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 the 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 Q2-09 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. The report expects overall petrochemical capacity utilisation to be reduced to around 90% in Q2-09 and Q309 from close to 100% in Q1-09 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. The report 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 15 mln 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 INR150 bln to INR450 bln (US$9.4 bln). Consequently, the report 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$3 bln complex at Dahej is also likely to be delayed, following months of delays in awarding engineering contacts. The report 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 INR500 bln (US$10.3 bln) 15 mln 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 INR189 bln (US$3.9 bln) 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 2.84 mln tpa, boosted by RIL’s addition of 900,000t pa of capacity in Q4-08 at Jamnagar. PE capacity amounted to 3.12 mln tpa, of which 720,000 tpa was HDPE, 218,500 tpa LDPE and 2.37mn tpa LLDPE. PS capacity was 360,000 tpa and PVC capacity was 1.27 mln tpa. Even when bearing in mind the delays and cancellations, India will host a rapidly expanding petrochemical industry. By 2013, the report forecasts that India will have petrochemicals capacities of 7.3 mln tpa of ethylene (up 156% over 2008), 6.5 mln tpa of PE (up 115%), 5.65mn tpa of PP (up 99%), 900,000 tpa of PS (up 150%) and 1.62mn tpa of PVC (up 28%).