In addition, steel and cement companies, which have been selling vast amounts of materials to Haldia, will also face a decline in offtake. However, the petrochemical complex at Haldia enviages setting up a 0.42-million-tonne ethylene cracker, 200,000-tonne HDPE plant, 80,000-tonne LDPE plant, and a 60,000 butadyeine plant. On a conservative estimate, to build up project of this magnitude will require million tonnes of steel. There will be an additional million tonnes of cement consumption. There will also be additional demand coming up from the support infrastructure required in the form of roads and housing complex.

Obviously, in the last onequarter, this has buoyed sentiments of the steel and cement market. On an average, steel prices in the east are up by 10-15 per cent, and so are the cement realisations. In today's market, a 10 per cent difference in realisations can make a lot of difference in the bottomlines of both steel and cement companies.

But for the polymer industry, the commissioning of the plant will mean lower prices and a cut in the sales target. As per recent reports, the pace of work in the last six months has been very fast, and 60 per cent of the work at the Haldia complex has been completed. Further, the management has committed to commission the plant in April 1999.

Most analysts feel the bulk of problems facing the company have been sorted and, Haldia production should be taken into the account in the next fiscal year. With the commissioning of the project and the start of the Gail complex, there will be a glut in polymer supply in India. The Gail petrochemical complex is expected to be commissioned shortly.

According to the Gail management, trial runs have commenced, and the commissioning should be in the fourth quarter of this year. Further, Reliance is also in the process of setting up a 6,00,000 tonnes PP plant, which is likely to commissioned next year.

The immediate impact of this will be that India will become a surplus country in most polymer products. Kotak Securities analyst Sanjeev Prasad says that even if Haldia were to run at 50 per cent capacity next year, there would be oversupply in HDPE by 70,000 tonnes, and a similar level in Poly propylene.

One can say that the new plants are coming up in the east, and hence, they will not affect the performance of plants in the south and the west. But there are two problems in this argument.

One is that the eastern region consumes only 10 per cent of the polymer production in the country. Primarily, the low consumption is because of a severe lack of downstream processing units in the east. Bayer's plans for starting a PBR unit in West Bengal has nottaken any concrete shape so far, and similarly, the start of Haldia Polypark, which would have brought a lot of small-scale industry (SSI) units in Bengal, is yet to evoke interest among entrepreneurs. Unless the downstream players set up the units, there would not be any significant growth rate in output.

Second, freight is not a big factor in cost dynamics. On an average, it requires Rs 1,000 per tonne per 1,000 km as freight charges. This implies that the new players, that is, Gail and Haldia can sell their products in the north and south to the existing downstream SSI units. The net effect of this is going to be depressed prices for a long time.

Today, the prevailing prices of polymers are at a 5 per cent discount to the landed price of the identical polymer/monomer. Analysts say the current domestic price is barely enough to break even volumes for most players. This is evident from the results of IPCL, DCW, and others, which sank into the red in the first half of fiscal 1998-99.

But with the startof the Haldia project, the domestic market will be in no way related to international prices. Prices could be at a 20-40 per cent discount to the landed price of polymers. At such a discount to the extremely low prevailing international price, even the best companies will lose money in the business.