Despite availability of cheaper raw materials, prices increased twice in two weeks.
Despite crude oil and naphtha prices ruling moderate to low, petrochemical manufacturers have raised prices of polymer products twice in the last two weeks, to offset the impact of a depreciating rupee.
Normally, price revision is a fortnightly or a monthly event. Officials in petrochemical companies said even if naphtha, a derivative of crude oil and a basic raw material for petrochemicals, is ruling lower at $850-860 a tonne, as against $1,000 a tonne a few weeks before, the import cost is too high. In barely two-three weeks, the exchange rate to the dollar has fallen to 53 from a stable 45-46.
They added that oil companies only contract the premium to be paid for imports while working out term contracts in international exchanges, but they have to pay the prevailing spot price for imports.
This means even if naphtha or crude purchases are not bought on spot and are contracted over a term, only the premium to be paid is fixed over the spot rupee-dollar exchange rate over a period of six months, but procurement is done at the spot rate, which is increasing daily now.
Since the last two weeks, prices of polyethylene (PE) and polypropylene (PP), the two most important varieties of polymer, have increased by Rs 2-4 a kg every week. For the higher refined variants, the prices have increased by Rs 2.50 a kg., said officials close to the development. Currently, PE and PP prices are ruling around Rs 80-85 a kg and Rs 89-90 a kg, respectively.
Officials added the price rise has happened after three to four months. Till some time back, manufacturers resorted to decreasing prices, since there was no demand and they even had to persuade customers with price protection schemes.
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In fact, last month, manufacturers, stuck with glut in demand and overcapacity, resorted to exports even at a loss, said a market source.
“In fact markets in China and the rest of Asia are reeling under surplus capacity due to exports from India,” said an analyst tracking the market. However, in India,while there is no demand rise for production or construction, fear of increase in prices is prompting plastic processors to pile up inventory.
“Imports at this point are not good, since the exchange rate will inevitably increase the cost”, said another market player. Therefore, polymer manufacturers can afford to increase prices rapidly in the domestic market. Imports,which used to play a prominent role by ruling on an average of Rs 1-2 a kg cheaper than the price in the domestic market, have virtually stopped.
“Due to a sharp depreciation of the rupee against the dollar, some importers who had contracted two-three months back are taking delivery at a loss,” official sources said. However, plastic processors added that even after purchasing polymers at a high price, there is no scope for passing it to end-users, since demand was already weak.