Strong surge in margins
In focus: Basic Petrochemicals
| Thus, ethylene margins over naphtha have increased significantly from $382 per tonne during January to March 2004 to $460 per tonne during April to June 2004, it added. |
| In comparison to the previous year the ethylene margins over naphtha were significantly higher. |
| Margins during April-June 2003 were also itself lower primarily because of Severe Acute Respiratory Syndrome (SARS) in world's largest petrochemical importing market, China. This resulted in sharp drop in petrochemical margins during that quarter. |
| Domestic demand for polymers remained flat during the first quarter of this fiscal as compared to the corresponding previous quarter, primarily due to inventory corrections in the downstream industry, the study said. |
| The inventory corrections in the downstream dector were mainly on account of higher prices. Demand for polyester intermediates however was up by 19 per cent during the quarter mainly on account of increased demand for the polyester bottle grade resin. |
| International petrochemical margins had declined significantly and reached another trough in 2001-02 following the addition of large cost-effective capacities. |
| Currently, margins were on an upswing and were expected to peak sometime before the end of 2005, the study pointed out. |
| Domestic margins, which were linked to the international margins, were also expected to show a similar trend, resulting in a continuation of the strong financial performance over the short to medium term. |
| The domestic demand for major petrochemicals, albeit slower than in the past, was expected to continue to increase at a CAGR of around 8 per cent to 10 per cent over the medium term, the study stated. |
| The ICRA study pointed out that the budget for 2004-05 had increased the focus on agriculture with significant increases in investments on irrigation. |
| The budget also indiated a bias against manmade fibres with decline in excise duties and exemptions on natural fibres and increase in excise duty on certain manmade filament yarns. |
| It had reduced customs duties on catalysts for chemical reactors from 20 per cent to 15 per cent and directed de-reservation of 85 products from list of products reserved for small scale industries (SSI). |
| Focus on agriculture with increased investments on irrigation would result in increase in demand for PVC resin for pipe use, which contributes to around half of PVC demand, said the study. |
| Additionally demand for other polymers would also rise as increased investments in agriculture sector would result in higher applications of other polymers as well. |
| SSI reservation had hitherto restricted growth in demand for plastic applications on account of limited ability of SSIs to upgrade and expand. With de-reservation of some of the plactic products from SSI list, the demand for plastic products and in turn, polymers could increase, ICRA said in its study. |
| Decline in customs duties on catalysts would reduce the cost of petrochemical manufacturers. |
| However, increase in bias against manmade fibres would result in lower cost competitiveness of manmade fibre consuming companies, resulting in reduction in their growth prospects, ICRA warned. |
| Overall, the petrochemical sector was likely to have more positives than negative for most of the players in the industry, as the impact of Budget 2004-05 on the petrochemical industry was positive. |
| All this has led to improved financial performance during the first quarter of fiscal 2005, ICRA said. |
| Despite slowdown in petrochemical demand in the country, the rising global petrochemical margins resulted in significant increase in margins and returns of petrochemical divisions of the Indian petrochemical companies. |
| Indian Petrochemicals Corporation Limited (IPCL) showed an increase of 188 per cent at its PBDIT level which coupled with a 42 per cent fall in interest costs resulted in an over 200 per cent increase in profit after tax. |
| The upward trend in margins also helped Haldia Petrochemicals Limited (HPL) in turning around with the company declaring a net profit of Rs 50 crore for the year ended March 31, 2004, as against a loss of Rs 518 crore for the year ended March 31, 2003. |
| The other reasons for turnaround in financial performance included debt restructuring and extraordinary income of Rs 75 crore owing to one-time settlement with project contractor along with increase in capacity utilisation from 80 per cent to 109 per cent. |