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Plastic manufacturers face recession blues

Vishnu Pandey  |  New Delhi/ Kanpur 

The economic slowdown has tamed the domestic demand of plastic products, which has severely bruised over 50 plastic products manufacturers spread across Kanpur. The slowdown is estimated to hit business of around Rs 250 crore and 2,000 workers associated with the industry in the city.

Having already trimmed production by about 40 per cent and laid off hundreds of workers, the manufacturers — some 50 processing units in the city — fear that if the situation does not improve, many units will have to be shut down. This has also cast a shadow on the viability of the proposed investment of Rs 80 crore by the local industrialists, part of which may not take off now.

Shiva Polyplast Pvt Ltd, a company which manufactures and sells household plastic products for both domestic and international market, is experiencing a sudden drop in the sales. According to local traders and retailers, the market demand has dropped by about 40-45 per cent, compared to the same period last year.

Shiva Polyplast Director Satya Prakash Gupta said, “We have been forced to cut down our factory production by more than 50 per cent due to reduced demand”.

Another plastic manufacturer, Rakesh Gupta, told Business Standard that the frequent rupee-dollar fluctuation has also adversely affected the exports. “The instability in the exchange rate has left the plastic manufacturers stranded for due payments. The clients are not willing to pay the dues at appreciated rates,” he said.

A manufacturer of plastic engineering goods, Sunil Vaishya, said high-grade plastic used for making engineering parts has become costlier by about 25-30 per cent, while its demand has declined by over 50 per cent in view of the slowdown.

The city has more than 100 small and medium plastic manufacturing units, spread over industrial areas like Panki and Fazalganj. To add to the woes of the industry, the cost of raw material has also plunged sharply in the last few months.

Normally, it would have been good for the plastic manufacturers, but this time around, consumers prefer to wait for raw material prices to fall further, thus limiting their off take and resulting in rising inventory levels of the processing units.

From a peak of Rs 96/kg in July, the price of raw material plummeted to Rs 44/kg this month. “The downtrend in raw material prices is good in the long term, but the present erratic fall has increased our problems. We feel that raw material producers should have a schematic pricing formula, making revisions, say, once a month. This way we can plan our production and inventory levels,” Gupta said.

Kailash Murarka, president, All India Plastics Manufacturers Association, said: “The situation has affected not only the processors but also the raw material manufacturers such as Reliance and Haldia Petrochemicals).” The demand for plastic products, ranging from household goods to packaging products, has fallen by 40-60 per cent in the last two months. In tune with production cuts, the processing units had to lay off a corresponding number of their employees.

“The local industry employs a total of around 2,000 people in the micro, small and medium sectors. There have been some lay-offs, although it is difficult to give the exact number at this stage,” said Sunil Vaisya, president, Indian Industries Association (IIA), Kanpur chapter.

Consumption of plastic has fallen as the economic slowdown began to impact different sectors. “For example, with cement manufacturers cropping production, the demand for plastic packaging material for cement also tapered off. Last year, the industry recorded a growth of 15 per cent and this year, it is minus 15 per cent,” Vaishya pointed out.

Another worrying factor has been the total tax incidence on plastic in India, which is over 28 per cent. The 14 per cent excise duty levied on polymers and articles of plastic makes plastic products costlier. The industrialists are thus, seeking reduction of excise duty to 8 per cent, which can make plastic products affordable to the common user.

“Earlier, a major part of our production was used by the local automotive components manufacturers but the slowdown has hit the demand,” said Gupta.

First Published: Fri, January 16 2009. 00:00 IST