Downslide In Pta/Dmt Prices May Hit Industry Prospects

This may have a fallout on manufacturers of di-methyl terephthalate (DMT) and purified terephthalic acid (PTA). Lowering of import duties on these products has further compounded the matter.

In the current year, DMT/PTA companies may face an erosion in their bottomlines as high prices of petroleum products are likely to add to input costs.

The companies may find it hard to pass on the additional cost to end users without affecting demand.

A major indication of the price war came in July 1996 when Reliance Industries priced its PTA lower than DMT.

Reliance Industries, which is the largest PTA producer with an annual capacity of 2.5 lakh tonnes per annum, slashed its price by Rs 7,500 per tonne to Rs 28,500 per tonne.

 

At present, PTA is priced at Rs 27,000 per tonne.

However, since then, Reliance recently raised its PTA and mono ethylene glycol prices (MEG), the impact of which will only be felt in the current year.

Reliance cut the price of polyester staple fibre (PSF) to Rs 61.50 per kg from Rs 63 per kg. Other manufacturers of polyester intermediates immediately followed the Reliance move.

These manufacturers are offering huge discounts to push the effective prices of PSF to Rs 57-58 per kg.

Bombay Dyeing, the largest manufacturer of DMT with a capacity of 1.6 lakh tonnes per annum, had priced its DMT at Rs 30,000 per tonne in July, but now offers the same at Rs 25,000 per tonne.

IPCL and Bongaigaon Refinery have not changed their prices. Both have an annual capacity of 45,000 tonnes and 30,000 tonnes respectively.

The decision not to hike prices by the above companies is seen as a move to counter the Reliance hike. This has, to some extent, arrested the likely shift in sales from DMT to PTA.

The prices of DMT/PTA aregoverned by the demand/supply scenario in the international market, and are no longer cost driven. There are new capacities coming up in central Asia as a result of which supply has started exceeding demand.

This is reflected in the declining prices of DMT/PTA in the international market and also the off-take of polyester staple fibre.

Most of the major players are adjusting prices of DMT/PTA to gain a competitive edge. At the same time, consumers of these products are either going in for backward integration to generate their own feedstock or changing the product mix to cash in on the declining rates.

The recent budget slashed the import duty on DMT/PTA by 10 per cent to 25 per cent, making imports cheaper.

MEG, a relatively new substitute, poses a threat to these producers. Only 400 grammes of MEG is required to produce a kilogramme of polyester chip. The total capacity of MEG was 2.35 lakh tonnes per annum during 1994-95. Reliance has a capacity to produce 1 lakh tonnes, while IPCL has a capacity of 70,000 tonnes per annum.

Other manufacturers, namely SM Dyechem, India Glycol and Nocil have annual capacities of 50,000 tonnes, 20,000 tonnes and 10,000 tonnes respectively.

Of the two raw materials, PTA is considered more efficient and priced at a premium compared with DMT.

To make one kg of polyester, 0.91 kg of PTA is required, while more than 1.1 kg of DMT is required to produce the same quantity of polyester.

The average price difference between PTA and DMT, which was usually more than Rs 5,000 per tonne, has dropped to Rs 2,000 per tonne during August 1996. The price cut has caused a shift in raw material purchases of polyester producers.

Bombay Dyeing, the largest producer of DMT, is in trouble. The company derives 55 per cent of its sales turnover from DMT. If it slashes the price, the company runs the risk of putting pressure on the bottomline.

On the other hand, if it raises the price, the company is likely to lose customers. This is because Bombay Dyeing imports high cost paraxylene fos/bottom.inc"-->