India Chemicals Blog

I have yet to meet anyone who has not expressed disappointment at the drama unfolding outside Tata Motor's Nano plant site in Singur at West Bengal. They also concur that the episode will have serious implications for large investments in India.

Violent protests have forced Tata Motors to halt construction and withdraw its employees. It is now putting together a detailed plan for relocation of the plant and evaluating options of building the Nano, the world's cheapest car, at its other plants.

It is ironic that the protests are taking place in West Bengal which is led by a communist government that sees the Nano car project as being for the greater good of the community and one that will stimulate employment and attract investments to a state that suffers from a long history of militant trade unionism.

One could blame the Singur crisis on India's murky politics where an opposition party is required, almost by compulsion, to take a stand against any major industrial project proposed by a ruling party leaving companies caught in the political crossfire.

The protests at Singur are hardly an exception - an isolated incident that is unlikely to come in the way of the central government's grand vision for India's economic transformation through mega industrial projects and the creation of special economic zones (SEZ) .

While the scale of the protests at Singur is unprecedented many such scenes are being played out in different corners of the country.

Although other Indian state governments have quickly issued invitations to Tata Motors to relocate the Nano project, there is no guarantee that the company will not face similar protests at a new location.

The Singur crisis does not bode well for India's plans to develop mega integrated refining and petrochemical sites, also referred to as petroleum, chemicals and petrochemical investment regions (PCPIRs)

Each PCPIR needs about 250 sq km (61,776 acres) of land. Given the uproar in Singur for purchase of a little less than 1000 acres one can easily imagine the turmoil that a larger scale acquisition would create.

Some state government are already reconsidering their plans for PCPIRs. The Karnataka government is revaluating one at Mangalore while the Andhra Pradesh government is reported to have slowed down land acquisition for a PCPIR along the Visakhapatnam-Kakinada-Rajahmundry corridor.

An added problem for chemical investments is the environmental issue. One of the reasons behind Karnataka's decision to revaluate a PCPIR at Mangalore is because of public concern about the impact that chemical plants would have on the local environment.

Companies mounting huge investments in India will have to tread carefully, balancing the demands of politicians and the local community with their business goals. The hurdles are not insurmountable but investors will need patience, money and skill to navigate the very bumpy road to projects in India.

India and Asean are all set to implement an FTA (free trade agreement) from 1 January 2008. Both sides completed six years of negotiations yesterday and a final agreement is due to be signed in December this year.

Over 400 products are on the sensitive/negative list and some chemicals have been included. But I understand that polyethylene (PE) and polypropylene (PP) do not figure on the list. Tariffs on PE and PP imports from Asean would be phased out over the next two years, thus opening the door for product from Singapore and Thailand just when new export-oriented plants get commissioned.

With tariffs on the two products currently at 5%, Indian producers say they will not be too badly affected but they do expect increased competition in the local market.

But a bigger threat is looming as India will soon resume talks for an FTA with the GCC (Gulf Cooperation Council).

Indian petrochemical producers are once again lobbying to ensure their products figure on the negative/sensitive list. Meetings have been held with government officials but I understand the outcome has not been positive.

Essar's petrochemical plans are slowly taking shape with the company having identified technologies for its cracker and polyolefin units at Jamnagar, Gujarat.

ICIS news reported last week that the cracker would be set up in technical collaboration with Lummus And earlier this month, the company was reported to have selected technology from Ineos for its 400,000 tonnes/year hdPE and 400,000 tonnes/year swing lldPE/hdPE plants.

The company would also be using Ineos technology for a 900,000 tonnes/year PP plant downstream of an FCC unit at its Jamnagar refinery.

While the company is looking at completing the cracker and derivative units by 2012, progress will to a large extent depend on how fast Essar can complete expansion of its refinery from 10.5m tonnes/year to 34m tonnes/year. Financial closure of the expansion project is pending but the company is still holding to a 2010 completion date.

India's Foreign Investment Promotion Board (FIPB) has deferred making a decision on a proposed chloromethanes joint venture between a subsidiary of Dow Chemical and Gujarat Alkalies and Chemicals Ltd (GACL) as the government would like more time 'to examine the proposal', reports ICIS news.

The joint venture plans to build a 200,000 tonne/year chloromethanes plant at Dahej, Gujarat state. The project is scheduled for financial closure by late 2008 and commissioning in 2011.

The Dow subsidiary that would participate in the joint venture, Dow Europe, is owned by Dow Europe Holding of the Netherlands. Dow Europe Holding is, in turn, owned by Dow Chemical, which is struggling to get past the Bhopal legacy in India.

Wonder if that has influenced the government's decision on the chloromethanes joint venture?

