Polymer processors expect better margins

With polymer prices showing signs of correction thanks to low crude oil prices, processors expect a slight improvement in margins in the next quarter. However, they are waiting for a further correction before they go in for bulk buying.

At the moment, several processors in eastern India are functioning at a low capacity utilisation of 50 to 60 per cent, owing to the prolonged closure of Haldia Petrochemicals Ltd (HPL). Atul Kanuga, vice-president of the Indian Plastics Institute, pointed out that overall demand for polymers is also low at the moment, because buyers expect prices to soften further.

Prices of linear low-density polyethylene have come down by Rs 3,000 per tonne in the last few weeks and are hovering around Rs 138 per kg now, said K K Seksaria, past president of the Indian Plastics Federation and a leading plastics processor based in the eastern region, adding that high-density polyethylene prices are likely to come down too, to around Rs 135 a kg.

"Most major manufacturers are lowering prices, and this would definitely benefit the downstream processing industry. Processors were incurring huge losses as raw material prices were up, and they could not raise prices of finished products commensurately," he explained.

The last two months have seen an acute shortage of polymers in the eastern region, affecting nearly 2,500 units there, as HPL has been closed since July. "While there is still some shortage of polypropylene, availability of polyethylene has improved. Processors will be able to increase capacity utilisation thanks to better availability," Seksaria said.

Industry insiders, however, also point out that processors are expecting a further correction in polymer prices, and hence units have not yet started bulk buying. As Kanuga explained, "prices of different grades of polymer are expected to soften further, and should be down to around Rs 120 a kg levels."

With prices softening, the working capital situation for processors is likely to improve. Jigish Doshi, a Gujarat-based processor and official of the Gujarat State Plastic Manufacturing Association, said "margins of processors vary between one per cent and 10 per cent. With prices softening, and bulk buying, margins are likely to improve by 1.5 to 2 per cent during the next quarter."

As crude oil prices are expected to remain stable for a while now, polymer prices too are not expected to see any steep rise for some time, the processing industry believes.