Liquidity concerns keep India’s PP, PE markets on edge

The demand outlook, which took a significant positive turn in the previous month, has raised PP and PE prices in India over more than a month. However, the latest indications point to buyers complaining of liquidity issues as they stay away, putting pressure on the market.

Market players said buyers are currently mostly keeping to the sidelines, with the previous month seeing substantial stockpiling for the expected post-monsoon requirements, and liquidity concerns emerging. “We think enough has perhaps been bought for about a month that kept prices on an uptrend, but players seem to be taking a breather currently as visibility is murky ahead and banks are frugal in providing credit facilities,” said a polymer trader based in Delhi.

Weak monsoon and lack of liquidity worry buyers

Most of the increases in both PP and PE import prices were made in August itself, with the current month seeing scarce buying, betraying a wary outlook for the market. Meanwhile, as monsoon draws to a close, the country is facing a deficit rainfall situation that could adversely affect the purchasing power of rural population that contribute about 30% of India’s GDP.

Weak rural demand is a major concern for fast-moving consumer goods and other consumer durables. Rainfall in the northwest, central and eastern regions has been largely deficient; although the southern parts of the country received excess rainfall recently. All four major regions are now facing deficit rainfall, show data from the India Meteorological Department.

“It is not as if the economy is in tatters. We have mostly seen positive macro-economic indicators lately, but banks have resorted to being too sparing in the case of providing letters of credit to polymer buyers. The lack of visibility ahead may be affecting banks too,” a Mumbai-based trader said.

Buyers retreat, prices stabilize

The latest trend shows buyers of both polyolefins moving to the sidelines, and prices mostly showing a stable trend as the increasing upstream costs have meant a supportive counter push. However, the latest market passivity emerged after prices moved up quite a bit since mid-July. Buyers had returned on expectations of better demand after the monsoon and expecting prices to keep rising ahead, with prices also rallying across Asia and the Middle East. The markets kept rallying for more than a month until the latest stability turn.

In the PE markets, the import LDPE film grade was reported to have risen by about $30/ton since early August to a $1000-1030/ton CIF range currently. The LLDPE grade is $10-20/ton higher since early August at $1000-1030/ton CIF, with Saudi offers heard in a $1010-1030/ton range for October shipments. HDPE continued to outperform the other film grades, with the latest prices noted $30-40/ton higher from the previous month at $1040-1070/ton.

Import pricing levels of homo-PP raffia are currently reported $20-40/ton higher from levels in early August at the current $990-1020/ton range. Raffia prices had surged by up to $80/ton in the previous month. As for the block copolymer grade, prices rose by $40-60/ton to a $1040-1070/ton range currently, after zooming by $80-100/ton in the previous month.

Although price levels for both PE and PP show some increases from early August to early September, they have been largely stable since then.

Meanwhile, a major domestic producer early this month raised prices by INR2500/ton for HDPE grades and INR1500/ton for all PP grades, while rolling over prices of other grades. The major’s prices for all PE grades are thought to be above INR100,000/ton. Open market prices for HDPE film in the Western Indian markets are currently slightly below the INR100,000/ton mark, while LDPE film prices are at around INR95,000/ton and LLDPE around INR90,000/ton.

Turnarounds, upstream costs may underpin PP, PE

Although there is resistance growing to higher prices among buyers, supply from major producers particularly from the Middle East is not comfortable given turnarounds and reduced stocks. What is more, there is unconfirmed market talk of a major Indian producer planning shutdowns for about a month at its 500,000 tons/year LDPE and 650,000 tons/year LLDPE plants in western India. If confirmed, this could undergird the respective markets, players said.

At the same time, both propylene and ethylene prices have risen by about 17-18% since mid-June, even as Brent crude futures surged above $90/bbl in recent weeks. "Energy and feedstock costs would certainly keep the markets supported,” a trader said. “But we still have problems associated with lower demand and a liquidity crunch and it could be difficult for us to pass on the higher prices to our end-user markets. This will keep us adopting a circumspect attitude towards any increase in prices,” he added.