The year marks a beginning of a new phase in the industry structure. From an era of high margins, low volume -- the industry has changed to extremely high volume, low margins.

The bottomline for change is of course the price and usage. Take the price factor first. Economists talk a lot of elasticity of demand, which is nothing but the effect of a percentage change in the price of a material on the change in demand. Most of the models have been stating that 25 per cent drop in prices of polymers couldsubstantially change the looks of the basic metal industry, wood industry, cotton and many others.

Interestingly, marketers claim that the present downswing in the polymer prices would be sustained for a long time. The combination of the SE Asian crisis and setting up of huge capacities by Reliance, IPCL and expected commissioning of GAIL's new unit would continue to hammer the prices of polymers.

Moreover, if we compare the prices of plastics with metals and wood we find another interesting trend. Over the last five years prices of polymers have fallen way below the prices of metals and other commodities which polymers can replace. The ratio of the prices of PET/aluminum were 1.5 in 1993 and since then have gradually to fallen to 0.8 in 1997 and it was 0.6 in early 1998. Similarly, if we look at the ratio of the price of PVC/wood, then the ratio has fallen from 1.3 to 0.6 in 1997, and in 1998 this ratio further fell to 0.4. The prices of PET have also fallen to a value which is lower than the cottonprices.

To convert this advantage into increased sales, we have to see the scope for increased usage. Polymers is used by processing industry to manufacture various plastic products. The processing industry is full of small scale players. Most of these units have availed of liberal credit schemes and finances from polymer manufacturers to increase the demand of polymers in India. We have already seen plastics replacing wood containers in carrying cold drinks bottles, and in a host of applications in the auto industry.

Till 1996-97, the price of plastics did not stimulate much end-user demand and hence there were little investment in the processing industry for buying machines meeting newer applications. Nevertheless, small entrepreneurs over the last one year have been putting in money in equipment which would allow them to explore new end products in fibres, aircraft engines and high technology applications. The All India Plastic Manufacturers Association estimates that the number of processingmachines would rise from 35,000 to around 60,000 in three years because of newer applications and increased demand.

This sounds like a win-win situation for both manufacturers of polymers and plastic processing units. But on closer evaluation, it is clear that Indian polymer manufacturing industry, which hitherto was dominated by imports and seven odd manufacturers in India, would in future comprise of only three players, that is Reliance, IPCL and Finolex. Smaller players could for the time being concentrate on niche products but eventually they may have to close shop or sell out to larger players. The operations of smaller players Oswal Agro, Shriram, Nocil, DCW and Chemplast Sanmar have become unviable in terms of cost and volume.

Secondly, the imports of polymers are surely on the way out. In 1996-97, the foreign players such as SABIC, Shell and others had approximately 50 per cent in polypropylene, while it was 33 per cent in polyethylene products and PVC. But the data available till Jan 1998, showsthat the imports are about 10 per cent in each products. The capacity expansion of Reliance, IPCL and Finolex in the last fiscal year were responsible for the change. Also the lack of infrastructure facilities would mean that unless international prices (CIF) are cheaper by more than 15 per cent Indian players are going to have a lion's share of the local market. This might force a few foreign players such as Shell, Solvaj and SABIC to pick up stake in Indian firms, because they would not like to be left behind in having a slice of the Indian market.