India polyolefin outlook bearish on surplus domestic supply

SINGAPORE (ICIS)–India polyolefin importers expect a bearish outlook for the rest of the year and deem demand for foreign cargoes to be capped by ample domestic availability, market sources said on Friday.

Polymer demand in the South Asian country typically strengthens second half of August onwards and remains strong through September, as buyers begin to restock inventories for the festive season in the second half of the year.

Demand then weakens in October, as companies cut down purchases to allocate funds towards special payments such as annual bonuses, market sources said.

This year, booking of imports has particularly been affected by a myriad of factors that include an extended monsoon season, high uncertainty on upstream and polymer prices and ample availability of domestic product, market sources said.

The purchase of most commodities including polymers have remained weak since mid-August and well into September owing to an extended monsoon season, market sources said.

Heavy rains have also created challenges for transportation in most parts of the country, which in turn is weighing on buying interest and hence peak buying season is yet to begin, sources said.

The continued volatility in crude oil values for much of the year has also capped purchase volumes, as the majority of importers only looked to fulfil immediate requirements and stayed away from building stocks, sources said.

“Crude has been unpredictable this year because of which importers don’t want to stock up. They only buy what is immediately necessary, and this has affected purchase volumes,” an Indian trader said.

Ample availability of domestic product is the third factor that has affected buying interest for imports and has affected polymer prices in the country.

Local product is usually preferred by most small and mid-sized polymer processors owing to the ability to purchase smaller lots and shorter voyage times involved.

A reduced need to hold stocks coupled with attractive payment terms also make local product a preferred choice, market sources said.

New domestic start-ups have led to a surge in PE availability in the country, affecting imports demand.

Indian producer GAIL India that commissioned its linear low density polyethylene/high density polyethylene (LLDPE/HDPE) facility in February this year is on track to achieve on-spec production by the end of the month.

Indian major ONGC Petroadditions Limited (OPaL) which was looking to commission its dual-feed cracker by early September is understood to have started up its unit in the previous week and looks to bring its PE and polypropylene (PP) plants on-stream in October and November, according to market sources.

This is expected to further add to domestic volumes, hampering PE and PP imports in the weeks ahead.

Increased availability and reduced purchase volumes have thus led to an inventory build-up at the producers’ level, sources said.

“Indian PE [polyethylene] producers are holding inventories of 20-25 days, which is almost three times that of normal levels since the start-up of newer plants,” an Indian importer said.

A pile-up of stocks at several local producer facilities also resulted in some very competitive pricing of PE and PP, market sources said.

Domestic producers announced three successive price cuts for PP in the month of August, that rendered domestic product cheaper as compared with imports for Gulf Cooperation Council (GCC)-origin product, market sources said.

Although PE posted prices did not see a major reduction in August and September, Indian PE producers offered price discounts that varied with volumes purchased, incentivising processors who opted to purchase locally.

Taking into account the discounts, domestic prices, particularly that of LLDPE grade was said to be $50-80/tonne lower than those of imports, according to market sources. 

A price protection scheme that was in place in August also led buyers to stay modest in their purchases, owing to the possibility of a large reduction in the weeks ahead, market sources said.

Competitively-priced domestic product has also led to several traders being sidelined from the PE and PP business, sources said.

According to a few Indian traders, lower-priced domestic product has led to squeezed margins among traders and distributors.

Moreover, international prices for PE and PP prevail at prices higher than those of domestic product, rendering imports expensive and unattractive, market sources said.

The continued uncertainty in crude values has also led traders to assume a cautious stance to imports, market sources said.

According to an Indian PE/PP processor, price protection and discount schemes also tends to impart an uncertainty to prices, leading to curtailed buying.

“First they announce a rollover because of firm crude price, then they announce discount schemes for volumes purchased. This confuses the market because buyers don’t know what is the true situation? and hence buy less,” an Indian importer said.

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Focus article by Veena Pathare