Download india – petrochemical industry

INDIA – PETROCHEMICAL INDUSTRY
Source: India Petrochemicals Report Q3 2009; Business Monitor International Ltd
Strengths
 The Indian government wants to turn the country into a major petrochemical hub
through the establishment of new production complexes in special economic
zones (SEZs) with captive feedstock
 Major petrochemical players have outlined ambitious plans to launch new
products
 The industry has significant growth potential, with the strong polymer and plastics
demand forecast linked to high GDP growth rates
 India is the fourth-largest fertilizer producer globally
 Investment in new technology to reduce reliance on naphtha as feedstock could
see more petrochemical facilities using natural gas, thus improving raw material
reliability and helping profit margins
 Cheap workforce
Weaknesses
 The industry is still reliant on feedstock imports
 Government divestments and project partnerships are typically characterized by
delays and other problems
 Government plans to establish petrochemical exports could face stiff competition
from other growing markets in Asia, notably China

Bureaucracy and red tape remain a problem, particularly relating to the foreign
investment that the petrochemical sector will require in order to gain access to
new technology
Threats
 The industry could be heading towards a polymer supply deficit
 The rise of Middle East and Asian competitive capacity
 A construction boom in India could delay commissioning of some projects
 The industry is affected by feedstock price volatility
 There is growing opposition to the establishment of SEZs, that are the focus of
petrochemicals investment, and there is a danger that some projects will be
cancelled
INDIA – ECONOMY IN GENERAL
Source: India Petrochemicals Report Q3 2009; Business Monitor International Ltd
Strengths
 India has a very large domestic market, and rising domestic demand is a major
driver of economic growth
 A vast supply of cheap, skilled labour has turned India into the back office of the
world. Around half of the population is under the age of 25
 Booming exports of IT-enabled services, from call centres to software developers,
are a valuable source of foreign exchange
Weaknesses
 Despite rapid economic growth, India remains a very poor country. According to
IMF estimates, India's GDP per capita was US$1,082 (US$2,886 in purchasing
power parity terms) in 2008, compared with US$2,969 (US$5,870 in PPP terms)
in China
 Agriculture remains inefficient. Poor June-September monsoon rains can slash
rural incomes and consumption. Two-thirds of the population depends on farming
for its livelihood
 India has chronic trade and fiscal deficits, the latter of which is ballooning due to
fiscal stimulus measures. The government spends a significant part of its revenue
on interest payments, salaries and pensions. This limits the amount of money
available on infrastructure improvements
Threats
 India's dependency on oil imports is problematic. This undermines the trade
balance and makes India vulnerable to energy price-driven inflation
 India is at risk of severe environmental problems. Many of its cities' air and rivers
are heavily polluted, raising questions about the sustainability of the economy's
rapid growth
Source: India Petrochemicals Report Q3 2009; Business Monitor International Ltd
The Indian petrochemicals industry is less than 40 years old and has significant growth
potential. Until the government’s recent promotion of the sector, its development had
been hampered by strict state control, resulting in a small ethylene capacity relative to
India’s size. Up to 1996, installed capacity was just 525,000tpa at four complexes –
Bombay, Thane, Baroda and Nagothane – run by only three companies: Indian
Petrochemicals Corporation (IPCL), National Organic Chemical Industries (NOCIL) and
Oswal Agro Mills.
In 2008, the Indian chemical industry had sales of around US$40bn. The government has
indicated it intends to raise annual sales to US$100bn by 2015. According to government
sources, the Indian chemical industry accounts for 12% of the country’s industrial
production and 15% of exports of manufactured goods. The government aims to double
the country’s share in the global chemical industry to nearly 4%, with a more exportoriented approach and investments in research and development.
Despite strong levels of economic growth, expansion in the Indian petrochemical industry
is proceeding at a lower rate than China. Around 70% of the Indian market is dominated
by two Indian corporations: Reliance Industries (RIL) and Indian Petrochemical
Corporation (IPCL). Plans are in place to construct India’s second integrated oil refinery
in the Jamnagar
Special Economic Zone, adjacent to the existing refinery in Gujarat. Dow Chemical is
funding the zone’s petrochemicals production. Meanwhile, IndianOil (IOC) is expanding
into the petrochemicals sector with the construction of Haldia Petrochemicals and plans
for further petrochemicals operations in West Bengal, Orissa and Haryana. Private
conglomerates such as the Tata Group also plan to enter the sector.
The policy is being advanced alongside the creation of petrochemicals production zones.
In February 2009, the Indian government approved the creation of petroleum, chemicals
and petrochemical investment regions (PCPIR) in West Bengal, Gujarat and Andhra
Pradesh. This will assist in the creation of petrochemicals projects in Haldia (West
Bengal), Dahej (Gujarat) and Visakhapatnam (Andhra Pradesh). The government’s
PCPIR policy, launched in mid-2007, envisages each project covering an area of at least
250km2, including processing facilities, warehousing, manufacturing units, associated
logistics, services and infrastructure, with investments totalling US$8bn. PCPIRs will
have one or more special economic zones, industrial parks, free trade and warehousing
zones, and export oriented units. This is intended to stimulate the country’s
industrialisation. The sites of all three PCPIRs are already developing largepetrochemical
complexes.
 ONGC’s Petro Additions joint venture at Dahej;
 Indian Oil’s development at Haldia
 Hindustan Petroleum Corp’s JV at Visakhapatnam.
India has a relatively liberal petrochemicals external trade regime. India’s import duty on
polymer was 5% in 2007-2008, compared with 10% in Indonesia, 25% in Malaysia, 15%
in Thailand and 7.8% in China.