APIC ’23: India remains key demand growth driver despite economic headwinds

SINGAPORE (ICIS)–India will remain a key demand growth driver for petrochemicals in Asia despite global macroeconomic headwinds this year.

The south Asian emerging market economy overtook the UK as the world’s fifth largest economy in 2022, but growth momentum is expected to begin to slow on softening domestic demand amid high inflation, moderating slightly from 6.8% last year to 5.9% in 2023, according to the latest International Monetary Fund (IMF) estimates.

The Reserve Bank of India (RBI) also forecasts a slowdown, but its projection was higher at 6.5% for the current fiscal year ending March 2024. It expects growth to taper off throughout the year.

In the long run, the world’s most populous country is poised to take advantage of the “China Plus One” strategy over the next few decades with manufacturers and retailers moving their outsourcing to other developing countries, according to ICIS senior consultant John Richardson.

However, India’s petrochemical industry faces a massive hurdle in adapting to the ill-effects of climate change in the long run while meeting growing domestic demand from its young population, he said.

“As with demographics, petrochemical demand growth forecasters cannot ignore outcomes from climate change in India and every other country and region,” Richardson said.

Sustainability will be a key focus at the Asia Petrochemical Industry Conference (APIC) 2023 which will be held in New Delhi on 18-19 May.

With the theme “Ushering in a Sustainable Future”, APIC will emerge from a forced three-year hiatus due to the COVID-19 pandemic.

“Discussions during APIC are likely to touch on the crude and macroeconomic outlook, as well as the implications of growing self-sufficiency in China on Asia and global trade flows,” ICIS Asia managing editor Peh Soo Hwee said.

“Rising capacity in China will continue to influence the decisions of petrochemical producers in Asia when it comes to plant operating rates,” she said.

“The diversification away from China as a key export destination to other markets such as India or to other regions is likely to continue,” Peh said.

“India, for instance, remains highly dependent on imports of chemicals ranging from styrene to polyvinyl chloride (PVC),” she added.

This year, India continues to lead Asia in demand growth for polyethylene (PE) and polypropylene (PP), ICIS analyst Shariene Goh said.

“Groceries and lifestyle fashion helped to drive growth in India for 2022, as e-commerce is expected to continue to scale further,” she said.

A potential increase in exports from China, and its impact on downstream demand for PE and PP due to a possible recession in the US and EU are key challenges that India is expected to face in 2023.

In the Indian PE pipe and polyethylene terephthalate (PET) markets, demand is likely to weaken going into late Q2 / early Q3 due to the monsoon season.

Demand is expected to be poor for PE pipes as inclement weather is likely to hamper pipe-laying works, while supply is expected to be stable as demand in Asia as a whole is weak and producers will still likely allocate sufficient spot cargoes for Indian buyers.

As for PVC, uptakes in the Middle Eastern and south Asian markets have remained slow over the last two weeks after the bulk of May buying took place early in the month.

Fundamentally, Indian PVC demand has been healthy as processors are running at high rates, but fluctuations in prices have kept buyers cautious.

With China’s economic slowdown, competitive offers coming in from the US, and the onset of the monsoon in some parts of India, however, the short-term outlook does not look bright.

In the methanol market, healthy demand is expected in the Indian market for the rest of the year, according to ICIS senior analyst Ann Sun.

“The main drivers will be fuel and formaldehyde amid robust domestic demand, while stable demand from MTBE will also be expected given the sustainable exports,” she said.

Methanol supply will be sufficient for India amid lower upstream gas prices and dull demand from China, keeping the Indian supply-demand balance snug, Sun said.

With low inventory in the west coast, India’s ex-tank price for prompt methanol materials is at a wide premium over cargoes arriving in the coming one to two weeks.

Downstream operating rates are geared up in the short window of the dry season, before the unfavourable rainy season at the end of June.

Going into mid-to-late June, more methanol supplies are likely to arrive from Iran and South America as India now offers better netback to producers compared with neighbouring markets.

Focus article by Nurluqman Suratman

Additional reporting by Damini Dabholkar, Zachary Tia and Keven Zhang

Thumbnail photo: Taj Mahal seen just before sunrise in Agra in Utter Pradesh, India. (Creative Touch Imaging Ltd/NurPhoto/Shutterstock)

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