India's local PE, PP markets defy monsoon slowdown as LPG mandate squeezes feedstocks

India’s domestic PP and PE markets have continued to show resilience despite the seasonal demand slowdown associated with the monsoon. PP prices rose by a further INR1,000/ton ($11/ton) this week, while PE values largely stabilized after recent gains, prompting major domestic suppliers to introduce formal price protection schemes to support buying interest. While both markets continue to be supported by feedstock-driven supply tightness, weaker downstream demand has limited PE’s ability to follow PP’s latest upward move.

At the heart of this market behavior is the government’s fuel-prioritization policy. Under central directives introduced following the ongoing Middle Eastern shipping crisis, domestic oil and refining complexes have been instructed to maximize liquefied petroleum gas (LPG) production to meet residential cooking fuel requirements. Refiners have been ordered to divert all available C3 and C4 streams, primarily propane and butane, from petrochemical production into the LPG supply chain.

LPG mandate restricts monomer supply

This fuel-first policy has led to significant production curtailments across India’s petrochemical sector. BPCL Kochi has scaled back operations at its INR52.46 billion ($620 million) Propylene Derivatives Petrochemical Project (PDPP) to increase regional LPG availability. Meanwhile, Reliance Industries has reduced merchant chemical output at its Jamnagar complex, prioritizing LPG production to offset reduced imports from the Middle East.

"We are staring at a completely artificial tightness," stated a major polymer trader based in Mumbai. "Converters are cutting their operating rates due to the heavy rains, yet PP availability has dried up so fast because refiners are prioritizing cooking gas over polymer feeds. Local plants simply don’t have the standard inventory to sell."

Compounding this squeeze, a wave of major regional plant shutdowns has severely choked the broader supply grid. State-controlled MRPL completely cut off import volumes after halting its 440,000 tons/year PP unit and secondary fluid catalytic cracking feeders for a prolonged 45-day turnaround. Concurrently, OPaL faced sudden technical disruptions at its 340,000 tons/year Dahej unit, amplifying the domestic product deficit right as regional cracker operations faced restricted liquid feedstocks due to maritime cargo delays.

Divergent trends force price protection measures

The impact on PE production is similarly structural. The diversion of C4 streams has reduced the availability of butane and butylene co-monomers, which are essential for manufacturing high-demand linear low-density polyethylene (LLDPE) grades.

To preserve margins amid tightening feedstock supplies, domestic producers attempted to implement parallel price increases across both PP and PE. However, PE converters resisted additional hikes, resulting in a sharp slowdown in purchasing activity.

"The PE line hit a hard ceiling of price fatigue," noted a distributor in Delhi. "Buyers simply refused to absorb any more increases, forcing suppliers to introduce price protection. It is a clear guarantee to converters that if list rates drop next week, they will be credited the financial difference."

While hand-to-mouth procurement patterns continue to dominate, near-term booking interest has shifted narrowly toward securing baseline polymer requirements. Producers are holding their ground on tighter supplies, while converters continue to restrict their purchases exclusively to immediate processing needs.

Import markets flat as policy deadlines loom

In contrast to the aggressive domestic pricing manoeuvres, the import market has ground to a cautious standstill, with weekly CFR India offers holding mostly flat after last week’s sharp drops. Downstream converters are showing deep resistance to high domestic offers, turning their attention to highly competitive container offers originating from Southeast Asian producers. However, real-world import booking volumes remain severely restricted by intense regulatory uncertainty.

Importers are hesitant to commit to fresh deep-sea volumes due to the approaching June 30 expiry of India’s temporary customs duty waiver. With the rupee experiencing routine volatility, buyers refuse to risk high-seas transit times when a failure to extend the waiver would instantly slap incoming vessels with a standard 7.5% basic customs duty. This paralysis in the import channel has effectively left domestic buyers exposed to localized supply disruptions.

Sluggish demand dictates slow buying

"Thise price protection confirms that suppliers are nervous about booking volumes crashing," explained a major flexible packaging converter in Gujarat. "They want us to buy now, but with the monsoons halting construction and open-air operations, we are only picking up what we absolutely need to run tomorrow’s shifts."

With logistics slowed by the monsoon and regional distribution centres facing delayed dispatches, converters have taken a zero-risk inventory strategy. The combination of state-dictated feedstock curbs and heavily restricted end-user consumption leaves the polyolefin sector highly fractured. Until Middle Eastern shipping channels stabilize and ease the domestic LPG deficit, local polymer pricing will remain untethered from standard demand metrics.