RIL slashes polypropylene capacity 50%

Reliance Industries Ltd (RIL), the country’s largest company by market capitalisation, has closed half its polypropylene plant at Jamnagar, Gujarat, because demand for the raw material used for packaging has slowed.

Production at the plant, with a capacity of around a million tonne per year, was cut 50 per cent in the last 10 days after the company closed two of the four manufacturing lines, said sources close to the development. RIL did not respond to an email questionnaire sent to them on Tuesday.

RIL is Asia’s largest producer of polypropylene and the seventh largest in the world, the company said on its website. It controls around 70 per cent of India’s polypropylene market and supplies 3 per cent of the world demand.

“Demand for all commodities has fallen across the world. Polypropylene has not been an exception,” said an analyst who tracks RIL, declining to be identified since the company is a client of his advisory firm.

Polypropylene prices have declined around 30 per cent. In 2007, 49 million tonnes of polypropylene was produced against demand for 45 million tonnes. In 2008, another 4.4 million tonnes of capacity is likely to be added, with 2.85 million tonnes coming up in West Asia, RIL said in its 2007-08 annual report.

Polypropylene is extensively used to make sacks for packaging commodities such as cement, foodgrains and chemicals. It is also used to make automobile parts such as bumpers, mud-guards and dashboards.

“People are buying fewer cars and companies are cutting production. As demand for goods comes down, the demand for polypropylene will also fall,” said another Mumbai-based analyst.

Sources said a Chinese consumer had cancelled a bulk order for polypropylene from RIL around 10 days ago. This however could not be independently confirmed.

RIL clubs polypropylene under the broad category of its petrochemical business, which includes other polymers used in the textile industry. In 2007-08, petrochemicals accounted for 36.69 per cent of profits, down from 54.66 per cent in 2006-07, RIL’s annual report showed. In terms of turnover, the segment accounted for 38.07 per cent in 2007-08, down from 43.44 per cent in the previous year.