FocusImport activity for PE and PP halts in India on record low rupee

23 May 2012 07:12  [Source: ICIS news]

By: Ong Sheau Ling

SINGAPORE (ICIS)--Import activity of polyethylene (PE) and polypropylene (PP) in India has reached a standstill amid the Indian rupee’s fall to a record low against the US dollar, industry sources said on Wednesday.

Indian importers have no interest to procure fresh cargoes this week, as the Indian rupee (Rs) exchange rate crossed the psychological mark of Rs55 against $1 to stand at Rs55.4 to $1 on 23 May.

The rupee-US dollar exchange rate has depreciated by 11% since early March, market sources said.

“It is too risky to import now. We have no idea what our cost will be when the cargoes arrive later,” a Mumbai-based trader said.

India’s customs authority – the Central Board of Excise and Customs - quoted an exchange rate of Rs53.10 against $1 for April, Rs2 higher than the previous month and a rise for the second straight month. Market players expect the board to quote another increase in May which will weigh down import interest further.

“There is no business at all now. If we can’t sell our stocks, how can we import?” another Mumbai-based trader said.

Some large-based converters are delaying the opening of LCs (letter of credit) because of the volatile rupee and the downward trend in the overseas markets.

“End-users are panicking,” a northeast Asian polyolefins producer said, adding that they are uncertain how much their imported cargoes will cost upon arrival, given the exchange rate.

Cargoes arriving on May are estimated to be about 3-5% more expensive than when they were purchased in March when the exchange rate was at about Rs53 against $1.

“The cost of imports is rising day by day. Distributors are actively liquidating their cargoes, so as to get out of the market as soon as possible,” a Daman-based film converter said.

Some Mumbai-based traders are still holding LDPE and HDPE film stocks priced at close to $1,500/tonne (Rs 83,100/tonne) CFR (cost & freight) Mumbai, about 10% higher than the current spot price level.

In addition, an influx of lower-priced Iranian low density PE (LDPE) film and high density PE (HDPE) film has caused a widespread liquidation of high cost stock in the Indian domestic market by local traders.

“The rampant offers of Iranian [LDPE and HDPE film] cargoes are adding more chaos to the already bearish market. We have to offload our stocks are a loss as a result. We can’t hold on to our high cost stocks anymore,” another Mumbai-based trader said.

Spot import prices of various grades of PE and PP in India fell for five consecutive weeks to $1,370-1,500/tonne CFR Mumbai for the week ended on 18 May, down by $85-125/tonne or 5.6-10.5% (please see graph below).

As local distributors and traders seek to clear their inventories, local converters are trying to keep just enough stock to cover their immediate needs.

“We may just cover any shortfall by buying locally instead to avoid any risk attached to the volatile currency,” a domestic oriented Daman-based converter said.

Export-oriented converters are less affected by the depreciation of the rupee, but buying ideas for imports have fallen because of abundant lower-priced imports offered in the domestic market.

“We can procure imports locally as well at a cheaper price, so we need not import directly from the Middle East producers, for example,” an export-oriented converter said.

In the open domestic market, local and imported products were traded at Rs90/kg DEL (delivered) west India for LDPE film, Rs92.50/kg DEL west India for LLDPE film and HDPE film and Rs94.00/kg DEL for PP raffia on 22 May, Rs1.00-3.00/kg lower from last week.

Market players largely expect PE and PP import prices to continue the downtrend and for Indian producers to experience better sales, while it will be harder for deals to be done on imports.

“Despite lower LLDPE (linear low density PE) prices, we are still selling,” an Indian polyolefins maker said, adding that LLDPE supply is still fundamentally tight, unlike the other PE grades.

Indian producers have decreased their list prices by as much as Rs3.00/kg with effect from 17 May because of the weak market sentiment.

“It remains unclear how long this weak buying interest will continue but certainly, import offers for June shipments will be lower,” a Mangalore-based trader said.

Import activity for PE and PP halts in India on record-low rupee

($1 = Rs55.4)

By: Ong Sheau Ling
+65 6780 4359

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