Price and market trends: India polymer trade stymied by upcoming election

08 May 2014 17:26 Source:ICIS Chemical Business

Players slow activity ahead of presidential election results and further certainty on rupee direction

Polymer trades in India are at an impasse as market players await the country’s general election results that will determine the direction of the rupee, industry sources said on 2 May.

Polling across the country has been ongoing since 7 April and will end on 12 May, with vote counting expected to begin on 16 May.

Narendra Modi, who leads the opposition Bharatiya Janata Party, is tipped to win as India’s new prime minister. India is currently governed by the Congress Party.

An election of a new government, however, could translate to delays in implementation of economic measures, according to market players.

“Modi is financially astute. [If he wins,] he will push out a lot of good economic policies but it may take time to see them through,” said a Middle East polymer supplier selling into India.

The Indian rupee has been highly volatile, with bouts of heavy falls recorded during 2013 on account of the weakness of the Indian economy. So far this year, the rupee has appreciated, trading at slightly above Rs60 to the US dollar compared with Rs61.86 on 1 January.

India produces polymers but also imports from the Middle East and Asia. A strong rupee makes dollar-priced imports cheaper for Indian buyers. However, a firm currency also makes rupee-valued domestic products more expensive.

Given current uncertainties on the fate of the Indian currency, it is impossible to take a long-term position on the polymer market, a local trader said.

“If the rupee weakens and we buy imports now, we can lose money. Should we buy locally or source from the Middle East? We don’t know now,” the trader said.

Notwithstanding the rupee concerns, some Indian end-users are in need of prompt polymer cargoes to keep their factories running.

“A few buyers had to buy material because they cannot wait anymore. One or two buyers were running on only two weeks’ worth of stocks,” according to an Indian polyethylene (PE) distributor.

Even those with sufficient inventory may need to buy cargoes “sooner than they would like” amid tight supply of key PE grades, according to at least two buyers.

“If we don’t buy and continue to wait, we will not get any material at all regardless of the direction of the rupee,” an Indian end-user said.

The grades currently in limited supply in India include the linear low density PE (LLDPE) and high density PE (HDPE) film grades, amid disruptions at plants in key suppliers in China and Iran, according to a separate south Asian buyer.

The supply crunch in Asia has been prompting Middle East producers to raise polymer prices in a bid to boost their profits.

By Muhamad Fadhil