2003 was a year that started with imminent war looming around the corner and a year that followed a relatively weak global economy of 2002. 2003 - a year that started with uncertainty, had to finally face the Iraq war in March 2003. Fortunately the war did not last very long and its adverse effects on the global economy were minimal. However, oil and other feedstock prices shot up and have since remained high. The SARS epidemic, raging through most of Southeast Asia, adversely affected business sentiment during the first half of 2003, particularly in this region. The weak economies of USA and Western Europe did not make the situation any better.
However, there seems to be a positive change in the global economy in the last two quarters of 2003. The strong recovery of the US economy in the third quarter is expected to be followed by good growth in the last quarter. The European economy, excluding Eastern Europe and Russia, seems to be stagnant. Recovering well from a dull economic situation this year, Japan has interestingly recorded a positive growth of about 3% as compared to 2002. Despite losing out in the first half of the year due to "SARS", the Asian region is finally expected to show an approximate growth of 5.7% in 2003. China is expected to show a very healthy growth of 9%, while India could end up with growth notched optimistically at almost 7%. The present indication is that the global economy would grow at 2-2.5% and the Asian region would definitely grow at 6%. What is very gratifying is that the present indicators of the global economy seem very positive and do give us reasons to smile for the first time in the past 2-3 years.
This year, overall plastics consumption may not be very spectacular. Most of the pundits predict an overall growth of not more than 4% over 2002. The subdued economy coupled with high oil and feedstock prices are the major factors that have negatively impacted the growth of plastics. Whatever growth is expected at the end of the year, is mainly due to continued impressive growth of over 15% in China and a somewhat healthier growth of about 5-6% from the remaining Asian regions. India, with better economic growth this year, may contribute about 10% growth of plastics. Japan could contribute about 4% growth. It is expected that overall growth of plastics might end up at about 3.5-4%. Very optimistically, it may end up a notch higher, but certainly not beyond 4.5%.
NPE 2003, the second largest plastics exhibition in the World held at Chicago in June 2003, was strongly influenced by the weak business climate. In fact, it echoed the dull sentiments of the plastics industry, with attendance at the show down by 30%. More importantly, some of the major American polymer producers such as Dow and Exxon stayed away from the show for the first time. Continued lack of decent profitability over the last few years was possibly the prime reason for their conspicuous absence. Even a machinery manufacturer like Cincinnati Milacron did not exhibit any equipment at NPE 2003. In fact, Cincinnati Milacron has stopped manufacturing activity in USA, preferring to serve the US market from Germany. China has replaced USA as the major export destination for German machinery in 2003. China is investing favorably in several plastic processing sectors such as PVC pipes, window profiles and films including BOPP and BOPET.
The past few years have witnessed an increase in investment in polymer capacity in the Middle East, mainly due to availability of cheaper feedstock. In the early nineties, there was a shift towards China for setting up polymer capacity fuelled by its huge potential for plastics consumption. Three mega petrochemical projects initiated by major international players like BASF, Shell etc are expected to come onstream by 2005. However, these major players are now inclined to set up newer polymer capacities in the Middle Eastern region. Basell Polyolefins is already planning two major PP projects in Saudi Arabia. Borouge set up 450KT PE plants in Abu Dhabi in 2002 and is planning further investments to enhance PE capacity to almost 600KT by 2005. In addition to Saudi Arabia and Kuwait, which have a major share of the polymer capacity in the Middle Eastern region, Iran and Egypt are now building up some capacities.

Acquisitions and Consolidation continues to play an important role in plastics businesses all around the World.

  • GE has swapped its specialty plastic additives business and old portfolio of Borg Warner Acrylic products with Crompton with the business of Silicones from Crompton. GE has subsequently restructured the business of ETP along with Silicones and other material products into a new division called Advanced Materials.
  • The business at chemicals maker Kraton Polymers Group has changed hands once again. Texas Pacific Group, a U.S. buyout firm, will acquire Kraton Polymers from private equity rival Ripplewood Holdings LLC.
  • Dupont has divested Clysar specialty PE shrink film. Bemis, the World's largest film producer now owns it.
The Indian Scenario
The Indian economy witnessed a modest 2002, recording a mere 4.7% growth in GDP mainly due to poor monsoon and a weak rural economy. In 2003, GDP is definitely expected to show very good growth, catapulated by excellent monsoon, contributing to the revival of the rural economy. It would not be very surprising that almost 7% GDP growth would be achieved in the financial year ending March 2004.
The manufacturing sector has shown almost 5.7% growth compared to 5.2% in 2002. The service sector is expected to show very good growth. Most of the companies have recorded an excellent recovery in the first two quarters of the financial year 2003-2004. The stock market is very buoyant after May 2003 and has gone up by about 90%. The "feel good" factor prevails and a very positive feeling is omnipresent all around the country. The basic industries of steel, aluminum and other metals, automobile, etc. seem to be faring very well. Even the technology sector is doing quite well. Good investment in infrastructure developments by the Government as well as private organizations provides stimulus to plastics sectors like pipe, wire/cable etc. In fact, wire/cable industry is poised to show growth of about 6%. Government incentive to the housing sector coupled with low interest (at almost 7.5%) has given a good boost to housing and related plastics products. The film fiber (raffia) sector has seen good fresh investments triggered by increasing consumption in the food sector and exports of FIBC. Only FMCG (Fast Moving Consumer Goods) sector appears to be a laggard. Plastics packaging seems to have a healthier growth. Overall PE film has shown a positive growth despite some lukewarm response from FMCG majors.

