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INSIGHT: India polyolefins demand appears to grow strongly

ICIS News : 9-Jan-13 15:58

By Malini Hariharan and Ong, Sheau Ling

India demand for HDPE/PP woven sacks grew through OctoberMUMBAI (ICIS)--Polyolefins demand in India grew strongly in 2012 overriding a sluggish economy and an uncertain market outlook.

But India’s economic activity has slowed in the last few quarters and its GDP is expected to expand by only 5.5% in the year ending 31 March 2013, well below the government’s target of 8% plus growth.

Average growth in the first six months of 2012-13 was only 5.4% partly because of a weak manufacturing sector.

Yet the macro environment has not significantly dented polyolefins consumption, say some industry players.

“Some end-users are saying there is absolutely no slowdown in demand; they are also surprised,” points out an importer.

Polypropylene (PP) demand increased by 16% in the April-November 2012 period, linear low density polyethylene (LLDPE) by 15%, high density polyethylene by 11% and low density polyethylene (LDPE) by 21%, one local producer estimates.

“Growth for PP has been strong across all sectors except tubular quenched (TQ) film; the biaxially oriented PP (BOPP) film segment was the strongest performer,” he adds.

The BOPP segment is estimated to have grown by around 20% helped by the addition of new lines, while raffia, the largest end-use of PP in India, grew by about 17%.

“Nearly 120,000 tonnes/year of new BOPP capacity has been added in 2012; but competition has increased and margins have been squeezed,” said the importer.

“BOPP film margins used to be around Rs25/kg ($45/kg) but this has now fallen to Rs15/kg; many of the BOPP producers are going in for value-addition but margins for these films are also falling,” he added.

PP demand during April-November period has been estimated at nearly 2.4m tonnes.

Local PP producers have of course benefited from strong sales in the domestic market but surprisingly imports rose by around 40% to 325,000 tonnes despite the volatility in the value of the rupee. The rupee depreciated by more than 10% in the 2012 third quarter, but largely recovered by the calendar year end.

Imports were supported by the withdrawal of anti-dumping duties against Saudi Arabia and also low run rates at financially troubled Haldia Petrochemicals.

Indian exports of PP declined 4% to about 580,000 tonnes although volumes are likely to rise in the coming months once HPCL-Mittal Energy (HMEL) stabilises production at its new plant.

In the polyethylene market, LDPE benefited from the narrowing price differential with LLDPE.

Imports have also been rising because of lower production at Reliance Industries, the country’s only LDPE manufacturer.

Demand growth for LDPE was estimated by the Indian major at 19% to 327,000 tonnes from April to December 2012, with 186,000 tonnes accounted for by imports.

For LLDPE, demand growth was 13% to 917,000 tonnes in the same time frame, of which 401,000 tonnes were imports.

However for HDPE, demand growth was the lowest, at 10%, to 1,295,000 tonnes, with 350,000 tonnes accounted for by imports.

The smaller growth rate was due to the ban imposed on plastic bags in New Delhi at the end of October, significantly curtailing demand for HDPE film. Plastic bag makers are looking at ways to persuade the government to lift the ban.

Not every player in the Indian polyolefins industry, however, agrees with this robust assessment and many believe that demand growth for LLDPE, HDPE and PP is likely to be only around 10% in 2012-13.

The local producer pointed out that high comparative growth numbers are partly because of the very weak sales seen in April-June 2011 and that growth will moderate in the coming months.

But his assessment remains bullish with PP demand expected to expand by 14% in 2012-13, HDPE and LLDPE demand by 11% and LDPE demand by 18-19%. This should help producers place their volumes although unless prices improve significantly margins are likely to remain squeezed.

($1 = Rs55.00)

Ong, Sheau Ling conributed to this article

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