FocusWeak rupee, higher duties hurt India demand for PE, PP imports

19 June 2013 06:10  [Source: ICIS news]

By Muhamad Fadhil

Port in Gujarat, IndiaMUMBAI (ICIS)--India’s appetite for polyethylene (PE) and polypropylene (PP) of foreign origin has weakened in the wake of the rupee plunge, and amid higher duties on polyolefin imports, market sources said on Wednesday.

The Indian rupee (Rs) is currently trading in the high Rs58 to the US dollar, staying near the all-time low of Rs58.98, which was hit last week. A weak currency makes imports more expensive.

PE and PP end-users and plastic processors are staying clear of the import market, thus boosting demand for domestically produced polymers that prompted local polyolefin producers to hike prices by Rs2-3/kg last week.

“We see good business now in the local market. A lot of interest in India and we may raise [domestic] prices further if demand continues to be strong,” said a source close to an Indian producer.

Major PE and PP producers in the country include Reliance Industries, Indian Oil, GAIL and Haldia Petrochemicals.

Despite recent price hikes for Indian-produced PE/PP, these polymers remain relatively cheaper and are delivered faster compared with imports, according to buyers.

Delays in shipments from Saudi Arabia are expected with the upcoming Muslim fasting month of Ramadan, which will start in July, market sources said.

“With delays in Saudi, we get material faster when we buy domestically. So it makes sense to buy in the local markets especially before Ramadan,” said a Mumbai-based market source.

India’s decision to raise import duties on plastics to 7.5% in May from 5% previously is also fuelling demand for local-made goods.

The duty structure was revised to protect domestic producers from heavy competition from abroad, but converters are currently being hit by higher raw material costs, market players said.

A Bangalore-based trader said: “There is no incentive for us to buy imports at this point. Why [would] we want to pay 2.5% more?”

Demand for imports has weakened since the import duty hike was implemented, said a second Mumbai-based trader.

“We are seeing a slight drop in buying activity for imports,” he said.

On 14 June, high-density polyethylene (HDPE) film grade prices were assessed at $1,430-1,460/tonne CFR (cost and freight) India, and PP raffia grade was at $1,450-1,480/tonne CFR India, according to ICIS.

Further price gains in both the local or import markets, however, will be detrimental for many end-users, industry sources said.

“We are hit on all sides. Local or domestic, we are just paying more. If this continues, we may need to cut back on buying altogether,” said an Indian end-user.

Notwithstanding India’s weaker demand for imports, foreign-based suppliers are inclined to keep their offers at mid- to high-$1,400/tonne levels, taking into account stable-to-firm demand from the key Chinese market.

China and Pakistan present alternative markets for polyolefin suppliers in the Middle East if weak import demand persisted in India.

“Business for us in India is not so good. We may offer to other markets like China and Pakistan – better business in those markets,” said a Saudi-based producer.

Lower import volumes for India, however, could lead to a supply crunch, which would push domestic PE and PP prices higher, market sources said.

“There may be a vicious cycle if Saudi offers are reduced. Then buyers [in India] are left with even fewer options. Local producers know this and may raise prices [again],” said an Indian trader.

Hopes of easing supply conditions in India lie in new capacities coming on stream in Asia soon, including those from ExxonMobil in Singapore, market sources said. ExxonMobil has a new 500,000 tonne/year PP plant and two new 650,000 tonne/year PE units in the southeast Asian country.

In China, Wuhan Petrochemical has a 300,000 tonne/year linear low density polyethylene (LLDPE) plant; a 300,000 tonne/year HDPE plant; and a 400,000 tonne/year PP plant that are expected to start up in July.

Sichuan Petrochemical, on the other hand, is due to commence production at its new 600,000 tonne/year PE plant and 450,000 tonne/year PP plant in the same month.

“[Indian] producers should not forget the new capacities in Singapore and China. Once those [plants] come on stream, it will be a buyer’s market and no longer a seller’s market,” the trader noted.

($1 = €0.75 / $1 = Rs58.82)

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Muhamad Fadhil
+65 6780 4356

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