Polymer prices may have bottomed out, not demand

Prices of polymers have seen some recovery from their multi-year low following the cut in their supply from refineries. The upward movement in prices has resulted in some demand from plastic processors as the feeling is that market has bottomed out.

The prices of polymers have risen nearly 15-20 per cent in the last one month after falling to a multi-year low. The prices rose despite the fact that during the period crude oil (from which refineries produce polymers) prices maintained its downward journey. The production cut across the globe in refining capacities has created the feeling that the market is bottoming out and plastic processors have started giving orders.

Following the demand from processors for stocking the material, some refineries have started rationing the material to give a signal that the worst is over. From July 1 to November 13 this year, most polymers have fallen nearly 40-50 per cent and recovered 10 per cent from those levels.

Bottom has been reached and the prices are slowly rising aided by severe production cuts all through the supply chain. While we do not expect prices to reach the June/July ‘08 levels, we expect stable price regime during the first and second quarter of 2009,” said R Rangarajan, chief executive (exports-marketing), Supreme Petrochem Ltd. Though raw material for plastic has seen some stability, there is no visible improve-ment in the demand for plastic goods, said Kailash Mora-rka, president of the All India Plastic Manufacturers Association.

Yet, 20 per cent of the units have closed down and 20-25 per cent of the units have only one shift. Small and medium-sized plastic units are feeling strangulated as they are facing payment crisis and their buyers are delaying payments. This has affected the ratings of these units with their bankers and many of them are facing risk of becoming NPAs (Non-Performing Assets) in the eyes of the banks, said Morarka. He hopes stabilising prices should bring back some demand.

Prices of polymers, the raw material for manufacturing plastics like poly propylene (PP), high density poly ethylene (HDPE), low density poly ethylene (LDPE), poly vinyl chloride (PVC) were at their peak in early July when crude oil also reached the peak level of $147 a barrel. That was the time when demand for polymers was also at its peak. With the fall in prices, demand also started falling following fear of severe slow down.

Prices bottomed out in the second week of November and started rising since then. The present situation is such that some of the auto component makers have reduced wages of workers and increased the working hours to keep cost lower in such hard time, said a industry official.