Mumbai, March 4 : Polyester intermediates, purified terapthalic acid (PTA) and monoethylene glycol (MEG) are two major raw materials used for production of man-made fibres and yarns. However, the customs duty rates on these materials have been higher than those on finished products such as fibres and yarn. The synthetic yarn industry had been asking for the removal of this anomaly. The 2001-02 Budget has considered their demand. The rate of import duty, which was 27.5 per cent (including 10 per cent surcharge) earlier on the raw materials, will now be 20 per cent. This may force major domestic players to think twice before raising prices as imports of these materials will be cheaper now.Reliance Industries Ltd (RIL) is among top five producers of PTA and MEG in the world. While PTA accounts for nearly 12 per cent of the sales in value terms (Rs 1,756.8 crore), the share of MEG is about 5 per cent (Rs 707.6 crore). The sales quantity of these two items was 6 lakh MT and 2 lakh MT respectively in 1999-2000. Lower import duties could put price realisations under pressure.
There is another negative development for RIL in the polyester segment. Import duty on polyester chips has been drastically cut from 38.5 per cent (including 10 per cent surcharge) to 25 per cent. Polyester chips, which are derived from polyethylene terapthalate (PET), are also used in the production of synthetic yarn. PET forms 1.5 per cent to 2 per cent of the company' s sales in value terms (Rs 270.9 crore). According to analysts, these two duty cuts may bleed the bottomline of RIL by around Rs 250 crore. But the company is in a better position to absorb the blow owing to its financial strengths as compared to other petrochemical majors such as IPCL. It must be noted here that Reliance is the largest and only fully integrated domestic producer with with captive supplies of all key raw material. It has a market share of 47 per cent of the fragmented polyester industry. Reliance has frenetically acquired control over capacities aggregating more than 1,40,000 tonnes per annum, from several polyester producersover the last couple of years in view of the global trend towards consolidation.
Reliance will have to be prepared for further bad news in future. Union finance minister Yashwant Sinha has said that within three years time, all the import duties will be brought down to 20 per cent in accordance with the WTO agreement.
Copyright © 2001 Indian Express Newspapers (Bombay) Ltd.
