Petrochem Price Plunge To Slam Local Producers

Global and domestic petrochemical and polyester prices have plunged to all-time lows squeezing margins of domestic companies who have been forced to further slash their prices. Reliance Industries and Indian Petrochemicals Corporation Ltd (IPCL) have had to continuously reduce prices of their products over the last six months. Margins of both companies, already under pressure are expected to further dip if the negative trend continues.

Although the petrochemical industry is hemmed in by a plethora of problems like the ongoing south east Asian crisis, depressed prices and lower import duty, it is now dogged by dumping by global petrochemical giants.

 

Mumbai based analysts claim that on an average polymer prices have slumped by 18 per cent. Locally PTA prices have gone down from Rs 29.1 per kg in August 1997 to Rs 23.40 per kg in august 1998. Accordingly, prices of monoethylene glycol (MEG) have fallen from Rs 31.10 per kg to Rs 27 per kg, polyester filament yarn (PFY) from Rs 71 per kg to Rs 62 per kg, polyester staple fibre (PSF) Rs 51 per kg to Rs 44 per kg, polyvinyl chloride (PVC) from Rs 37 to Rs 27 per kg and polypropylene (PP) from 32.7 per kg to Rs 27.20 per kg. The threat of dumping by the S-E Asian countries has forced domestic players to slash prices and operate on low margins.

Globally, many petrochemical and polyester prices are already at historic lows. The CIF S-E Asian prices fell from US $ 950 per tonne in Mar-Apr 1991 to US $ 550 per tonne in Mar-Apr 1997-98 for high density polyethylene (HDPE). Whereas for polypropylene (PP) it fell to US $ 470 per tonne from US$ 840 per tonne and low density polyethylene( LDPE) from US$ 870 per tonne to US$ 650 per tonne in the same period. This has resulted in cheap imports forcing the domestic manufacturers to slash prices.

Industry analysts warn that with capacity additions in Asia-Pacific region, exports from US Japan and west European countries to these countries are likely to fall. This may result in manufacturers in the Asia-Pacific region resorting to dumping. The domestic manufacturers fear that with huge investment in additional capacity and major projects going on stream, downward pressure on prices will accentuate further.

In India, PVC accounts for a major share of nearly 28 per cent of total polymer consumption followed by HDPE 26 per cent, LD/LLDPE 21 per cent, PP 19 per cent and PS six per cent. In the case of PVC there is excess supply in the domestic market because of a local overcapacity. Currently PVC capacity in India at 8.10 lakh tonne exceeds consumption of 6.30 lakh tonne.

However, by 2000 AD demand for PP is expected to exceed even that for PVC. PP resins being five per cent lighter than HDPE and 14 per cent lighter than PS, has a wide range of applications. However, the production of PP has not kept pace with the growth of demand. The current PP capacity in India is about 5.40 lakh tonne as against consumption of about 5.90 lakh tonne in 1997-98.