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Expected recovery fails to materialize in Indian PP, PE markets despite high season

by Shibu Itty Kuttickal - sikuttickal@chemorbis.com
  • 18/10/2022 (02:24)
Recovery in PP and PE markets in India has stayed elusive despite bullish expectations of demand rising around the Pooja-Diwali festival season in October and the year ahead. Buying has remained dull and traders expect the market sentiment to remain downbeat in the near term.

“We have nothing great to write home about in this festive season,” said a trader based in northern India. “Prices have stayed range bound over the past more than a month and we don’t expect a bottoming out soon. At best, we may see prices continuing in a sideways fashion,” he added.

Prices remain range-bound

India’s PP and PE prices have fallen by more than 30% since April. While Indian players were expecting an imminent course correction, prices have mostly been range bound over the past four-to-five weeks.

Import PPH raffia prices, for instance, have stayed around or slightly below the $1100/ton CIF India mark for most of the last month.

“We were expecting prices to increase above these levels, but that has not happened as demand remained weak,” said a marketing source with a producer in the country. Raffia prices have fallen from the $1300/ton levels heard in early July.

As for PE, India remained more of an HDPE and LLDPE market as LDPE’s delta with the former two grades stayed narrow.

Traders quoted LDPE prices in a low-to-mid $1200s/ton, around the same levels noted in the second week of September. They pointed to a great deal of HD and LL substitution in applications that normally use LD as the major ingredient, as LD was relatively more expensive.

“Once converters start employing a new recipe, it may become the standard for the longer run unless we see prices rising for LL and HD, forcing a reversal,” the trader in northern India added.

LLDPE and LDPE film prices have also been moving sideways. LLDPE prices are currently being quoted at $1100-1120/ton CIF India, around the same levels as in the second week of September, and much lower from the $1300-1320/ton levels noted in early July for both the markets. “HDPE prices have fallen slightly below $1100/ton CIF, from around the same levels as LLDPE more than four weeks ago,” a trader added.

Markets beset by economic concerns

Traders said the lower agricultural production expected during the monsoon season is a major reason for the current bearishness. “This means the rural folk have less money to spend on consumer durables, a fact that hits markets, including that of plastics,” said a Mumbai-based trader, pointing to a reason for the bearishness.

According to the trader, although the monsoon season in India has been 6% higher than normal during the June-September period, the agricultural output during the kharif, or monsoon, season is estimated to be 6% lower than the 2021 season.

Apart from this, recessionary fears and inflationary pressures have also continued to push down demand in the Indian market. “As the US dollar has turned more expensive, it’s become difficult to secure enough currency to buy imports,” the trader added.

The rise in borrowing costs has also cast a pall of gloom on the markets. India’s central bank may continue to raise lending rates to tame inflation.

Spillover impact of Chinese downturn

Meanwhile, the downturn in Chinese demand as a result of the uptick in COVID infections could have resulted in higher availability of Chinese polyolefin shipments to India.

“We have definitely seen more offers from China over the last month although prices may need to fall further for Indian buyers showing more interest,” said another trader.

Meanwhile, players said margins may be affected and producers may resort to shutdowns and further operational cuts to cut losses as costs increase with the rise in crude oil prices consequent to the output cuts of nearly 2mn bbl/day by producers.

“But there’s a limit to increasing prices in the current market because of the current demand weakness. What the producer can do is keep their run rates to the minimum,” an Indian trader said.

Fall in output fails to prop up market

Players also pointed out that the bearishness in the market has remained despite the fall in operational rates and shutdowns at Indian polyolefin plants.

Public sector refiner GAIL has reduced operations at its petrochemical plant at Pata in northern India by about 50-70% to avoid purchase of costly spot LNG. “This has certainly affected its supply of polyolefins. We’ve been told that GAIL’s PP and PE plants are operating only at about 30% or lower,” a trader said.

Another trader said Reliance had shut down its plant in the northern Indian state of Gujarat for at least a month, hitting production of PP in a big way. Indian Oil’s plants in Panipat have also been shut for about 84 days affecting the production of both PP and PE.

“What these shutdowns and run rate cuts have done is reduce surpluses available for exports from India. As far as imports are concerned, the suppressed demand has continued to keep prices down,” added the Mumbai-based trader.
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