Wednesday, 15 February, 2012

Tracking polymer prices in 2012

First rise after initial dip in January

The prices of polymers, the key input for the flexible packaging industry, have increased possibly because Reliance, the biggest Indian polymer manufacturer, has shut down three of its production units for annual maintenance in the end of January 2012. In the end of December 2011, Haldia Petrochemicals also closed down some of its units for maintenance. Domestic polymer manufacturers increased the prices of polypropylene (PP) and polyethylene (PE) by Rs 3,000 a tonne and Rs 1,000 a tonne, respectively with effect from 9 February 2012.

This is the first rise in polymer prices in the current calendar year although in January 2012, Indian polymer manufacturers twice reduced the price of PVC to match the international price of PVC. In January, the basic variety of PVC was priced at Rs 58,500 a tonne in the domestic market, which was higher than the imported variety of PVC. Thereafter, Indian manufacturers reduced the price of PVC by Rs 3,500 a tonne.

The main reason for raising the prices of PP and PE is capacity reduction not a rise in input prices or a spurt in demand in the domestic market. Polyethylene (PE) and its variants, high-density polyethylene (HDPE), low-density polyethylene (LDPE) and linear low density polyethylene (LLDPE), are extensively used in manufacturing different types of packaging products, such as woven sacks, multi-layer and mono-layer carry bags, tarpaulin, and small, medium and bulk containers for packaging edible oil and processed food, lubricants, detergents, chemicals, pesticides, houseware amongst other products. Polypropylene (PP) and its variant, biaxially oriented polypropylene (BOPP) are widely used in flexible packaging of processed food, pharmaceutical, FMCG and cosmetics and personal care. Therefore, the rise in prices of polyethylene and polypropylene may increase the packaging cost of a variety of consumer products, which in turn may be passed on to end-users.

Apart from the domestic market, the prices of polymer, especially PE, have also increased in the international market in February 2012 by US$ 100 to US$ 120 per tonne to $1400-$1420 per tonne. As per industry experts, this is the outcome of high polymer demand in China, Taiwan and Japan after the Chinese New Year. As a result, Indian imports of polymer also became dearer. Since prices of polymer are increasing and domestic demand is not rising, manufacturers are offering price protection schemes to woo customers. In price protection schemes, manufacturers compensate the customers if the company further reduces prices within that week or month.

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