Apart from this, the other major reason cited by industry experts has been the rise in product prices by 10 per cent and the expectations of a further rise in prices this year.

In fact, most of the traders selling polyester fibres and yarn expect Reliance to announce another price hike in polyesters next week by 5 to 10 per cent. Being a dominant player in the industry, the price determined by Reliance sets the industry standards, both in polymers and polyesters.But price rise of products cannot cause a drastic change in earnings of the company and hencethere is a question mark over the sustainability of rise in the stock prices. To probe into the issue consider a simple example. The rise in commodity prices is basically because of supply cuts. Form the day the OPEC started supply cuts, crude oil prices almost doubled, while price of (refined product) naptha increased by 62 per cent and the prices of intermediate products PTA and paraxylene increased by 10- 20 per cent. Finally the product prices of PSF improved from Rs 40.5 to Rs 45 per kg and POY improved from Rs 53 to Rs 55 per kg.

Seeing the value chain, it is easy to draw a conclusion that higher value added products have seen far less percentage rise in price. But at operating levels the net effect is still positive for the companies. Naptha prices have risen by $ 55 per tonne, while PSF prices have risen by $ 46 per tonne and PFY prices have risen by $ 107 per tonne - resulting in positive margins for the company, but not to the extent which shows such a phenomenal rise in stock price.

A look atthe behaviour of cotton prices also shows that it would be difficult for polyester companies to raise prices in the coming weeks as Gujarat government has allowed to give subsidy of Rs 2000 per cindel to the cotton federation to import medium staple cotton, which may remove the supply shortage of quality cotton.

In addition the slack season for fibres and yarn would start from June till August 15th and thus offtakes at present higher prices would be quite low.For polymer products, the price rise is due to bundling of closures of polymers units in South korea, Malaysia and Thailand. Petrochemical Co-operation of South Korea plans a 40 day shut down in middle of June, while Chandraachi in South Korea has just started production after a 55 day shut down. All these shut downs would get over by August 15 and prices after that would be anybody guess.

Furthermore the rise in polymer prices may reduce the ability of producers to push for more substitutions of wood, glass, packaging items by polymers and hence thegrowth rate in demand of polymers may be less than 29 per cent. Incidently RIL had obtained 29 per cent growth in PP sales when they had first commissioned its plant. In PE the situation is slightly bad as GAIL has also commissioned its plants. The net effect may be only 10 per cent growth in offtake.

The net result is that most of the analyst except that earnings for RIL may be in the region of Rs 1875 to Rs 1925 crore for fiscal 1999-00. This is a only 10-12 per cent higher and may not justify the present price of petrochemical stocks. For IPCL earnings expectations are of mere Rs 200 to Rs 250 crore and rise in price is more due to the expectations that the disinvestment process would be completed in next six months.