After a sharp fall in demand in the liquidity crunch caused by the currency note ban, the petrochemicals and polymers sector is hoping for some stability.
Small- and medium-size processors are still operating at low capacities. Big companies have seen less impact but still say they lost about a fourth of business in the past three weeks.
M P Taparia, managing director, Supreme Industries, one of the largest plastic goods makers for industrial and household use, said: "By mid-December, demand could see normalcy but some measures to support small and medium enterprises are needed to help them survive the situation. For them, shifting immediately to a cashless system will not be easy."
The impact of demonetisation was huge on smaller units and trade. S&P Global Platts said, quoting sources in Indian industry: "India's domestic polymer demand has crashed since the government's demonetisation policy sparked a drop in retail goods sales, impacting polymer converters and the traders who supply them." The global agency also quoted a senior manager at Vinmar International, a global petrochemical marketing and distribution company, that, "the slump in retail demand has hit India's polymer end-users, along with the packaging, trucking and logistics sectors, and inevitably, polymer producers directly."
Janak Ladhani, managing director at Sonkamal Enterprises, a major player in acetone and phenol, said: "Plywood and laminating units which use phenol were badly affected." He says ahead of the meeting on Wednesday of the global petro exporters cartel, Opec, the price of benzene, from which acetone and phenol are made, has shot up. If Opec decides to cut output, crude prices would shoot up. "Ahead of that we have seen orders for phenol, whose prices have not yet risen in line with benzene."
Platts said that those they spoke to had a common theme, that the surprise move had triggered panic buying of essential commodities such as petrol and diesel, while prompting consumers to defer spending on non-essential goods. Thus creating a temporary slowing in demand for products such as petrochemicals.
"India's oil demand growth this month could outpace earlier expectations as people rushed to use the scrapped currency notes to fill their tanks," said Sri Paravaikkarasu at FACTS Global Energy.
To a query from this newspaper, Prema Viswanathan, associate editorial director at Platts, said: "Margins for Asian petrochemicals have been strong in most segments, with the benzene to naphtha spread showing the sharpest spike. The trend is expected to continue for the rest of the year, according to market participants. This is largely because of tight supply caused by production issues at Asian plants. The S&P Global Platts benchmark benzene FOB Korea prices rose by 8.15 per cent month on month to $663/tonne on November 3, outpacing the 2.9 per cent rise in naphtha prices to $432.25/tonne CFR Japan. However, prices of benzene derivative phenol saw a 2.2 per cent drop to $200/tonne CFR India, due to a pile-up of phenol inventories at Kandla port."