PO surplus set to continue

Despite India’s stellar economic performance there are signs that the country’s polyolefin surplus will not disappear very soon.

In a presentation at last week’s Asian Chemical and Petrochemical Conference, Raj Datta of Haldia Petrochemicals Ltd drew out three scenarios.

In the first case, India would have a surplus of 2m tonnes of polyethylene (PE) and 1.27m tonnes of polypropylene (PP) in 2011 if demand grows at 8%/year. The surplus would ease to 1.7m tonnes of PE if demand grows at 12%/year. And the surplus would disappear only if demand grows at 19%/year.

India will be adding about 5m tonnes of PO capacity over the next 5 years. There are capacity expansions by Reliance Industries, HPL and Gail. And the new entrants will be Indian Oil Corp with its new plants at Panipat and Oil and Natural Gas Corp (ONGC) with its cracker and derivatives complex at Dahej.

I am bullish on India but find it difficult to imagine sustained annual demand growth in excess of 15%/year.

A large chunk of the emerging surplus, especially for PP, will be with Reliance which is best placed to take on global competition. But what about the smaller Indian players and more importantly the many new projects that are in the pipeline. Will the financials of these projects work if a significant percentage of the output has to be exported?

This is one more reason why the various state governments planning the many petroleum and chemicals and petrochemical investment region (PCPIRs) need to look beyond commodity petrochemicals.

As for Asian and Middle Eastern companies looking to export to India, maybe it is time to rework those calculations.

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