There are more signs of an economic slowdown in India. Industrial growth in the first quarter of fiscal 2008-09 dipped to 5.2%, down from 10.3% in the previous year and a result of high interest rates and input costs plus the weaknesses in the global economy.

A new government report has forecast GDP growth for the year at 7.7%. This is down from earlier forecasts of around 8% and the average 8.8% growth recorder over the past four years.

And the panel responsible for this report said: "The downside risk to our growth expectations in 2008/09 is primarily from a further deterioration in global conditions with its attendant impact on India -- be it in the sphere of oil prices or capital markets."

India is clearly not immune to developments in the US and global economies. Now is the time to bury the much debated decoupling theory.

Just as India's Olympic gold medal win yesterday poses no threat to China so does the news that India has become the second largest PTA importer in Asia.

Indian imports of this fibre intermediate have steadily grown to about 5,000 - 6,000 tonnes/month, up from the usual 2,000 tonnes/month, as a result of expansions in polyester capacities. New PTA capacity is being added with Mitsubishi Chemical's new 800,000 tonnes/year facility slated for start up next year. But demand growth is projected to be faster with PTA imports forecast to climb further.

However, India is nowhere close to displacing China as the largest PTA importer in the world. China imported about 6m tonnes last year and India is going to need many more years to catch up.

The Indian government's war on inflation appears to be making its way to the world of chemicals as a proposal to ban exports of soda ash and trim excise duties on major petrochemical inputs is being considered.

Soda ash prices have spiralled this year on the back of rising energy costs with product costing more than Rs14,000/tonne, up from around Rs10,000/tonne last year.

User industries are hoping that an export ban will force producers to lower prices and divert material to the domestic market. A final decision on the proposal has yet to be taken with the government waiting for feedback from the Alkali Manufacturers Association of India.

But there are no prizes for guessing what the association will have to say about this proposal.

Indian Oil Corp (IOC) recent financial woes do not appear to have dampened its interest in petrochemicals. After pushing back plans for a paraxylene (PX), polypropylene (PP) and styrene plants downstream of a proposed refinery at Paradip, it is interesting to read that the company intends to soon start a detailed feasibility study on a 120,000 tonnes/year joint-venture styrene butadiene rubber (SBR) plant at Panipat.

IOC is considering two partners for the project - one to bring in technology and the second to offtake product for exports. As project cost will be shared by the three partners IOC's financial commitment is not likely to be big.

A final investment decision has yet to be taken but the company is optimistic of completing the plant by end-2011 or early 2012. Feedstock butadiene would come from a planned 138,000 tonnes/year butadiene plant downstream of the Panipat cracker that is due for commissioning at end-2009.

A SBR plant in India makes sense as the country imports its entire requirement and demand is growing on the back of a strong auto industry. Other companies such as Reliance Industries, Haldia Petrochemicals and ONGC had evaluated projects but abandoned the idea for reasons ranging from feedstock availability to availability of technology.

India is known to move slowly. So it is perhaps not surprising to read that most local companies have yet to formulate strategies to face the challenge of climate change.

KPMG recently released a report on a study carried out earlier this year to understand if Indian business leaders are aware of the climate change issue, its implications for the economy and their businesses and their readiness to respond to the impending changes.

Only 41% of respondents thought they had a good understanding of the issue and have a clear strategy in place.

While a number of Indian businesses claim to be aware of the need to reduce their carbon impact and believe that they are taking steps towards it, most companies have not taken the first step of measuring their carbon footprint, says KPMG. Only 21% of respondents indicated that they fully measure their carbon impact while 16% of respondents don't see the need for such an analysis.

The full report is available here.

JK Synthetics is once again scouting for a buyer for its 18,000 tonnes/year acrylic fibre plant in Jhalawar, Rajasthan, according to this report in the Economic Times. I doubt if the company is going to be successful.

JK was declared "sick" in 1998 and efforts have been underway since then to sell its various plants. It had sold an acrylic fibre plant at Kota to Arfat Petrochem a few years back but I have heard that this unit has been shut down due to labour problems.

The Indian acrylic fibre business has rarely been a very profitable one. JK was forced to shut down its plant in the late 1990s due to a shortage of working capital, labour trouble and also stiff competition. Consolidated Fibres shut its unit in 2006 due to depressed market conditions.

And last year Reliance Industries shut two acrylic fibre plants in Vadodara that it inherited after the acquisition of Indian Petrochemicals Corp Ltd (IPCL).

Finding a buyer for the Jhalawar unit in the current market environment will be challenging especially with acrylonitrile prices at a record $2150/tonne cfr Asia.