Petrochemicals: An industry study; Citibank, India

Abstract

The study focuses on the long-term competitiveness of the Indian Petrochemical Industry. It shows that raw material, which form (on an average) 80% of the total variable cost, is the main determinant of the cost competitiveness of the Indian petrochemical industry. It also shows that so far as the basic petrochemicals are concerned, the Indian industry remains highly competitive. As far as ethylene is concerned, the study finds a huge demand-supply imbalance in the form of a supply deficit growing in the Asia Pacific, although individual countries like S. Korea will have a huge exportable surplus. The Indian Petrochemical industry will be highly import competitive, given the prevailing freight rates and the hazards of transporting ethylene. Where the ethylene derivatives are concerned, the study finds out that there is a growing supply deficit in the Asia Pacific as well as in India. However, the Indian scenario is likely to improve as far as HDPE /LDPE/LLDPE is concerned by the end of the decade. These derivatives remain competitive vis-a-vis Far East, given that the feedstock Ethylene is sourced from the captive cracker. As far as PVC is concerned, the study brings out the fact that so long as the supply deficit remains in the Asia Pacific, Indian producers will have a ready market. But the long term sustainability of such endeavours will hinge on the cost effective sourcing of ethylene and Ethylene di chloride. Here the plants with a captive Chlor Alkali unit will have a tremendous edge given that the power is sourced at competitive prices. : As far as the profitability of the of the ethylene derivatives go, the scenario is. very contradictory so far as the Indian producers are concerned. The margins on HDPE/LLDPE/LDPE continues to be squeezed for the domestic producers who import ethylene, due to the rising prices of ethylene in the international market although captive producers of ethylene are enjoying huge margins. The scenario is unlikely to change in the near future, given the recent price trends. PVC remains eminently profitable, the survey argues mainly due to the fact that the prices of EDC has not risen and has remained more or less stable in the international market Propylene will continue to be in short supply in the domestic market even after the expansion of Reliance and IPCL comes through. The survey finds that Polypropylene(PP) will be the most profitable polymer in the near-future and the. Indian’ industry remains very cost competitive with regards to this product. - As far as the manmade fibres are concerned, the survey finds that the cost competitiveness of the Asian Paraxylene(PX) industry remains in question given the high costs of reformate ,an input to PX.. So far as DMT/PTA is concerned high raw material costs continues to ail the industry and the Indian industry in the near future will continue to be a seller's market .