudi Arabia	LDPE	300,000	Mid-2012
Qatar Petrochemical Co (QAPCO)	Mesaieed, Qatar	LDPE	300,000	Q1 2012

Please visit the complete ICIS plants and projects database
For an insight to polyolefins, read Asian Chemical Connections

By: Ong Sheau Ling
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