Abstract
The Indian polyolefins market is expected to slow in Q209 and Q309 due to a
decline in demand from
industrial consumers, while some proposed projects
have been thrown into doubt as financing difficulties
and a deteriorating
market environment have hit the petrochemicals industry, according to BMI' s
latest
India Petrochemicals Report.
The completion of Reliance
Industries Ltd' s (RIL) PP plant in Jamnagar by end-May will put further
pressure on PP prices on the Indian market, with a situation of over-supply
likely to emerge. Already by
Q209 PP was trading at a discount on the
Indian market. Much will depend on the performance on key PP
consuming
industries, particularly the automotive and packaging industries. The PE
market is unlikely to
be faced with the same pressures, helped by the
tightening of supply caused by reduced operating rates at
Haldia
Petrochemicals. Another factor in favour of Indian producers, as opposed
foreign imports, is the
immediacy of supply. In an uncertain economic
environment, producers have run down inventories to
minimise losses and
placed more importance on rapid market response. BMI expects overall
petrochemical capacity utilisation to be reduced to around 90% in Q209 and
Q309 from close to 100% in
Q109 as demand growth moderates and extra
capacity comes onstream. Over-capacity and high
inventories are major
downside risks and producers will be keen to keep a tight market to prevent
price
volatility.
Indian chemicals and petrochemicals producers have
been voicing their concerns about the turmoil in the
financial and
commodity markets as well as competition from low-cost imports from
overseas,
particularly China. Many expect flat or negative growth in 2009
if demand is not revived. A survey by the
Federation of Indian Chambers of
Commerce and Industry indicates that the Indian chemical sector is
planning production cuts averaging 25% over H109, with production set to
remain reduced throughout
H209. The situation should be mitigated by new
projects coming onstream. All petrochemicals industries
are reporting a
downturn with a decline in exports of plastics, textiles, car components and
consumer
goods.
A slowdown in foreign investment inflows could cause
problems for the expansion of the petrochemicals
industry, while the
domestic demand will slow the rate of demand growth for plastics. BMI believes
that
small, inefficient plants are likely to close, particularly those
exposed to the Chinese market which has
seen a significant downturn in
demand. Indian Oil (IOC) and RIL have already indicated that they may
cut
production, although the companies have not revealed where the cuts would
fall.
New project announcements are highly unlikely, with capacity growth
over the next five years based on
plants currently under construction. IOC
has also put on hold a petrochemical complex in Paradip, which
was to be
set up alongside a 15mn tonnes per annum (tpa) export-oriented refinery.
Meanwhile, IOC has
quit as a partner in a petrochemical complex in
Paradip, which was to be set up alongside a 15mn tpa
export-oriented
refinery. Project costs have climbed from INR150bn to INR450bn (US$9.4bn).
Consequently, BMI believes it is unlikely the petrochemical complex will be
completed before 2013, if it
ever goes ahead. Oil and Natural Gas
Corporation' s (ONGC) US$3bn complex at Dahej is also likely
to be delayed,
following months of delays in awarding engineering contacts. BMI believes the
cost of the
complex could rise by 20-30% due to an increase in the price
of inputs, which could deter investors. This
could ultimately lead to the
project' s complete cancellation. The proposed INR500bn (US$10.3bn) 15mn
tpa refinery and petrochemical project in Vishakhapatnam is also likely to
face delays, after it was
reported in November 2008 that Mittal Energy had
deferred its investment. Meanwhile, the 9mn tpa
refinery that is being
commissioned by Guru Gobind Singh Refineries Ltd (GGSRL), an INR189bn
(US$3.9bn) joint venture (JV) between Mittal Energy and Hindustan Petroleum
Corporation Limited
(HPCL) in Bhatinda, Punjab, has had its start-up date
moved by one year to February 2012. Downstream
products include PP,
solvents and liquefied petroleum gas (LPG).
In terms of capacities, by
Q209 India had PP capacity of 2.84mn tpa, boosted by RIL' s addition of
900,000tpa of capacity in Q408 at Jamnagar. PE capacity amounted to 3.12mn
tpa, of which 720,000tpa
was HDPE, 218,500tpa LDPE and 2.37mn tpa LLDPE.
PS capacity was 360,000tpa and PVC capacity
was 1.27mn tpa. Even when
bearing in mind the delays and cancellations, India will host a rapidly
expanding petrochemical industry. By 2013, BMI forecasts that India will have
petrochemicals capacities
of 7.3mn tpa of ethylene (up 156% over 2008),
6.5mn tpa of PE (up 115%), 5.65mn tpa of PP (up 99%),
900,000tpa of PS (up
150%) and 1.62mn tpa of PVC (up 28%).
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