Prices of intermediates may fall on duty cut

MARKET OUTLOOK

The reduction in the peak customs duty announced in the Budget is likely to help the government keep the prices of intermediates under check. The step was undertaken to bring the customs duty to Asean levels.

As a result of the move, landed cost of many intermediates such as paper, solvents and chemicals have come down. Besides, local manufacturers are reducing prices fearing tough competition from overseas players.

The peak duty has been reduced from 12.5 per cent to 10 per cent, but most of the producers are pricing their products slightly lower than the import parity prices.

Going by the example of coated paper that the country mostly imports, domestic paper mills kept raising the prices of this variety "" now with reduced duty, it is possible they may bring down the prices.

Moreover, except for demand from note book manufacturers in writing paper segment, the market condition is also slack.

In petrochemicals and solvents (organic and in-organic) category, customs duty has been cut from 12.5 per cent to 7.5 per cent. Leading producer RIL has cut the price of DEG-di-ethylene glycol by almost 10 per cent to Rs 51.50 a kg and MEG by Re 1 to Rs 43 a kg.

However, new prices for acetone, phenol and benzene remain undecided as international manufacturers are quoting higher prices due to the fall in duty.

Usually, it has been noticed that international players, be the buyers or sellers, don't allow their Indian counterparts to take advantage of any fiscal concessions. This is true for benzene and its derivatives. Benzene was quoting around $1,000 a tonne.

Caustic soda prices have fallen 10 per cent in a month from Rs 24.5 a kg to Rs 22 a kg because of low demand. The import scenario in this category was not very good owing to high landed cost, but with duties slashed, there can be some activity in the segment, believe some traders.

Soda ash, though, has remained unchanged at Rs 13.80 a kg since long. Traders expect downward trend in hydrogen peroxide as the import cost is falling. Imported material is now available at 23.5 a kg. Local producers have priced the intermediate at Rs 25.

Yarn prices are also following the trend. Cotton yarn prices are down on good supply from south and lower local demand, as the looms in Bhivandi are facing power shortage. Following the reduction in duty in caprolactum, nylon yarn prices are also set to fall in coming days.

Though duties on DMT and PTA have come down, leading producers have not reduced the prices of POY and Polytex yarn. This can be explained by the fact that traders and weavers had postponed purchases as they were expecting big duty cuts, and hence the pipeline was empty. Now that the duty cut has been announced, the demand has surged all of a sudden, keeping the prices at higher levels.