Auto sector slowdown hampers Indian PP copolymer demand

SINGAPORE (ICIS)–A slowdown in the automotive sector in India continues to weigh on the domestic demand for polypropylene (PP) impact copolymer, with a generally bearish near-term outlook.

Work in progress at Hindustan Motor’s Thiruvallur Plant in Kerala state. (Source: Photo by Sipa/REX/Shutterstock)

Globally, the automotive sector has been on a decline for most of this year, plagued by liquidity issues and economic hurdles.

In India too, the situation is no different.

Automobile retail sales in the country have fallen for the tenth month in a row, with new vehicle registration dropping 5.4 percent year or year in June, according to industry reports.

A continued tightness in fiscal liquidity and a delayed monsoon that hampered sentiment led to consumers postponing purchases.

The goods and service tax (GST) that came into effect on 1 July 2017 has also had a negative impact on the automotive sector, since both auto and auto component sectors fall in the 18% or 28% tax bracket that is viewed as high.

PP is widely used in automotive components such as bumpers, door trims and instrument panels.

Although automobiles see the usage of several different types of plastics in a single vehicle, PP alone accounts for 30-50% of all the plastic materials, due to its superior mechanical properties and mouldability.

A negative trend is reflected in the demand for PP copolymer imports in the country, as demand for auto components is directly tied to vehicle demand.

Demand for PP impact copolymer imports that was previously netting robust growth year on year has fallen 10.8% in the financial year 2018-19.

Prices for these have also come under pressure in the last one year due to the slump in demand.

India PP prices – 2015 onwards

Offers for July-loading Middle Eastern cargoes at $1,130/tonne CFR (cost and freight) India have failed to garner buyer response.

Discussions have stayed thin, despite sellers indicating willingness to negotiate on the prices based upon buyer interest.

The spread of PP copolymer prices over base homopolymer grades have also been on a decline since November last year.

Historically, PP block copolymer have largely commanded a premium of $35/tonne or more, over mainstream PP homopolymer grades such as raffia.

In addition to higher costs involved in producing copolymers, robust demand also supported higher premiums.

This spread has narrowed to an average of $20/tonne this year.

Enquiries for imports have dropped in the recent months, with local production staying sufficient to cater to the prevailing demand levels.

A slump in auto demand has led to fewer orders from OEM companies to processors, capping copolymer resin demand from PP converters and compounders.

Traders have also largely steered clear from copolymer imports, owing to weak downstream demand and squeezed margins.

Industry players estimate the upcoming festive season to give some much-needed boost to auto sales in the second half of 2019.

But this is likely to be marginal, with any significant improvement set to happen only when the fiscal liquidity in the country improves, that will take time.

Focus article by Veena Pathare