India petrochemical demand picks up ahead of major holidays; outlook hazy

Author: Pearl Bantillo

2020/10/21

SINGAPORE (ICIS)--Petrochemical trades in India have picked up ahead of the country’s holiday season, which will officially kick off in late October and culminate in Diwali Festival in mid-November.

Economic data are showing signs of improvement from a slump in the second quarter, but surging coronavirus cases temper optimism over recovery.

The government recently unveiled a $10bn stimulus package, which Spain-based research firm FocusEconomics described as “modest”, which “although expected to provide a temporary boost to sentiment, should have a marginal impact on the overall recovery”.

India's automotive sector appears to be recovering well, with sales of passenger cars posting month-on-month increases since August, boding well for a host of petrochemicals, including styrene butadiene rubber (SBR),.

Spot SBR prices have increased on a combination of strong demand, limited spot supply and rising cost of feedstock butadiene (BD).

SBR is a raw material used in the manufacturing of tyres for the automotive industry.

September passenger vehicle sales in the south Asian country spiked 26.5% year on year to 272,027 units, with production up 16.2% at 315,827 units, industry data showed.

Pre-holiday sales of small and compact cars have increased in the country on public health concerns amid an unabated surge in coronavirus infections.

With infections exceeding 7.5m and a daily addition of about 40,000-50,000 cases, India is closing in on the US with the highest number of coronavirus cases in the world.

In the polyolefins markets, domestic demand has strengthened since September, with downstream uptake seeing a seasonal increase in the run-up to the festive season, which began in the second-half of October.

Local producers have hiked prices  of polypropylene (PP) and selected polyethylene (PE) grades on improved demand and tight supply amid limited imports.

Spot import activity were capped as general demand has weakened amid the coronavirus pandemic, while Middle Eastern suppliers were diverting volumes to more lucrative markets like China.

Local PE and PP processing units have been able to ramp up operating rates to 80-90% as a result of improved resin demand, from below 50% during the lockdown months of March to June.

PP flat yarn (raffia) processors have also begun to see an uptick in export orders for flexible intermediate bulk containers (FIBCs).

India is a major exporter of FIBCs to the US and Europe.

In the purified terephthalic acid (PTA) market, spot import prices were being driven up by tight supply, healthy demand as downstream domestic polyester producers have ramped up production, as well as higher freight cost for dry bulk containers.

Spot PTA imports to India are trading at a higher premium of $42/tonne to cargoes heading to China in the week ended 16 October, according to ICIS data.

In the polystyrene market, demand for high impact polystyrene (HIPS) is strong on the back of increased sales for downstream home appliances.

HIPS goes into the inner linings of home appliances such as refrigerators, washing machines and air conditioners.

PS imports, however, remained poor on continued uncertainty over plans to impose anti-dumping duties on material from six origins.

Most trades and transactions currently taking place are confined in the domestic market, while local supply is tight with LG Polymers’ PS plant still shut since early May following a gas leak.

Home appliance purchases in India have been rising as people devote some spare funds - which would otherwise go to travel and entertainment in normal times - to home improvement amid pandemic-induced lockdowns.

To draw in more consumers, sellers in the country are offering interest-free payment schemes and extended credit repayment facilities for product purchases, thus lending an overall boost to packaging demand.

In the methanol market, import demand was strong from local distributions, particularly for cargoes arriving before Diwali in mid-November.

Diwali or the Hindu Festival of Lights is a major holiday in India.

There are concerns that the holiday season would lead to a further spike in cases amid expected large religious and festive gatherings.

India, which is a giant emerging economy in Asia, is expected to post its deepest contraction on record at 10.3% in the fiscal year ending March 2021, according to the International Monetary Fund (IMF).

“Revisions to the forecast are particularly large for India, where GDP contracted much more severely than expected in the second quarter,” the IMF said in its October 2020 World Economic Outlook (WEO).

In the April-June 2020 – India’s first quarter – the economy shrank by nearly a quarter as the country implemented one of the longest lockdowns to contain the coronavirus pandemic.

In its November Consensus Forecast report for East and South Asia, FocusEconomics said that the Indian economy is projected to shrink by 9.1% in the current fiscal year, with industrial production likely to contract by 15.3%.

“The economy is expected to tumble in FY 2020 (April 2020–March 2021) as Covid-19 [coronavirus disease 2019] containment measures hamper domestic activity and external demand,” said economist Steven Burke in the report.

“Moreover, the ongoing spread of the virus and prolongation of lockdown measures, coupled with fiscal stimulus measures falling well short of the mark, continue to pose a downside risk to the outlook,” he added.

Focus article by Pearl Bantillo

Photo: The Diwali festival of lights symbolizes the victory of good over evil. Bhopal, India - 18 Oct ober 2019 (Photo by SANJEEV GUPTA/EPA-EFE/Shutterstock)

Additional reporting by Veena Pathare, Helen Yan, Prateek Pillai, Samuel Wong and Keven Zhang

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