The significance of the dip in polymer (polypropylene) price is that it has every chance of bringing down the prices of other polymers. As a thumb rule, 30 per cent of applications of polyproplene (PP) and polyethylene overlap -- resulting in a spill over of variations of price in one segment of polymer to others.

Industry observers feel that Reliance announced a price cut because of the imminent commissioning of its two lakh tonne PP plant in Jamnagar, Gujarat.

In fact, with the commissioning of the second unit of PP plant in Jamnagar, the PP capacity of RIL would rise from 3.6 lakh tonnes per annum at the end of March 1999 to 7.6 lakh tonnes per annum.

With imports of PP in fiscal 1998-99 being only two lakh tonnes, the extra capacity coming into the market is bound to put pressure on the markettill the supply-demand scenario improves.

Interestingly, if we assume that imports of PP would come down to zero in the current fiscal, then we actually have a scenario wherein supply of PP (considering 100 per cent capacity utilisation of plant of Reliance) is 9.33 lakh tonnes, while the demand (growth rate of 21 per cent as that of last year) is at 9.68 lakh tonnes. Obviously, if imports fall to zero than PP prices in India should rise in long term.

Nevertheless, indentors are still importing PP and monthly and quarterly imbalances in short-term in Indian markets would see that the PP and polyethylene prices to be under strain.

MNCs in polymer business in the country say that one should not look too much into the PP capacity to be commissioned by Reliance. According to them, the international prices after firming up have started declining. The biggest hit was taken by traders in Hong Kong, who had built up huge inventory of polymers to take advanatage of continious price rise.

However, to theirdismay, the start-up of all the shutdown plants in South Korea and Malaysia ahead of their scheduled openings saw the prices dip. In addition Chinese stopped inflow of polymers into the country after customs siezed consigments brought inside the country without paying the duties.

Accordingly traders sold excess quantity causing a sudden dip in prices of all polymers.

Presently industry observers feel that once the panic created by traders is over, the international price for PE would stabilise at $620 to $650 per tonne while for PP it would stabilise at around $520 to $550 per tonne. This is about 10 per cent to 15 per cent higher then the present level of prices in India. For Indian companies -- Reliance and IPCL, this would mean lower realisations and margins (prices of naptha is up) for the next three months.