After somewhat subdued business environment in 2002, the plastics business seems to be looking more positive this year due to the mentioned favourable economic indicators. In fact, both Reliance and IPCL, the two giant polymer producers have reported almost 15% growth in their polymer sales between April-September 2003 compared to the same period last year. But the 12-15% growth seen in the early nineties has not been observed in the past 2-3 years. Most of the experts from the polymer industry do not expect an overall growth during this year of more than 10% over 2002. It is quite possible that the good economic condition in the last quarter of this financial year may boost polymer growth by a percent or two.

PP, which was one of the fastest growing polymers in the mid nineties, seems to have lost its sheen in the last 1-2 years. In 2002, PP lost some business to HDPE due to higher prices, but has currently stabilized in price compared to HDPE, arresting the shift. Yet the consumption of PP is expected to be only around 1150KT.
LDPE seems to be having a negative growth or reached maturity.
Only LLDPE seems to grow well. In fact, LLDPE has achieved a share of more than 60-65% of the total LD/LLDPE consumption.
India therefore still continues to export sizable quantity of Polyolefins (much more of PP compared to PE). It was earlier expected that the exports of Polyolefins in 2003 would be significantly lower compared to 550KT that was seen in 2001-2002.
Only PVC capacity of 788KT seems to be lower than the expected consumption of about 850 KT in 2003. It could go up to 875KT if PVC pipes pick up in the first quarter of 2004.
PS is also being exported due to overcapacity.

The most probable scenario on the consumption of the commodity plastics in India in 2003-2004 is :
PET bottle

Though no commodity polymer capacity additions or expansions in India were seen in 2003, capacity additions to PET have been seen.
South Asia Petrochemical has set up 140KT PET bottle chip plant during 2003 in collaboration with Zimmer at Haldia.
Reliance is also likely to commission a new 220KT PET bottle chip plant based on new NG3 technology from Dupont before the end of this financial year. This is the first commercial project of this new technology that claims to be very cost effective.

There is no capacity expansion of Polyolefins as low domestic demand has created a situation of overcapacity. 2005, however holds promise for the Indian plastics industry with the commissioning of capacities.
Reliance is contemplating developing additional 400KT capacity of PP at Jamnagar. However, the capacity expansion may not be executed before 2005.
GAIL is planning to increase its cracker capacity from 300KT to about 400KT with an increase in the PE capacity to the same extent latest by 2005.
Indian Oil is in negotiation with Haldia Petrochemicals. In all probability Haldia Petrochemicals may consider expansion only after restructuring.
Indian Oil is seriously considering a petrochemical project at Vadodara in Gujarat.

Several projects on PVC by different players such as Finolex Industries, Chemplast and DCW are being actively considered.
Finolex Industries finally has started some construction activity and would possibly set up 130KT additional capacity by 2005.
IPCL also proposes to enhance its 205KT PVC capacity to almost 350KT. This expansion may take place in 2004-2005 in a phased manner.

Polystyrene as well as ABS expect to see capacity expansions.
Supreme Petrochem is planning to increase its 205KT Polystyrene capacity by additional 90KT of conventional Polystyrene and 40KT of Expandable PS. These new projects may be commissioned during next year.
Bhansali Engineering has acquired Crompton Greaves' ABS plant that was closed down for about 2 years. Bhansali Engineering would therefore have a capacity of about 30KT of ABS. It has planned to increase capacity to 40KT at the end of the financial year in March 2004.
Bayer ABS has present capacity of about 40KT of ABS. It also plans to increase the capacity of ABS to 60KT in a phased manner over the next two years.

