Costlier raw material hikes up plastics prices

Plastic manufacturers and processors have hiked prices of their products following an increase in the cost of a key raw material. Prices of high-density polyethylene (HDPE), used in plastics and polymer manufacturing and processing, firmed up in India, triggered by bullish upstream crude and naphtha prices.

According to industry sources, HDPE prices have risen five-six per cent to Rs 84-85 a kg, which in turn led plastic manufacturers to hike prices of their products.

“We have raised prices for our products to a similar extent to compensate for the raw material’s price hike,” said Vishnu Patel of the Gujarat State Plastic Manufacturers’ Association.

Plastic manufacturing and processing tends to be a low-margin business. Hence, companies are looking to pass on any hike in raw material prices to customers. Currently, the likes of Reliance Industries Limited (RIL), GAIL, and ONGC Petro-additions Limited (OPaL) are the main suppliers of HDPE to the plastics and polymer industry.

“(Our) margins are low, so if (raw material) prices rise, then plastic manufacturers and processors also hike prices,” said M P Taparia, managing director of Supreme Industries Limited, a leading player with a turnover of Rs 4,500 crore in 2016-17. 

According to industry sources, net margins in plastic and polymer manufacturing and processing are in the range of 4-5 per cent. 

The industry is, however, elated at the recent cut in the goods and services tax (GST) from 28 per cent to 18 per cent. 

 

“The recent cut in rates has been timely. While we will be hiking prices to pass on the raw material price rise, the extent would not be much since a cut in tax rates will mean improved margins for us in the long run,” said Naresh Patel of RND Plastics, a Gujarat-based plastics and polymer processor.

The cut in GST will result in increased competitiveness for products such as plastics floorings, fabrics, furniture, vacuum flasks bath, sanitary fittings, and many other miscellaneous plastic products.

Largely represented by small and medium enterprises (SMEs), with over 40,000 manufacturers, the plastics industry in India manufactures 15 million tonnes of products annually, of which roughly one million tonne is exported.