Domestic petrochem producers to be hit

MINI BUDGET 2004

The tax measures will have a negative impact on the petrochemical industry, with operating margins of integrated polymer producers such as Reliance Industries, Haldia Petrochemicals and GAIL coming under pressure.

Analysts tracking the petrochemical sector claim that the cut in the customs duty and SAD will squeeze margins of domestic polymer manufacturers, although petrochemical manfuacturers sell them at prices lower than the landed cost of imported products.

With the cut in peak customs duty, the differential between raw materials and finished products will be narrowed down.

According to Cris Infac, the industry research arm of Crisil, "The impact will be seen in the fourth quarter performance of 2003-04 of these companies."

Similarly, the downstream petrochemical producers of orthoxylene, phenol and acetone will negatively impact their margins.

"It will have a negative impact on the margins of domestic manufacturers of orthoxylene (RIL), PAN (Thirumalai Chemcials), phenol and acetone (Schnectady Herdillia Limited and Hindustan Organic Chemicals) as the duty differential between end products and raw materials has been reduced. The duty on end products was at the peak rate of 30 per cent (including SAD) while that on raw materials was around 14-19.6 per cent (including SAD). Though the imports of PAN are low, producers will have to reduce prices in line with the duty reduction, as the duty on end product has also been reduced," Cris Infac added.