The plastics processing industry has seen significant investments during 2003 in several sectors. Eastern India has done remarkably well in developing newer plastics processing capacity mainly due to availability of PE and PP material from Haldia Petrochemicals. Though this region of India has until now been slow in development of processing capacity, the past two years have definitely seen setting up of some decent processing capacity, particularly in the area of raffia, film and moulding.

  • PVC pipe sector has added almost 90 new machines during 2003. PP raffia sector has seen newer investments to participate in the growing business. The availability of higher productivity with power efficient plants for PVC pipe as well as raffia from Kolsite and Indian equipment suppliers has provided stimulus to both these growing sectors.
  • Supreme Industries, the largest processor with overall plastics consumption of more than 90KT/year has divested its 2.5KT BOPP capacity to Xpro group. The Supreme group is planning to set up India's first Biaxially Oriented Polystyrene film/sheet (BOPS) plant with the capacity of 15KT/year, likely to be commissioned by 2004.
  • Jindal Polyester has entered the BOPP film business with 15 KT Bruckner plant, planning to add 32KT BOPP capacity by next year. The company also has ambitious plans to increase the BOPP capacity by an additional 32KT by 2005. During this year, Jindal Polyester has acquired Rexor, the French Polyester film converting company. Jindal plans to further augment its Polyester film capacity by additional 40KT. This expansion could be implemented by 2004.
  • Flex Industries has added one more BOPP film line.
  • Cosmo, the largest BOPP film producer with 46KT capacity may achieve 60KT film capacity before the end of this financial year.

The PE film industry has seen some additional investments particularly in the area of Three layer film plants. Some new investments in PP cast film/sheet have been made this year. Rajoo Engineering has developed co-extrusion film plant using the downward bubble technology, though predominantly designed for PP, can also be used for LLDPE.
The capacity of PE foam sheet is in the process of significant expansion. Essen Multipack alone plans to increase its capacity by about 5 KT in the near future. The predominantly export oriented PVC foam board business, appears to be growing quite well. This segment expects to see some new capacity developments next year. The injection moulding sector for automobile application has been doing quite well. In fact, thermoplastic compounding sector, particularly in the area of PP as well as Polyamide is building up additional capacity to meet the increasing growth of the automotive industry.

  • Nilkamal Plastics Ltd., India's leading moulder for furniture and material handling, with processing capacity of over 35KT/year has consolidated its furniture business and set up a huge new plant in Eastern India (Barjora, West Bengal). This will augment its capacity by over 8-10 KT in the near future. Alcoa, the World's largest producer of compression moulded PP caps has set up a joint venture with Nilkamal Plastics Ltd. to manufacture PP caps in southern Nepal on the Indian border. This joint venture called Alcoa CSI (Nepal) Pvt. Ltd. with an investment of about US$1 million has commenced production from August 2003. This plant will supply compression moulded PP caps to the Indian subcontinent.
  • Moser Baer, the leading manufacturer of CD, DVD etc has been aggressively expanding its capacity from 1 billion pieces to 1.8 billion, significantly increasing demand for Polycarbonate. This would also increase Polystyrene consumption for jewel boxes.
  • PET bottle market was adversely affected for about 3-4 months due to detection of pesticides and insecticides in some carbonated drinks, dampening the growth of PET bottles. The growth of PET bottles is expected to be only about 8-10% compared to 15%, generally observed in the past few years. PET bottle demand could reach between 70KT to 75KT.
  • BOPET film, however, is growing quite well in the domestic market as well as for exports. It is expected that BOPET film demand would reach almost 125-130KT out of which more than 50KT would be exported.

Finally, exports of plastics for the financial year 2003-2004 could reach a level of US$1.1 billion from the level of US$ 0.94 billion. Polymer export would consist of almost 33% out of the total export. BOPET, BOPP films, multi-layer films, woven sacks/fabric as well FIBC and injection moulded auto and electronic components are the major plastics processed goods that are exported.

What is most heartening is that the Indian business and economic scenario looks very buoyant in the last 6 months and is poised to scale greater heights in 2004. The plastics industry would also get its share of glory and could grow by 15% next year. The U.S. recovery is strong, China is booming, Japan is starting to grow and Europe is turning around - for the first time in a long time, we're experiencing synchronized global growth.
In this euphoric mood we like to take your leave to celebrate the arrival of the dawn of 2004. We are sure that all of you - our patrons, members and readers must be basking in the joyous mood. All the members of our team at www.plastemart.com would like to wish you and your family " A VERY PROSPEROUS 2004"
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