Imports have completely stopped in the petrochemical sector, given the sharp rupee depreciation and, this has created a demand for domestic manufacturers of polymers. This is significant since the petrochemical market is import-driven with 60-70 per cent of demand met by imports under normal conditions, when the rupee ruled at 45-46 to a dollar.
“Only 20 per cent of the procurement is done while placing the order and the rest is done after 21 days. In the last one month, the rupee has depreciated so fast that importers are cancelling procurement.Those who are importing are the ones having dollars emanating from corresponding exports or have to import under obligation of the letter of credit (LC). Rolling over of LCs is also done with the mutual understanding of importers and exporters. Besides, dollar receivables for exports are also being delayed due to economic slowdown in Europe.Therefore, it is better to depend on the domestic market to avoid such uncertainties,” said a plastic importer. In this scenario, demand for domestic manufacturers has gone up sharply, providing them a scope for price rise.
Despite crude and naphtha prices ruling moderate to low, petrochemical manufacturers have raised prices of polymer products twice over the last two weeks to fight the impact of a depreciating rupee. Since the last two weeks, prices of polyethylene(PE) and polypropylene (PP), two most important basic varieties of polymer have been increased by Rs 2-4 a kg every week. For the higher refined variants, the prices have been increased by Rs 2.50 a kg, said officials close to the development. Currently, PE and PP prices are ruling aroundRs 80-85 a kg andRs 89-90 a kg respectively. In polyvinyl chloride, which is another derivative of petrochemical, prices have also gone up by Rs 4 a kg across variants.
Official sources in domestic petrochemical companies said the market may expect another round of price rise only after a fortnight or so. “This is because frequent price increases by domestic players should not affect the capacity of buyers to purchase, as this cannot be simultaneously passed on to end users. Therefore, the situation will have to be assessed after a fortnight, before any further price rise is done,” said a company official.
Sources further explained, basically nothing had changed in the market to boost demand except for the exchange rate. Therefore, the demand for plastic goods and polymers remains sluggish. The only thing that has changed is the shift of source of procurement from imports to the domestic market.
Industry sources said the big importers, who are major manufacturers of irrigation and construction pipes, continue to import irrespective of the prices, basically for two reasons. Annually, they average the cost of import and rationalise the quantity, depending on the international petrochemical prices and import costs. If prices are high, importers reduce the quantity and increase it when the situation improves. This is possible for big importers, since they run term contracts with the international suppliers.
Secondly, these big players cannot be served by domestic players immediately if they stop imports, since their requirement is huge and domestic players have other existing demand to satisfy, said a domestic petrochemical company source.