Indian petrochem firms won’t lose out.

The threat of cheap petrochemicals from Gulf floodining India has been looming large over the last few years, but remains elusive so far. Indian petrochemical companies, that predominantly use naphtha, have been wary of gas-based capacities coming up virtually in their backyard. Ilana Djelal, managing editor of Platts for Europe, however, contends that such perceptions may be misplaced as strong domestic demand will help India and China remain competitive.

The country has been a net importer of petrochemicals including polymers. But this is changing gradually, with the government launching petroleum, chemicals and petrochemicals investment region (PCPIR) schemes and the SEZs. Many domestic companies including RIL, ONGC, MRPL and BPCL plan to add new polymer capacities within next 2-3 years. In parallel, another 2.6 million tonnes of polyethylene capacities is set to be added in the Gulf region between 2010 and 2013.

All new polymer capacities in India will be naphtha-based , while those in the Middle East will be gas-based . Will India remain competitive? “I don't see Indian naphthabased players becoming uncompetitive.

In fact the threat they face is far less than Europe or South-East Asia, because India has the benefit of a very strong domestic market ,” says the managing editor of Platts, a global provider of energy and metals information . India's five kg per head polymer consumption is less than a quarter of China's and a tenth of the Europe's consumption. Strong domestic demand will help India and China to remain competitive. Besides India can impose anti-dumping duty, if need be.

The country's petrochemical industry lost considerable time in scaling up its operations . Unlike India, the concept of a SEZ was introduced in China a long time ago.

Today , China has over a dozen petrochemicals-specific SEZs. India has, however, improvised the concept by allowing the SEZ units to procure raw materials from domestic tariff area, that enables them to ensure raw material security.

The capacities commissioned in the Middle East so far have been absorbed mostly by the strong Asian demand. Some projects have, however, been bogged down by delays . The situation is gloomy in Europe where petrochemical manufacturers are preparing for the worst.

“There is a realisation that eventually there will be some supply indigestion and Europe will prove uncompetitive . This means reduced rates of naphtha crackers and polymer plants. We have seen some tough decisions being taken , but there are more to come,” said Djelal.

What lies ahead for the petrochemical producers in advanced economies? Eventually , the region will have to move towards technology-driven products that are not available in other regions.

A clear trend is visible now with mature economies such as Europe and North-East Asia — Japan, South Korea and Taiwan — focusing on speciality polymers. The GCC, India, China and South-East Asia, on the other hand, are looking at commodity polymers. Consolidation is the mantra for naphtha-based petrochemical producers in mature economies.

European firms are also increasingly looking at forming strategic partnerships in India , more of licensing technologies. “ONGC Petro-additions (OPaL) is using Ineos' metallocene catalyst technology for LLDPE resins , that is a premium product with better specifications” , said Djelal. She foresees more such deals happening in coming years.

While new capacities are being created, the world is also becoming more interested in recycled plastics. “There is growing interest in Europe about recycled plastics for certain non-critical uses. At the moment, we publish recycled PP prices in Europe, but we are getting enquiries to publish recycled HDPE prices as well,” said Djelal.

The world is yet to see the full impact of gas-based polymer capacities in the Gulf region . This will unfold in next couple of years. There could be oversupply, albeit for a temporary phase.

However, the demand for polymers is growing as it replaces wood, metal and glass. At present, all gas that can be explored in the Gulf region appears to have already been tied up with petrochemical projects and new projects are unlikely to come up in foreseeable future. Indian petrochemical players have to keep their fingers crossed.

Source : The Economic Times