PLASTIC WOVEN SACKS

Raffia

CONTENT

Highlights

Polymers

Polypropylene

Plastic woven sack market (RAFFIA)

Plastic woven sack Vs Jute sacks

End user consumption of Raffia

SWOT Analysis of Raffia market

Conclusion & Recommendations

HIGHLIGHTS Overall annual consumption of woven sacks 2008-09

Cement Sector: 430 Cr

Fertilizers Sector: 74 Cr

Food Grain Sector: Cement contributes about 37% of total Raffia demand of 674 KT (2008-09)

Bulk Packaging: Sector wise demand – 674 KT

HIGHLIGHTS

PP consumption might get affected due to increase usage of RMC in cement sector in near future.

While PE has shown a demand in Fertilizers and food grain sector Raffia manufacturers earn ample profit from unorganized sector. Export will show growth in future. Foreign manufacturers are targeting Indian market.

Raffia diversified applications: potential of 163k.tons (2008-09)growing at 9%

POLYMER

(in KT) India World India's share

Building Blocks      

Ethylene 2816 117745 2.3%

Propylene 1999 71303 2.7%

Polymers      

PE 1975 73596 2.4%

PP 1990 44668 4.4%

PVC 1002 37606 2.6%

PS 423 15525 2.4%

ABS 91 8616 0.9%

Polymer Capacities -2008 India Vs World

POLYPROPYLENE MARKET

Polypropylene market : applications (2008-09)

Cement 38FIBC 19Sack Exp 9Foodgrain 6Lamination 2Others 26

Expected polypropylene market trend

RAFFIA INDUSTRY

Some of the reasons for this shift are as follows: Change in market preference. PP has low density among all synthetic polymers. PP has direct softening point and thus a direct support for its use in

cement and where there is hot filling of certain products. PP has a higher coefficient of friction and hence higher stack ability

during storage.

0

100

200

300

400

500

600

700

800

900

1000

2004-05 2006-07 2006-07 2007-08 2008-09

PP

PE

Total

A) Growth trend in India

RAFFIA INDUSTRY

37.7 38.3

3.2 1.8

9.8

22

36.9

43.7

1.9

8.9

0

5

10

15

20

25

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35

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45

50

Ahmed

abad

Kolkat

a

Chand

igar

h

Daman

Delhi

Hyder

abad

Indo

re

Kanpu

r

Mad

ras

Mum

bai

B) Raffia capacity additions 2008-09

205 KTA capacities added in North-East, West & South.

C) Customer satisfaction level

The main factors guiding the source of raw material are:• Quality• Availability• Cost

RAFFIA INDUSTRY

Factors influencing prices

• Fluctuations in the crude oil and natural gas prices

• Economic growth of the major polypropylene consuming

countries like USA and China

• Domestic industrial growth and development

• Demand for consumption in the international market

• Government policies and regulation

PLASTIC WOVEN SACKS VS JUTE WOVEN SACKS

Sr. No Description Jute Bags PP Bags

       

1 Mass of bag 665gms 135gms

2 Moisture regain 22% Nil

3Max oil content on dry de-oiled material basis 3 per cent max by wt. Nil

4Basic price per bag (excluding sales tax)

Rs.17.05 (Average of last 5 months & incl. of excise duty)

Rs.10.44(incl. of 16% excise duty & freight)

5Cost of packing 1mil.Mt of wheat/rice

Rs.37.50crs @ Rs.18.75 per bag (ie.Rs17.05+ Rs.1.70)

Rs.20.88crs @ Rs.10.44 per bag

6

Packing cost of 20mil.Mts of wheat by FCI Rs.750.00cr Rs.417.60cr

7Packing cost of 20mil.Mts of rice by FCI  Rs.750.00cr Rs.417.00cr

8 Aeration Good  

PLASTIC WOVEN SACKS VS JUTE WOVEN SACKS

9 Problem/Quality complains

Supplies are generally not strictly as per delivery schedule and have been carried over to next months in the past in spite

of pre-inspection by Quality Assurance Wing of DGS&D

complaints about poor texture of bags leading to spillage of

grains and variations in length /width of bags are there.

Besides complaints about damage by water/ rains during transit are also very frequent.

