Tough times start for India polyolefins

By Malini Hariharan

Tension is building up in the Indian polyolefin market with buying activity slowing down in recent weeks.

“The market is really dull; trading activity is very flat and end-users are taking minimum quantities. We are worried that the situation will worsen if we offer more discounts,” says a concerned producer.

The slow down in the polyolefins market is being attributed to expectations of a big price correction across all commodities including crude oil and weakness in the wider Asian polymer market, especially China.

Increased local competition with heavy discounting by some producers is aggravating the situation. Volumes from Indian Oil Co (IOC), the latest entrant to the Indian polyolefins market, have increased as its plants are running at around 60% although all its problems have yet to be sorted out.

In polypropylene (PP), all major end-use segments are said to be facing problems. Orders for raffia bags from cement companies have slowed down following an easing in demand due to reduced spending on infrastructure projects.

A drop in auto sales plus a 50-70% cut in operations at the Indian plants of Japanese companies Toyota and Honda has affected sales of PP copolymer.

And the hefty $300 plus price differential between PP and high-density polyethylene (HDPE) is prompting processors to turn to the cheaper polymer for non-critical applications.

“The switch to HDPE is not very difficult as some processors still have the old moulds and for some end-products they only need to change the temperature profiles,” says a second producer.

Not surprisingly, producers’ inventory levels are rising with nearly 160,000 tonnes of polyethylene (PE) reported to be in stock, more than double the usual volumes.

A shifting of inventory is taking place; it is time for producers to hold product, says a trader.

The near term outlook remains bleak as cues from the international market are not strong. China’s tight credit policy is unlikely to ease in the second quarter and the Indian government too is waging its own war against inflation by hiking interest rates which is likely to affect economic growth.

Any delay in a recovery in polyolefin demand and prices will put further pressure on naphtha-based producers who are already in a tight spot with negative margins on PE. Operations are being maintained only because of positive contributions from the C3 and C4 chains. Producers have resorted to exports in the last few months but even this is getting difficult as markets across the world are slowing down.

The weakness in the Indian market comes after a healthy 2010-11 which saw PE demand expanding by around 12% and PP by 17%. A repeat performance looks very difficult.

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