India Polymers Shine But Questions Persist

By Malini Hariharan

Optimism has returned to the Indian polymer market fuelled by a sharp recovery in prices and buying sentiment over the last few weeks across Asia.

The talk these days is mainly about tightness in availability of polyethylene (PE) and polypropylene (PP) and when producers will announce the next price hike.

Supply is tight because of a shutdown at Haldia Petrochemicals and continued low operating rates at Indian Oil Corp (IOC). IOC is running its cracker at only 60-70% beause of technical issues. As a result, operations at the PE and PP plants have also been affected. The company is widely expected to shut its cracker in September although an IOC source says the exact schedule has yet to confirmed.

In polyvinyl chloride (PVC), a good monsoon has triggered hopes of resurgence in buying from September.

More than 70% of PVC is used for manufacturing pipes that are mainly used in for irrigation in the agriculture sector. A good monsoon should boost farmer incomes and demand for pipes.

The swift rise in polymer prices has come as a pleasant surprise to sellers but some are already wondering if prices have moved up too fast. One trader predicts that prices will continue to rise for another 2-3 weeks before the market once again slows down.

Macro-economic conditions continue to point towards a difficult year. The Indian government has yet to win its war on inflation, currently running at around 9%. Interest rates have been increased 11 times over the last 15 months with the most recent increase of 50 basis points announced earlier this week.

Analysts have been quick to predict a further slowing down of industrial activity with sectors such as auto and construction likely to be hit the hardest. This will surely have an impact on the petrochemicals industry.

Meanwhile, the dismal state of the polymer market in the last quarter is evident in the results of Reliance Industries for the April-June quarter.

The Indian refining and petrochemical major was able to post increases in sales and profits but this was mainly due to the strong performance of its refining business.

Petrochemical sales volumes increased but the company was forced to export higher volumes on persistent weakness in the domestic market. For instance, polypropylene (PP) exports by Reliance were up 81% year on year at 248,000 tonnes.

In a presentation to the financial community (available here), the company estimated that Indian demand for PP contracted by 4% in the last quarter while polyethylene (PE) was down 1% and PVC declined 2%.

Producers are still holding on to positive demand growth forecasts for the full year. But for this to materialize the current momentum in markets will have to be maintained for another few quarters which in turn would require positive developments on the economic front.

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