Good, no mould, cake formation, condensation or

musty smell on rice, wheat Raw material available in plenty. No disturbance in supply schedule.

The quality checks may be easier to enforce on PP bags and the possibilities of bags

getting damage by water/ rain during transit will be lesser.

10Other advantages/

disadvantages

1. Not resistant to water, seepage and contamination

2. Contamination of food grains by jute batching oils.

3. Cost of transportation is much higher than of PP bags which are almost 1/5th in weight of jute bags

4.Rough handling may result in

burst/tear of bags

1. Resistant to water, seepage and contamination is very high

2. No J.B.O. Present and therefore no such possibility of contamination of grains with JBO

3. Cost of transportation are

much lesser than the jute bags

4. During trails no burst/tear of

bags so far noticed on rough handling of bags.

END USERS A. Cement industry

• No. of player – 54• Capacity-215 MMT• Large cement plants-136• Mini cement plant-382

Top 6 players constitute about 45% of the production capacity.

END USERS

Demand-supply scenario in cement industry projecting comparison between total pp consumed Vs RIL pp consumption

380

462513

627600

271

326

380

469505

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250

2004-05 2005-06 2006-07 2007-08 2008-09

0

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700

cement capacity(mn tonnes)

cement consumption(mntonnes)

pp consumption( kt)

Ril pp consumtion(kt)

KT

MMT

Threats to Polypropylene Consumption

• Increase in unpacked cement consumption by 11% compared to previous year

• RMC has already eaten into 2% market share of polypropylene consumption

• Increase in Freight costs by 5%

• Increased use of paper / AD star bags and Bulk Jumbo Bags

• Environmental challenges / Change in law / Emission norms.

• Lesser availability of Raw Materials for production of polymer bags.

• Expected fall in cement prices (15-20Rs. per bag) might effect polypropylene consumption.

END USERS

Opportunities

• Growing Infrastructure

• Government norms

• Opportunities in rural market

END USERS B. Fertilizer industry

Installed capacity – 184.2lakhs MT/AnnumOut of which 124.61lakhs MT is for nitrogen and 59.59lakhs MT is for phosphate.No. of fertilizer plants Large size: 57Small and medium size: 78

 

Manufacturing

units        

Sr. No. Sector Capacity (lakh MT) Percentage share

    Nitrogen

Phospha

te Nitrogen

Phospha

te

1 Public sector 35.98 4.21 28 7.74

2

Cooperative

sector 29.41 10.3 23.58 16.02

3 Private sector 59.19 45.09 48.42 76.25

  Total 124.58 59.6 100 100

END USERS

The factors deciding the choice of the suitable packaging material:

• The hygroscopic nature of fertilizers

• The condition of usage such as dampness etc

• Prolonged storage of fertilizers due to seasonality

• Subsidy borne by government of India due to relative cost (applies to Urea)

HDPE bags are used for packing as compared to PP bags

• PP bags have low shelf life

• PP bags cannot be protected from harmful UV rays

END USERS Per bag cost analysis of PE/PP bags as on 1st June 2009.

cost analysis PE PPraw material cost/MT 69.4 61.3cash discount 0.6 0.6  68.8 60.7 excise duty+ E Cess 0.082 0.082  74.4 65.7trade discount 2.0 3.0  72.4 62.7 per kg cost 72.4 62.7

Bag costingraw material 0.88 0.88  63.7 55.2filler Rs26/kg 0.12 0.12  3.1 3.1conversion cost 13.0 13.0cost/kg 79.8 71.3 U.V. Stabilizer cost 0.0 1.5cost/kg 79.8 72.8 weight of bag 128.0 117.0

 total cost/bag 10.2 8.5

Note:

• To a processor QD & AQD along with MOU discounts are also paid. If we want to calculate exact cost of production then the same also need to be deducted from resin price afterwards.

• Also we have not assumed price differential of LLD/LD or PP/L/LLD being used for lamination of between the 20-25g. This is virtually very low.

• While quoting price customer will not pass on the cash discount & TD to processor hence his quote will increase by that amount too.

C. Fertilizer industry

END USERS

• Current domestic food grain and pulses production is 470 million tones

• Rice and wheat contributes 77% of total food grain production.

• 30-40% food grains is procured and stored by Govt. agencies and rest by

private operators.

