Summary
Domestic demand for
petrochemicals has witnessed high growth rates. Demand for polymers
(Polyethylene (PE), Polypropylene (PP) and Polyvinyl chloride
(PVC)) and polyesters (Polyester filament yarn (PFY) and Polyester
staple fibre(PSF)) grew by 21% and 26% yoy respectively in
FY98.
In the nineties,
demand in developed countries grew at 3-4% as compared to the
growth rate of 10-12% in the Asian sub-continent (developing
countries). This led to huge capacity additions in the Asian
sub-continent to meet the demand-supply gap.
Consumption in the
SE Asian countries (Korea, Indonesia, Taiwan) has been severely
affected after the economic slow down and the currency crisis.
These countries had invested in capacity built up, which was higher
than their domestic demand. This has resulted in over-supply in
Asia, the fastest growing petrochemical market in the
world.
China and India are
the remaining high growth markets. China is a big market for
polymers, as it produces only 30% of its total requirements.
However, in the recent past, demand from China has also dropped
owing to the recessionary trends.
The Indian market is
a price taker. This implies that prices of petrochemicals in India
cannot move up owing to over supply in the region. Imports will cap
any unprecedented price rise.
In the long run,
only integrated and efficient players (Reliance, IPCL) will
survive. The other smaller players will get acquired. As the
domestic market is closely linked to global events and occurrences,
even these companies will witness squeezing margins, owing to
depressed global petrochemical prices. Investors should underweigh
this sector till a clear uptrend in prices emerge.
