India PE, PP demand struggles amid cash crunch, Asia markets slump

SINGAPORE (ICIS)–India’s demand for polymers spot cargoes stayed weak, blighted by a domestic liquidity crunch and amid slumping markets across Asia.

International Container Transshipment Terminal Iin Kochi, Kerala, India (Photo by Olaf Kruger/imageBROKER/REX/Shutterstock)

Domestic availability is ample while expectations are bleak of a demand improvement in December.

On 23 November, high density polyethylene (HDPE) film prices were assessed at an average of $1,110/tonne CFR (cost & freight) India, down $45/tonne week on week; while polypropylene (PP) raffia/injection prices fell $60/tonne over the same period to $1,130/tonne CFR India, ICIS data showed.

A seasonal lull in demand for most polymers, including PE and PP, began in India in early November but was punctuated by a short post-Diwali holiday restocking.

Diwali or the Hindu Festival of Lights on 6 November, and the celebration typically lasts at least a week in India.

In the PP market, trading activity usually slows down as companies typically cut back purchases to allocate funds towards annual bonus payments to employees, while they shut processing units during the holiday.

The market situation this year, however, is being compounded by  a severe tightness in cash availability since the second half as banks have been tightening access to credit facilities.

Since 13 March, banks have pulled back credit lines and banned issuance of letters of undertaking (LOUs) and letters of comfort (LOCs), following a $2bn bank fraud case that involved the Punjab National Bank (PNB).

The ban on these semi-guarantee tools typically issued by Indian banks to importers in the country resulted in a significant slowdown in polymers trades in the country.

It also restricted working capital availability, as inventories were cut to free up capital for bank payments.

The polymers markets also continue to reel from after-effects of the goods and service (GST) tax implemented from July 2017, according to market sources.

“A parallel cash-based economy was a significant player in polymers trade in the country, that has shrunk since GST came into place,” a source at a major Indian producer said.

This fragmented and unorganized sector undertook trade solely on cash basis, often disclosed lower revenues to reduce its tax base, market sources said.

With the GST regime mandating greater transparency in business, smaller polymer traders were hit, thereby hampering overall plastic consumption.

Meanwhile, domestic availability of PE and PP is long as most plants are being operated at near-full capacity, while exports to China and southeast Asia have slowed due to softer demand and greater competition from emerging US supply.

Sharp losses in upstream crude markets and continued weakness in the Indian rupee against the US dollar have also weighed on overall sentiment in the PP market.

“A ban on disposable plastic and losses resulting from a weaker rupee to the US dollar earlier this year continue to dampen plastic demand,” an Indian polymer trader said.

Demand for plastic bags made out of HDPE film, and those for thermoformed goods have shrunk sharply, following the ban on single-use disposable plastics across several Indian states.

Some market players were hopeful demand will improve early 2019, as several processors were running low on stocks as they had not purchased PE and PP resins for weeks.

Others were pessimistic citing weak demand fundamentals as the fiscal issues run deep and would take months to improve.

Focus article by Veena Pathare