The medium to long term growth in demand for commodity polymers in the domestic market would remain robust, given the favourable growth expected in the key end-user industries like fast-moving consumer goods (FMCG), automotives, infrastructure and agriculture, said Icra in its latest report.
On the global supply side, Icra, however, noted that while many polymer capacity addition projects have been announced, the slower-than-expected progress of such projects because of the shortage of engineering and manpower resources, overbooked vendors and contractors, feedstock constraints and problems in plant stabilisation are causing delays in the commissioning of the new capacities, thereby affecting incremental product availability.
While these delays have pushed back the much anticipated down-cycle in the sector, a supply glut is expected in the near term and this should persist for the next few years, which in turn would exert pressure on petrochemical margins.
The domestic demand-supply situation in commodity polymers should largely be favourable for polyethylene (PE) and polyvinyl chloride (PVC) producers in the medium to long term, as the market should be in deficit despite the planned additions to capacity. Polypropylene (PP) producers would however have to continue coping with capacity surplus, which means the reliance on exports would continue. Margins for domestic producers of PE, PP and PVC could come under stress in the near to medium term, as import competition is also likely to escalate.
As per Icra report, the other near term challenges for domestic polymer resin manufacturers, would be passing on to consumers increases in feedstock prices in a scenario of rising crude oil prices and managing slowdown in short-term demand against the backdrop of rising resin prices.
K Ravichandran, senior vice-president and co-head, corporate sector ratings, Icra, said, ?Notwithstanding the sizeable capacity additions anticipated in India over the next three to four years, the domestic demand-supply balance should remain favourable for PE and PVC resin producers, even as the PP resin market should remain in surplus. It is, however, not the demand-supply dynamics but increasing import competition from West Asian manufacturers that makes for a pressing concern, given that such competition could translate into subdued tolling margins for incumbents and new entrants over the medium term.?