Friday 30 December 2011

Polymer prices reduced twice in December

The current economic slowdown has spurred the RBI to lower its GDP growth forecast for the financial year 2011-12 to 6.9%. While our company IppStar thinks that this is a premature downgrade for the GDP forecast, there are signs that the Indian industry’s high growth over the past three years is softening. The index of industrial production showed a sharp deceleration with a growth of only 2.79% between July to September 2011. The IIP figure for October 2011 was 0.3% and there has been a sharp rise in the November 2011 IIP figure to 6.8%. Reasons cited by experts for the slowing down of growth are softening domestic demand because of high interest rates and rising inflation. However, at least food inflation seems to have moderated in December.

Polymers which are used in six key industries (agriculture, automotive, infrastructure, healthcare, appliances and flexible packaging) are affected by the economic slump. In India flexible packaging is the biggest consumer of polymers using more than half of the entire production. The ban on polybags and the ban on flexible packaging for gutka (chewing tobacco) has affected flexible packaging although monolayer polybags are being replaced by multilayer polybags and polymer based non-woven fabrics.

One outcome is that since January 2011 till the third week of December 2011, the prices of all variants of polymers have been revised 5 times. Between January to November 2011, prices of polymers were increased thrice. In November, major Indian polymer manufacturers — Indian Oil Corporation, Haldia Petrochemicals, Gas Authority of India Ltd and Reliance Industries have increased the prices of polypropylene and polyethylene by Rs. 3 per kilogram and Rs. 1.50 per kilogram respectively. These prices were raised to keep pace with surging global prices of naphtha, the key input used in manufacturing polymers. In addition, the sharp devaluation of the Indian Rupee in comparison to the US$ has made imports more expensive, which in turn triggered the upward movement of domestic polymer prices.

In December, polymer prices have been reduced twice — first by Rs. 2 per kilogram in the first week of the month and the second time by Rs. 2.50 per kilogram in the third week. These price decreases are an attempt to spur domestic polymer demand. Polymer demand has slowed both because of the slow local industry growth as well as low global demand especially in America and Europe because of festive and holiday season. The lower prices are expected to increase polymer export, which has fallen drastically as China, a major polymer importer from India, has stopped import in the recent past.

On the other hand, IppStar’s ongoing research of the Indian print, packaging and publishing industry shows continuing double digit growth in most of the packaging segments. Polymer based packaging including labels continue to add blown film lines and high speed printing and converting equipment.

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