Rupee's slide squeezes plastics makers' margins

Plastics units are cutting down on their inventories, as costly raw material makes it financially unviable to pile up stocks

The depreciation of the rupee has pushed up raw material costs for plastics products makers and processors, thereby squeezing their margins. Industry players termed the current situation worrisome, as the cost of polymer - both imported and domestically sourced - has gone up by 15 to 20 per cent in the past one-and-a-half months.

The rupee has depreciated against the US dollar by over eight per cent during the past one-and-a-half months. From Rs 54.33 against a dollar in April, the rupee hit the lowest level of Rs 58.98 to a dollar last week. However, on Friday, it recovered a little by gaining 0.8 per cent to close at Rs 57.53 per dollar.

Even as imports have become costlier due to the slide in the rupee, plastics makers are getting no relief from domestic suppliers either. According to them, polymer makers have taken advantage of the falling rupee to hike the prices of polymer. The prices of polypropylene (PP) and polyethylene (PE) have gone up by around Rs 8 per kg in the past one month, they claim.

"In India, demand for polymer is higher than supply. Therefore, a significant amount is imported. But owing to the weak rupee, not only imports but domestic supplies too have become costlier. In a situation like this, a handful of polymer makers in India have taken advantage by increasing prices," said Samkit Shah, an office bearer of the Gujarat State Plastic Manufacturers' Association (GSPMA).

Gujarat has over 1,600 plastics products makers and close to 2,000 plastics processing units. Most of them depend on raw material supplies from Haldia Petrochemicals, Reliance Industries, Indian Oil Corporation and GAIL.

Due to the weakening of the rupee, consumers have to depend more on domestic suppliers, who had been raising their prices regularly, owing to the rising price of raw material - crude oil and naphtha.

"We are heading for a flat season ahead. Units cannot bear the price hike in raw material, as the raw material cost constitutes around 85 per cent of the total production cost. We will have to pass it on to our consumers," said Mahavir Khatang, past president of the GSPMA.

Industry insiders said plastics units are cutting down on their inventories, as costly raw material makes it financially unviable to pile up inventory.

"The financial involvement for keeping inventory is huge at high prices. The cost of capital also adds pressure on the margins," said Shah, who is also managing director of Navrang Polyfilms.