Producers bank on strong demand

IN FOCUS/ POLYMERS

With the global polymer industry on a recovery mode and the local demand for the products also rising fast, the future holds exciting times for new entrants and expansions by existing players in India.

Noting this, an industry report on the petrochemical industry by ICRA Information, Grading and Research Service (iNGRES), pointed out that while globally polymer industry is improving on their capacity utilisation from a position of significant over-capacity, in India, with no new capacity under implementation, the over-capacity in polymers in the domestic market is expected to be absorbed by rising demand.

Though by global standards the demand for polymers in India is small, it is amongst the fastest growing countries in the world. India has shown a significantly higher growth rate in polymer consumption in the last five years.

In fact, the growth rate here has topped that in China and other key Asian economies.

It added, "The trend of faster growth in PP (poly propylene) demand is expected to reverse (as propylene prices, worldwide, are expected to rule higher than ethylene prices on account of low cost additions to ethylene capacity) while PE (poly ethylene) is expected to grow at faster rates than estimated earlier.

Thus over capacity is expected to remain till 2004 in PE, till 2005 in PP and later than that in PS. This over-capacity is expected to affect the new and small capacity players critically.

"Going forward, the study sees a significant increase in the country's capacity for polyethylene terephthalate (PET) packing resin. This is set drive faster growth for polyester intermediates than polyester fibres.

This good news for makers of purified terephthalic acid (PTA)/di-methyl terephthalate (DMT) and mono-ethylene glycol (MEG).

The rising petrochemical margins was evident in the improved bottomline of the Indian petrochemical companies during 2002-03. Remarkably, this was despite decline in demand and build up of stocks of polymers with the petrochemical companies.

The improvement witnessed both in global petrochemical margins and domestic demand for polymers helped to push the profitability up further in first nine months of FY2004.

This is set to continue, the report projects, Despite declining tariffs and increasing production from the nearby low cost Middle East region. It is banking on a global upturn in petrochemical margins and a depreciation of the rupee for this.

In the global markets too petrochemical margins are expected to increase over the medium term on account of a faster rise in demand than capacity.

The likely increase in global operating rates are expected to improve the margins in basic petrochemicals and polymers, thereby increasing the prices of commodity plastics as also the profitability of companies manufacturing commodity plastic resins.

However, the recovery is likely to be short-lived as significant capacity expansions are already planned in China and the Middle East.