• Loss due to poor storage is as high as 5%.

Need for Storage of Food Grains:

• Storage is necessary for uniform supply

• To preserve them for future use.

• Storage starts immediately after procurements of food grains.

• To provide a reserve for contingencies such as droughts, floods, and war.

• To speculate on high prices either in domestic or in the export market.

END USERS

Procurement and losses while Storage:

• About 30-40% of the grain produced in the country is stored by Government and

private agencies.

• 60-70% is retained by farmers for household use and consumption.

• The loss of food grains stored by Govt. agencies is less than 1%. But at the

farmers end it can be as high as 5% as a national average.

(FCI) Maharashtra region storage capacity and monthly requirement

A shift in packaging pattern observed in private agenciesLarger pack to the medium sized packing(10-25kg pack size)

END USERS Factors that influence packaging in this industry are:

• Requirement to prevent contamination of packed material.

• Packaging material must be moisture, rot resistant.

• Good shelf life even under exposed and covered storage.

• Better cost economics, Easy availability

• Subsidy borne by government

Reasons for not using Plastic bags for packaging till date

• Fumigation of grains - compact nature of plastic bags

• Availability of Aluminium Phosphide tablets (insecticides)

• Sliding down and down gradation.

• Storage stack 18-22bags reduced to 13-14 bags.

SWOT : RAFFIA INDUSTRY

• Growing industrialization in India, leading to more demand of sophisticated packaging by end customer.

• The demand is directly related to demand of end product so till time a new better material does not come to replace the position is safe.

• New big player entering the market.

• Training required for handling.

• Reservation of jute packaging in food grains and other sectors which can be a rich market.

• Manufactures lack commercially viable units.

• Low resale value & resale only possible 2-3 times.

• High capacity production required in order to earn profit.

• Exports provide a sound market.

• Poor showing of jute industry.

• Increasing production of cement, fertilizers etc. Food grain sector can be a huge market

•Poor quality of product might affect good export potential

International fluctuation in petroleum products affects industry

High dependency on labors

STRENGHT

OPPORTUNITIES

WEAKNESS

THREATS

PORTER'S FIVE FORCES MODEL

Suppliers

Reliance Industries Limited

(76% of the market share)Haldia Petrochemicals(15% of the market share)Import(9% of the market share)

Potential Entrants

Indian Oil Corp. Limited

Foreign player (raw material)

Buyer’s views

Availability, Cost, Quality of the raw material.

Low profit margins due to high over head charges

.

Substitutes

cementoReady mix cement

oAD start bagsFood grains

oMulti layered polyethylene bags

FertilizeroPolypropylene bags

Polypropylene Industry

Fluctuations in the crude oil and natural gas prices

Economic growth of the major polypropylene consuming countries like USA and China

CONCLUSIONS

• Foreign Raw material manufactures are targeting Indian market, so the share of import is expected to increase.

• Domestic market is more price sensitive than quality sensitive.

• Overall, for most of manufacturers, quality of the raw material does not play an important part. Main factors they consider while choosing raw

material is cost and availability

• Cement serves as an important market for polypropylene plastic woven bags.

• Polyethylene demand is increasing as compared to Polypropylene in food grain and fertilizer sector.

• Demand for raffia grade for plastic woven sack application is expected to grow at a CAGR of 9.2 percent to over 721.842 tones

CONCLUSIONS

• Domestic market also offers a lot of opportunity from unorganized sectors.

• FIBC export has grown by 15 percent.

• Exports can be of a much more importance than they have now, as it is labor centric industry, which provides an edge to India.

• Multilayered polypropylene bags can be a good substitute of Polyprolyene bags in fertilizers and food grains sector because of• Low processing cost• High aesthetic values

• Raffia industry should now formulate a strategy to capitalize on the opportunities and tap the potential in diversified markets both in sacking and non sacking applications

RECOMMENDATIONS

• The availability of raw material should be made faster.

• Focus should now shift on bringing various applications of polypropylene raffia as Polyethylene is gaining strength in food grains and fertilizer sector

• The quality of the raw material should be increased as exports are opening up

• Indian raw material manufactures need to keep good check on their strategies as foreign raw material manufacturers are targeting Indian markets