India Petrochemicals Report Q3 2012

The India Petrochemicals Report examines the enormous long-term potential exhibited by the local consumer market, but highlights short-term concerns about a sharp drop in manufacturing exports due to the eurozone crisis.

In this report BMI also examines the way in which producers are grappling with both the short-term risks and ongoing problems associated with land acquisition that have led to significant delays. It also analyses the impact of exchange rate volatility, which is exacerbating the effects of sustained high oil prices on petrochemicals margins.

Over the long-term, demographic changes are bound to sustain consumption growth and with the urban population set to grow to represent a third of the total population, more than 100mn more people will join the labour force. However, te slow pace of capacity expansion will mean that India will become more reliant on imports for basic chemicals and plastics.

Estimates of the investment required to cater for the growth in demand for plastics in 2010-16 have been put at US$10bn. Even when bearing in mind the delays and cancellations, India will have a rapidly expanding petrochemicals industry. The Indian government forecasts domestic polymer demand reaching 11mn tonnes in 2015, up from 5.8mn tonnes in 2008. The main concern going forward is India’s ability to meet growing demand. This is being hampered by delays, often caused by land acquisition problems, as well as an inability to raise finance and attract investment.

Over the last quarter BMI has revised the following forecasts/views:

India is set to add nearly 900,000 tonnes per annum (tpa) of new polypropylene (PP) capacity in 2012, with additional planned new capacity set to come online in 2013.

BMI forecasts that by 2016, ethylene capacity will hit 9.41mn tpa, polyethylene (PE) will reach 5.67mn tpa and PP will be 5.1mn tpa.

BMI estimates that Indian consumption of plastics will grow from 8mn tonnes in 2009 to 16mn tonnes by 2016 and 25mn tonnes by 2020. Going forward, the country will register a lower rate of growth than the 15-16% seen over the past few years.

We forecast 8% growth in chemicals output in 2012, but the risks are to the downside. Given the country’s low level of per capita chemicals consumption – even by the standards of developing countries – the rate of growth is well below its potential.