17 May 2013 09:56 [Source: ICB]
Price hikes likely for PE, PVC, PP and PS following a 2.5 percentage point increase in import duties
India implemented a 2.5-percentage point increase in duties on imports of all polymers and ethylene vinyl acetate (EVA) to 7.5% on 9 May, drawing cheers from domestic producers. But converters are likely to be hit by higher costs, industry sources said.
"Producers are looking at increasing list prices by at least [Indian] rupees [Rs] 2/kg ($37/tonne)," said a source close to a domestic producer.
India's polymer list prices had been raised prior to the government's announcement.
"There will be fewer imports to India, as a result of the new duties," said an Indian trader.
The government's decision to increase the import duty on plastics was in response to calls from industry groups to revise the country's duty structure to protect domestic producers from heavy competition from abroad, industry sources said.
"If you look at the Asia Pacific region, India has one of the lowest import duty structures, while the southeast Asian countries impose duties well over 6.0-7.5%," said a source at one of the leading Indian PVC producers.
LOCAL INVESTMENT PUSH
"The new duty structure also motivates regional producers to seriously look at capacity expansion," the source said.
Domestic producers view the import duty hike as a positive gesture by the government to encourage local production. A lower import duty of 5% on feedstocks - such as naphtha, ethylene, ethylene dichloride (EDC) and vinyl chloride monomer (VCM) - should also be positive, industry sources said.
"This [import duty hike] will reduce competition from low-priced imports and help enhance demand for domestic material," a source at a local polymer producer said.
A consequent increase in domestic prices, however, is not likely to hit demand, which remains relatively strong in India, sources said.
"In the short term, material in the domestic market will be more expensive. Local producers may increase prices because of this. But buying will still continue in India because of robust demand and tight supply," the India-based PE and PP trader said.
End-users are expected to be most adversely affected in the long term by the hike in polymer tariffs, traders said.
"Given India's robust PVC demand and its significant dependence on imports, buyers will continue to source foreign cargoes, as domestic supply is not sufficient to meet the market's demand for PVC today," said a source close to a major northeast Asian producer.
India's annual PVC demand is about 2.25m tonnes - more than half of which or 1.25m tonnes is being sourced from the domestic market, while the rest is imported from northeast Asia and the US, industry sources said.
For PP and PS, on the other hand, India is a net exporter.
"Converters of polymers will have to pay higher prices for their raw materials as local producers will definitely raise their domestic offers further in line with the increased import prices, after factoring in the extra duty," said a Mumbai-based trader.
Additional reporting by Veena Pathare and Prema Viswanathan
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