Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Polymers: Is the sun still rising? - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Feb 23, 2002

    Polymers: Is the sun still rising?

    Post independence; the indigenously produced polymer industry was essentially ethanol based. Demand for petrochemicals was met largely through imports with high tariffs, as the industry was perceived to be producing luxury goods. It was in 1960 that the Government appointed a committee to study the prospects of the petrochemical industry.

    Among the first producers of polymers in India were Imperial Chemical Industries (ICI) and Chemicals & Plastics Ltd., which were in the business of manufacturing LDPE (Low Density Polythylene), and PVC (Polyvinyl Chloride) respectively. Petrochemical production in India began with the commissioning of Union carbide's naphtha cracker in 1961. Next to follow was the Shell, Hoechst and Mafatlal joint venture christened National Organic Chemical Industries Ltd. (Nocil). However, much of the Government's efforts came to naught, as negotiations with international majors broke-down over management control. With capital deficiency in the domestic private sector, the Government, like in many other industries, took the first steps to establish India on the petrochemicals map. Indian Petrochemical Corporation Ltd. (IPCL) was incorporated in 1969 and the first olefins plant was commissioned in 1978.

    The setting up of the upstream plant opened the doors to the less capital-intensive, downstream units dominated by the private sector. By the mid-eighties, eyeing the performance of IPCL, the private sector was enticed into the commodity plastics business. The next in line was Reliance Industries (RIL), which grew from strength to strength in the last decade of the license-permit raj era. The ethylene industry today comprises of largely four main players, namely Gas Authority of India Ltd. (Gail), Haldia Petrochemicals Ltd., IPCL and RIL. In fact, much of the capacity has been commissioned in the second half of the nineties. Ethylene capacity in the last five years to 2000 registered a compounded growth (CAGR) of 35.4%. As a result total capacity in the country stands at 2.5 m tonnes per annum (MTPA).

    Ethylene capacity outlook
    ('000 tonnes) 1999 2000 2001 2002E 2003E 2004E
    RIL 800 800 800 800 800 1,000
    IPCL 530 830 830 830 830 930
    GAIL 300 300 300 300 300 300
    HPL 430 430 430 430 430 430
    Nocil 75 75 75 75 75 75
    Total capacity 2,135 2,435 2,435 2,435 2,435 2,735

    Haldia Petrochemicals Ltd. has commissioned the latest addition of 430,000 TPA to the ethylene capacity. However, the company is facing cash flow problems due to delay in financial restructuring, high leverage ratio and possibly lower utilization levels. Going forward, Gail and IPCL have indicated plans to augment ethylene capacity depending on demand conditions. Over two phases, Gail and IPCL plan to increase ethylene capacity to 0.5 MTPA and 1.3 MTPA respectively. However, the build up in capacity is likely to put the market in over-supply. Over the next five years, ethylene capacity in the country is likely to grow to 3 MTPA.

    Downstream polymer supply -- including polyethylene (PE), polypropylene (PP) and PVC -- however, has grown at a slower pace compared to upstream capacity. Over a five-year period ending FY01, polymer supply has registered a CAGR of 23.6% to 3.2 MTPA with PE and PP recording the fastest growth. On the other hand, consumption of polymers, over the same period, has grown more moderately at 13.1% p.a to 3 MTPA with the faster growing segments being LLDPE and PP. Consequently, fresh capacity is likely to be seen in these segments putting further pressure on demand and supply. The polymer industry, which faced a supply deficit of 500,000 TPA in FY96, now faces a surplus of an estimated 270,000 TPA with maximum oversupply in PP.

    With the current slowdown, possible capacity expansions in the Asian region and finance minister talking of bringing down import duties to Asean levels, corporates are likely to be cautious on further downstream expansions. Any enhancement in capacity is likely to depend on further clarity on the above-mentioned factors. In fact, corporates have indicated that expansions will be dependent on market conditions. Among petrochemicals, polymers face a greater risk of a reducing tariff regime, as import duties on polymer & polymer intermediates are at 35%. The polyester chain, on the other hand, attracts duties of 20%. Lower import duties are likely to put realizations under pressure. Further, excess regional capacity could eat into the domestic markets.

    That said, growth in polymers is likely to materialise from the high growth user industries like telecom & packaging. With fast moving consumer good (FMCG) MNCs augmenting operations in India, the demand for food & non-food grade plastic packaging is expected to increase. Mineral water is one example. Over the next few years, the Government is likely to further relax the Jute Packaging Material Act (JPMA). Currently, the act states that a minimum of 90% and 10% of food grain & sugar and urea is to be packed in jute bags respectively. The relaxation is likely to open up a new market for polymers and could favourably impact domestic demand.

    Based on the above factors, demand for polymers is likely to remain robust, which could boost per capita consumption (PCC). Domestic per capita consumption (PCC) of polymers is 1.8 kgs as compared to an estimated 7 kgs in China and the world average stands at 17 kgs. Will the gap be bridged?



    Equitymaster requests your view! Post a comment on "Polymers: Is the sun still rising?". Click here!


    More Views on News

    Sorry! There are no related views on news for this company/sector.

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    Proxy Plays: A Smart Way to Bet on 'Off Limits' Companies(The 5 Minute Wrapup)

    Aug 4, 2017

    The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 16, 2017 (Close)