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India Petrochemicals Report Q2 2010
Market |
Energy and Utilities |
Report Type |
Market Research |
Country |
India |
Published |
3 March 2010 |
Number of Pages |
73 |
Download |
|
Immediate |
|
Publisher |
Business Monitor International |
File Format |
- |
Overcapacity and high inventories are major downside risks for Indian petrochemicals producers, but the latest India Petrochemicals Report suggests that despite increased global supply the domestic market will be tight enough to prevent price volatility.
Although India's economic recovery could be rocky in the short term, the mean real GDP growth over the next 10 years is forecast at 7.6% compared with 7.2% in the previous 10 years. This should sustain demand for petrochemicals and ensure that India remains a net importer over the long term. The Indian Chemical Council (ICC) has forecast 10-12% growth in the petrochemicals industry in 2010, but we believe that with new plants and increased capacity utilisation sector growth could exceed this level. Separately, ICC forecasts 14-16% growth in polymer sales, which we believe will be easily attainable as the economy returns to trend growth. Key to this is the strength of downstream segments such as packaging and the automotive industry, which are the main drivers of market growth. In India, demand for PE and PP is forecast to grow in double digits in 2010, 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%.
The main downside for the Indian petrochemicals industry is the massive increase in global capacities, which will push down prices at a time of rising feedstock costs thereby putting pressure on petrochemicals margins. However, oversupply should only create problems if demand growth falls below expectations and crude and naphtha values are higher than envisaged. In addition, a heavy cracker turnaround schedule in China could mitigate the decline in polymer prices.
By 2014, combined olefins capacities are forecast to reach 15mn tpa, an increase of over 140% compared with 2009. During the same period, polyolefins capacities are set to almost double to 13.71mn tpa. While PVC capacity is set to remain at 1.53mn tpa throughout the period, PE capacities will grow by 170%, due in large part to a trebling of LLDPE capacity, and PP will nearly double. We believe that, in the context of global market patterns, the product mix is favourable to the development of an export-oriented petrochemicals industry. Our forecasts are based on delays of up to six months on currently planned projects.
Overall, plants were operating near capacity in Q110 having recovered from 75-90% operating rates in early 2009, which should bode well for capacity expansion in the near term. 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.
New project announcements are highly unlikely, with capacity growth over the next five years based on plants currently under construction. Additionally, in response to the global economic downturn, soaring engineering costs, and tightening credit markets, Indian petrochemicals producers are delaying projects, cutting production and considering plant closures. RIL's planned olefins and derivatives complex at Jamnagar has been pushed back from 2011 to 2012 with the ethylene cracker at the site scaled back from 1.65mn tpa to 1.3mn tpa due to concerns about the financial viability of rely in part on propane feedstock. In the Asia Petrochemicals Business Environment Rankings matrix, India is in ninth place with 61.2 points this quarter, up 0.5 points due to an improvement in India's country risk rating. This puts it 0.6 points behind Australia and 15.9 points ahead of Indonesia. India's score has recovered this quarter as a result of the continued expansion of the sector, despite heightened risks associated with the economic downturn and international financial crisis.
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