India is developing infrastructure countrywide in many different areas, definitely providing a great opportunity for building and construction industry. Housing activity in the last few years has picked up mainly due to easy availability of low cost finance. Both these sectors open up opportunities for the plastics industry. Development of cultivation and increased acreage for agriculture requires plastic pipes for water distribution. Among plastics, PVC is the polymer that has many applications in agriculture, building and other infrastructure activities. PVC, therefore has good growth opportunities. In fact, after reaching consumption levels of 950 KT in 2004, PVC demand is expected to cross 1 million tons in 2005. This will make PVC the second polymer to cross the 1 million ton mark after the 1.23 million tons achieved by PP.

PVC requires compounding for all is applications, hence PVC end products are always greater in tonnage as compared to the polymer consumption. For 2004, PVC products will weigh at least 1.3 million tons against consumption of 950 KT. (See exhibit 1). With this in mind, it is clear that PVC products in India constitute a higher volume compared to PP or all other polymers.
Compounding activity is an integral part of PVC. It is therefore not surprising that several independent compounders spread all around the country meet requirements of the PVC industry. However, closer analysis of applications of PVC reveal that almost 57% demand for the compound actually does not exist as they are manufactured for captive consumption by the processors. Barely 43-45% (550 KT) of the compounds can be offered by independent compounding units, and this is an opportunity larger than the combined activity of thermoplastic compounding requirement. Large processors from the wire/cable industry are increasingly manufacturing the compounds in house, leaving only about 200 KT of volume of the compounds for independent compounders. In other words only about 20% of the total demand is open to the independent compounder. This business emanates from mainly plasticized PVC applications such as wire/cable, footwear, hose, profile etc. Rigid PVC applications offer only about 30 KT of business opportunity.

Independent compounding units cater to the demand from most of the small processors. The business of independent compounding units requires huge amount of working capital because they are involved in the plasticized PVC application business, where additive costs are higher. In fact, they essentially market additives more than PVC. The growth of this business is also limited because the plasticized PVC applications are growing at lower rate compared to the rigid PVC applications.

There are several compounding units to cater to this business. It therefore does not offer a great opportunity to new entrants.