Crude Oils 40% Jump Squeezes Derivatives Makers Margins

Mumbai, December 22: | Updated: Dec 23 2002, 05:30am hrs
Crude oil prices have crossed the $31.1 per barrel mark last week, almost 40 per cent rise from previous level of just around $21.40 per barrel in early January this year. The crude oil prices have since declined to around $29.5. But the galloping crude oil prices have hit the margins of majority of the derivative products manufacturers.

Crude oil prices were hovering at around $18-19 per barrel in late January and since then have been rising. The price rise has gained a momentum from April this year. This situation is likely to continue till the ongoing tangle between the US and Iraq is settled. Amidst this, the companies with integrated plants will be able to spread the overall impact of the crude oil price hike on the various products they make and accordingly, they would be able to enjoy better margins compared to companies with non-integrated plants.

The integrated players like Reliance Industries, IPCL, Haldia and Gail (to a certain extent) would enjoy better margins, while the non-integrated players like Finolex Cables, Supreme Industries, DCW and DCM Sriram among others, who dont have any control on their raw materials would be the hardest hit with this situation, said Navneet Sinha, petrochem analyst at CRIS-INFAC. This scenario is likely to continue with the high price of both crude oil and derivatives for at least till the first quarter of 2003, Mr Sinha said, adding, thereafter, all depends on the outcome of the US-Iraq tangle and the possible improvement in demand if the global economy recovers. The continued rise in crude oil has forced the polymer and petroproducts makers to raise their prices. For example, on last Friday, RIL and IPCL had both announced an increase in polymer prices of PP to Rs 51,500 per tonne from Rs 49,200 per tonne earlier. Other polymer makers too have increased their prices accordingly, the industry sources said.

The highest price rise of around 10 per cent (in just one month) was witnessed in lldPE and PVC by over eight per cent. The prices of other polymers like polypropylene (PP), hdPE, ldPE, have also risen in a same range. Meanwhile, local polymer user industry has inevitably joined hands to resist the continued price hikes by the polymer majors.

All India Plastics manufactures Association (AIPMA) while condemning the three consecutive price rise in polymers by RIL/IPCL has said that the government should lower the import duty at the earliest.

AIPMA president Mohan Jain said, It is increasingly becoming difficult to bear the burden of ever-rising input prices and accordingly has appealed to the government by saying, Do not trample us. Give us some breathing space and immediately bring down the import duty on plastic raw materials. Even, Organisation of Plastic Processors of India (OPPI) president Jayantibhai Gandhi said, The industry has a little option but to ask the government to reduce import duty at zero level. A polymer broker said, With the overall rising international prices, chances are that polymer prices may further go up from the current levels during the months ahead.