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| Strong demand prompts polymer price rise |
| Anindita Dey / Mumbai Jul 27, 2011, 00:59 IST |
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For the first time since May, polymer prices have seen an upswing following a rise in demand.
While a section of petrochemical manufacturers said the supply shortage in the market was the fallout of a Haldia Petrochemicals decision to stop polymer production since July 18, others felt demand for the commodity from China have resulted in a rise in prices. “Demand is firming up and the trend will continue till November or December,” said market sources.
About a month before, the market was reeling under sluggish demand that had led petrochemical manufacturers to offer a price protection scheme to customers.
According to industry insiders, the demand is primarily from the Chinese agriculture sector. “At the onset of winter, Chinese farmers cover their crops with polymer sheets to prevent crop damage from frost and snow.”
An industry offcial said the other possible reason is Indian Oil closing production for maintenance of its unit.
The Haldia plant is expected to be operational within a month. In a email response to a query from Business Standard, the company said: “Haldia Petrochemicals Limited has shut its plant from July 20. The purpose of the shutdown is to carry out extensive overhaul of the various turbines and other equipment with the association of technical experts.”
“Post implementation of Supermax in 2010, to achieve 30 per cent enhancement in capacity, the plant was showing signs of instability. In order to rectify defects/deficiencies in the system, the shutdown is considered imperative.”
The company clarified that while the market conditions on raw material and products are not the reason for the shutdown, the fact that the margins in polymer production are still not very attractive helps HPL in containing the impact of loss of production.
It may be noted that earlier this month, the finance ministry had allowed naphtha import at zero duty for HPL. HPL imports naphtha instead of procuring it from facilities of Reliance Industries Ltd at Jamnagar due to a high tariff structure and sales tax. HPL uses naphtha as its feedstock unlike other polymer manufacturers who either have dual technology – gas and naphtha or purely gas-based. Reliance Industries is the only other major importer of naphtha but also uses dual technology.
“The shutdown in production has created a shortage of polymers in the market which is why the prices of polyethylene ( PE) and polypropylene (PP) have gone up by Rs 2 per kg each.” said a dealer. Compared to a month before, PP and PE prices are ruling at Rs 86 per kg and Rs 78 per kg, respectively, against Rs 82-84 per kg and Rs 72-75 per kg.
The demand for polymers was slack since May and inventory was unsold, following a global slowdown and a lean phase in the domestic market. The price protection scheme had helped buyers make a purchase decision and offered a sense of security towards a further price revision downward.
Under the scheme, once a customer had bought a product, he would be compensated for any loss if the company decided to further bring down prices within that week or a month. This scheme has since been discontinued.
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