India Chemicals Report 2009

With the onset of the global economic crisis, it is believed that chemical export growth in India will slow dramatically in 2009 and 2010. This view is supported by the Indian Chambers of Commerce and Industry, which announced that exports in the overall Indian economy fell for the fifth month in a row in February 2009. The global economic downturn has slashed demand for Indian products and the government has now reduced its export target to US$170bn for the 2008/2009 financial year, down from an initial forecast of US$200bn. Exports are expected to reach only US$175bn in the 2009/2010 economic year. Yet certain sectors, which are particularly sensitive to the economic cycle, may see flat or negative growth. This includes industries such as engineering goods, gems and jewellery, and chemicals.

Company Developments In March 2009 Reliance Industries agreed a deal with 12 fertiliser firms to supply natural gas from its largest natural gas find, located in the Krishna Godavari Basin. The government has given fertiliser companies priority for the gas, as they face feedstock shortages. Reliance will initially produce 15mn cu m of gas per day from the basin. By July 2009 output will have increased to 40mn cu m per day, rising to 100mn cu m per day by 2010. Fertiliser companies will benefit from cheaper gas, allowing them to stop using more costly fuels such as naphtha. Meanwhile, the Indian government will save money as it will be able to reduce subsidies to the fertiliser industry. In June 2008, ONGC announced that it was exiting from its planned INR250bn (US$5bn) refinery and petrochemical project at Kakinada, in Andhra Pradesh Province. One of the main reasons cited for ONGC pulling out of the project is that it had sought tax incentives totalling INR160bn (US$3.2bn) from Andhra Pradesh, which were refused. The refinery was to have a capacity of 15mn tonnes a year.

Projects And Expansions In March 2009, TCI Sanmar Chemicals finished raising funding for a US$868mn manufacturing project in Egypt. The new production facilities will be located in Port Said and will include the largest chloralkali plant in Egypt. This will have a vinyl chloride monomer (VCM) capacity of 400,000 tonnes per year, of which around half will be converted into PVC. Meanwhile, the plant will have a caustic soda capacity of 200,000 tonnes per year. The unit is expected to come on-stream in 2010.

Industry Outlook In March 2009, the Indian government announced that it was working on a plan to provide stimulus to the chemical and petrochemical industry by revising the excise and customs duty on raw materials. It is planning to cut excise duty on mono ethyl glycol (MEG) to 4% from 8%, and to waive the prevailing 5% custom duty on naphtha. This decision can be viewed as an effort by the government to protect its chemical industry, which is facing challenges from a drastic fall in prices and a slump in export orders, and a significant drop in demand in the domestic market as a result of the global economic crisis.