Reliance Industries faces headwinds from US-China rift, exports down 4.5%

Reliance Industries’ (RIL’s) petrochemicals business has taken a hit owing to trade tensions between the US and China. In addition to the impact on crude oil prices, the demand and margins for certain petchem products have been under stress owing to the trade war.
 
“The US-China trade war is impacting regional polymer margins and causing the diversion of US cargo to Southeast Asia and West Europe,” the company said in its post-result presentation to investors.
 
The company added the impact was on products like high-density polyethylene (HDPE) and linear low-density polyethylene (LLDPE).
 
On a sequential basis, the margins for HDPE and LLDPE took a hit of 10 per cent and 9 per cent, respectively. Trade tensions have also slowed demand for these products. 
 
For the June 2019 quarter, RIL’s petrochemicals business reported an Ebitda (earnings before interest, taxation, depreciation and amortisation) of Rs 8,810 crore against Rs 9,211 crore in the corresponding quarter a year ago.
 
Chinese exports are going to non-US markets. During its analysts’ meet on Friday, the management said it anticipated trade tensions to ease. However, in the event of an escalation, the company warned the dispute could have a “cascading effect” across the polyester chain. Analysts said RIL stood to gain as well as lose in the long run, thereby remaining neutral.
 
“Given the company’s export and domestic mix, the US will open up as a market for third countries and RIL can gain,” said an analyst with a domestic brokerage firm.
 
RIL’s management also sees a similar opportunity. 

 
“Imposition of tariffs on Chinese textiles in the US is likely to provide opportunity to other regional producers,” the company said in its presentation.
 
The analyst added: “If China is blocked from the US markets, its products could flood markets like India, impacting RIL’s domestic prospects.”
 
Apart from petrochemicals, RIL exports automobile fuels.
 
For the June quarter, RIL’s exports took a hit of 4.5 per cent on a year-on-year basis.
 
“Exports were lower at Rs 50,158 crore ($7.3 billion) as against Rs 52,501 crore in the corresponding period of the previous year,” the firm said.  Lower price realisation across petrochemicals and refining products, led by 7.4 per cent YoY decrease in Brent oil prices and lower volumes of fibre intermediates, contributed to the decline in exports.
 
In polymer products, the company has made up for its lacklustre exports.  “RIL leveraged its robust sales and distribution network to shift volumes from exports to the domestic market.”