March 22: Polymer prices have declined in the range of 18-45 per cent over the past one year in both the international and domestic markets. For the usual reasons: a sluggish domestic economy, declining global trade and the south-east Asian meltdown. In recent months, it is the frenzied efforts by south-east Asian producers to earn dollars that has kept the polymer markets bearish.In the international markets, polymer prices have plunged between 23 per cent to 45 per cent, the highest being for polypropylene (PP) and the lowest for LDPE/LLDPE. On the home front, however, the price fall seems to have been relatively softer--between 18-42 per cent. Polypropylene prices fell the most (42 per cent), while it was the lowest for polystyrene (PS).
This situation, however, may be about to change abit. In the past one month, a small bottoming out of prices has been witnessed in one or two of the major commodity plastics segments, suggesting that the worst may be over.
``Polymer prices have fallen beyondexpectations,'' says Rajiv Tolat, president of the All India Plastic Manufacturers' Association (AIPMA). ``It is unlikely that they could fall further,'' he feels.
A few global polymer makers have, in fact, been testing the markets with marginal price hikes in small doses over the past couple of months. Coupled with cuts in production levels, their strategy to stay afloat in a supply deluge seems to be working quite well. This has at least arrested the rate of fall in polymer prices, and even stabilised it in some cases like polypropylene.
Emboldened by the experiences of global manufacturers, the powerful group of domestic polymer majors is preparing to hike prices. This may come sooner than expected. One immediate reason for expecting this is the shift in the political mood towards anti-dumping measures. Voices are already being heard about raising basic customs duties since India has already rolled them back beyond levels required under WTO obligations.
Specifically in polymers, the domesticmanufacturers are busy lobbying the government to raise the customs duty in the next budget, barely two months away, by 10 per cent from the current level of 35 per cent.
As a preparatory step to raising polymer prices in the near future, the manufacturers' lobby, led by Indian Petrochemicals Corporation Ltd and Reliance Industries is said to have reached an understanding to jointly pull back the hefty discounting of Rs 2,000-6,000 per tonne that they have been giving dealers and actual users in the last few months.
In effect, the products are now being sold again at `customised list prices, without discounts.' The list price is different for different customers.
On the international front, the prices have fallen beyond expectations, and are now set to rise slowly. It is now believed that polymer supplies from south-east Asia may be lower if some of the plants in Malaysia, Indonesia and even South Korea close down.
Faced with an acute financial crunch since October last, polymer makers in this regionwere desperate sellers, which pushed down global polymer prices beyond anyone's imagination. ``There is now a ikelihood of some of these plants closing down, while others will close down for maintanence for different periods,'' said a top source from Nocil requesting annonymity. ``All this will result in less polymer supplies in the international market which may prompt other manufacturers to hike prices,'' he said.
Domestic prices could, however, actually begin to rise significantly if the government does bring in an increase in customs duty. Most manufacturers are confident that there will be something for them in the next budget, which is what has enabled them to start phasing out the discounts to dealers.
On the other hand, analysts seem to be bearish on this sector considering the increasingly excessive capacity built up across the globe over the past two or three years.
For example, Netherlands is increasing its PVC recycling capacity. Same is the situation for other European polymermakers.
Says one analyst at a leading foreign brokerage firm: ``The current state of the economy does not indicate surging demand for commodity plastics. So, polymer manufacturers do not have much flexibility to hike prices. Also, foreign manufacturers will continue to push their products in the market, as in the past, and tariff barriers will not be able to protect them for long.''
The total annual domestic production of polymers is placed at around 1.8 million tonnes as against an estimated demand of 2.2 million tonnes. This indicates that we import around 0.4 million tonnes, which comprises mainly speciality polymers and not all types of polymers.
Reliance's new plant, which went on stream last July, has considerably increased the supply of polypropylene, HDPE and LLDPE (linear low density polyethylene), among others. Also, IPCL is said to be operating at full capacity. Other manufacturers like Finolex Cables, Chemplast, Shriram and Nocil are striving to maximise their production facilities.
Evenif the customs duty is increased say by 10 per cent, the local manufacturers' flexibility to hike prices will be limited by the ever increasing flow of products from the international markets.
Some domestic polymer makers have been exporting their products at competitive prices in the international markets. ``A section of polymer makers here has adopted the strategy of pricing export products cheaper than domestic prices so as to continue to remain in the international market while also meeting import requirements,'' said a top industry source. ``In order to optimise their production facilities, it is necessary that they are able to raise prices here to sell cheap in the overseas markets.''
But this strategy of compensating for export losses through domestic overpricing runs the risk of falling foul of WTO norms.
According to Patrick Laurent, deputy head of the Anti-Dumpting Unit in the European Commission (who was recently in Mumbai and Delhi to create awareness about EU anti-dumping rules), suchexport strategies may attract strict punishment from importing countries.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
