Indian petrochem industry shows no sign of slowing down, could face capacity constraints over medium-term

The Indian petrochemicals industry shows no sign of slowing down, although it could come up against capacity constraints over the medium-term, according to BMI's latest India Petrochemicals Report. Indian demand for most petrochemicals products was strong in FY-2010/11 (ending March 2011) with polymers up by 10% y-o-y. Within the polymer sector, demand for polypropylene (PP) increased by 18% due to strong growth in automobiles, packaging and industrial applications. Growth in construction and agriculture led to 6% growth in polyvinyl chloride (PVC) sales, while home furnishings and textiles helped boost demand for polyester by 13%. Strong growth in the bottled water and packaging sectors led to a 24% rise in polyethylene terephthalate (PET) consumption. In the year ahead, demand for polyethylene (PE) and PP is forecast to grow in double digits in 2011, with some grades, such as biaxially-oriented polypropylene (BOPP) film for packaging, non-woven PP and pipe grade PE expected to grow by more than 20%. In 2010, strong demand for low-density polyethylene (LDPE) and linear low-density polyethylene (LLDPE) film sucked in imports, while the country remains self-sufficient in high-density polyethylene (HDPE) over the short term due to plentiful capacity and relatively poor demand. The Indian petrochemicals industry has witnessed annual growth of around 14-15% over the 2005-2010 period and this double-digit growth is likely to be sustained over the medium term. India is on course to become the third largest consumer market for high-tech plastics after the US and China due to growth in the automotive industry, which is set to grow by more than 6% pa. In the short term, the main engine of the economy - domestic demand - will be fuelled by rising private consumption and fixed investment levels, as well as the need to rebuild inventories, which should drive petrochemicals demand. Reliance Industries Ltd (RIL) has projected that India will need capacity of at least one new world-scale cracker every year to satisfy demand for polymers, which is forecast to exceed 20 mln tons in 2020. While over the short-term there is a danger of over-capacity, there is a danger of shortages in intermediates such as styrenics, vinyl acetate monomer, acrylic acid and oxo-alcohols to supply the basic and speciality chemicals manufacturers. The automotive sector will be a major force in driving engineering and high performance plastics and synthetic rubber in India and is fuelling the diversification of downstream industries. Producers are seeking to increase the value of production and raise margins by tapping into growth in the automotive industry, particularly in styrene butadiene rubber (SBR) which India does not currently produce but is used in tyre production. A JV agreement between IOC, Taiwan's TSRC Corporation and Marubeni plans to establish an SBR unit at Panipat with capacity for 120,000 tpa SBR due to come onstream by Q412. India imports up to 130,000 tpa of SBR with demand rising by 10% pa. Although the plan will use butadiene from the Panipat refinery, styrene will be imported. RIL is also focusing on synthetic rubber in its US$10-12 bln investment program and is already building several synthetic rubber manufacturing complexes. It has formed a joint venture with Russia's Sibur to construct a 100,000 tpa butyl rubber complex at Jamnagar and it is also planning to build a 75,000 tpa styrene butadiene rubber facility at its Hazira site and a 40,000 tpa polybutadiene rubber plant at Vadodara.