July xx, 2019 I Industry Research June 25, 2020 | Industry ... Jun… · Petrochemicals are downstream hydrocarbons derived from crude oil and natural gas. The downstream process

On 9 October 2019, Reliance Jio said that it will now be recovering

Petrochemicals are downstream hydrocarbons derived from crude oil and

natural gas. The downstream process involves refining of crude oil and

purifying and processing of natural gas. The refining process calls for

fractional distillation which fragments crude oil into its constituent parts

and results in production of main petrochemical feedstocks like petroleum

gases, naphtha, kerosene and gas oil. Ethane, propane and natural gas

liquids derived from natural gas are the other vital feedstocks used in

petrochemicals industry.

Petrochemicals are used in day to day activities and have been playing a

crucial role in development and smooth functioning of various industries

and human life. As they are derived out of petroleum, their prices tend to

move in line with that of petroleum. Here in this report, we detail about

the production and trade scenario of various petrochemicals by India.

Also, the trend in domestic and international prices of petrochemicals is

discussed. Further, brief update on petrochemicals industry in India amid

Covid-19 is detailed.

Market structure

The major petrochemicals industry in India is broadly divided into 3

segments: basic major petrochemicals (second largest segment),

intermediates (the largest segment) and other petro-based chemicals (the

smallest segment) which are explained in the report.

Chart 1: Trend in production of major petrochemicals in India (million

tonnes)

Source: Department of Chemicals and Petrochemicals

During the last 5 years, the basic major petrochemicals segment has

grown at a fastest pace of 4.9% CAGR compared to the other two

segments of the industry. This has increased the share of basic major

petrochemicals segment in the total major petrochemicals industry to

43.4% in FY19 compared to its share of 41.7% in FY15. The intermediates

2.0 2.2 2.2 2.1 2.2

16.8 18.7 18.7 19.1 19.1

13.4 14.9 15.5 15.7 16.3

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Other Petro-Based Chemicals Intermediates Basic Major Petrochemicals

July xx, 2019 I Industry Research June 25, 2020 | Industry Research Petrochemicals Industry

Contact: Madan Sabnavis Chief Economist [email protected] 91-22-6837 4433 Author Bhagyashree C. Bhati Deputy Manager – Industry Research [email protected] 91-11-4533 3306

Mradul Mishra (Media Contact) [email protected] 91-22-6837 4424

Disclaimer: This report is prepared by CARE Ratings Ltd. CARE Ratings has taken utmost care to ensure accuracy and objectivity while developing this report based on information available in public domain. However, neither the accuracy nor completeness of information contained in this report is guaranteed. CARE Ratings is not responsible for any errors or omissions in analysis/inferences/views or for results obtained from the use of information contained in this report and especially states that CARE Ratings has no financial liability whatsoever to the user of this report.

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Industry Research I Petrochemicals

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segment and other petro-based chemicals segment grew at a slower CAGR of 3.2% and 2.8%, respectively, during these

years. Resultantly, the share of intermediates segment contracted to 50.8% in FY19 from 52% in FY15 and that of other

petro-based chemicals segment reduced to 5.8% in FY19 from 6.1% in FY15.

Overall, the major petrochemicals industry production rose at a CAGR of 3.9% to 37.5 million tonnes in FY19 from 32.2

million tonnes in FY15.

A. Basic major petrochemicals

Basic major petrochemicals are the raw materials used for production of finished goods that can be utilised for final

consumption and intermediates are the inputs that go in the manufacturing of basic major petrochemicals. For example – i.

Fibre intermediates are used to make synthetic fibres which, in turn, are utilised to produce textiles. ii. Propylene is used as

feedstock to make polypropylene which finds its application in packaging, automotives, consumer products like furniture,

appliances etc.

Table 1: Production of Basic Major Petrochemicals in 2018-19 (‘000 tonnes)

I. Synthetic Fibres/Yarn II. Polymers III. Synthetic Rubber

1. Polyester Filament Yarn (PFY) ($) 2316

1. Linear Low Density Polyethylene

(LLDPE) 1581

1. Styrene Butadiene Rubber

(SBR) 229

2. Nylon Filament Yarn (NFY) ($$) 47 2.High Density Polyethylene (HDPE) 1598

2. Poly Butadiene Rubber

(PBR) 122

3. Nylon Industrial (NIY) ($$) 110 3. Low Density Polyethylene 193 3. Nitrile Butadiene Rubber 0

4. Polypropylene Filament Yarn

(PPFY) ($$) 2 4. Polyestyrene 293 4. Ethyl Vinyl Acetate (EVA) 0

5. Acrylic Fibre (Inc. Dry Spun) (AF) 99 5. Polypropylene 4779

6. Polyster Stable Fibre (PSF) 931 6. Poly Vinyl Chloride (PVC) 1488

7. Polypropylene Satple Fibre 21 7. Expandable Polystyrene (EX-PS) 108

8. Polyester Staple Fibrefil (PSFF) 53

9. Ployester Industrial Yarn (PIY) 15

10. Elastomeric/ Spandex Filament

Yarn 7

Total Synthetic Fibres/Yarn 3,601 Total Polymers 10,041 Total Synthetic Rubber 351

% share 22.1% 61.7% 2.2%

IV. Synthetic Detergent Intermediates V. Performance Plastic

1. Linear Alkyl Benzene (LAB) 455 1. ABS Resin 148

2. Ethylene Oxide 232 2. Nylon-6 & Nylon 66 22

3. Polymethyl Methacrylate (PMMA) 0

4. Styrene Acrylonitrile (SAN) 132

5. PET Chips/Polyester Chips 1271

6. PTFE (TEFLON) 16

Total Synthetic Detergent Intermediates 687 Total Performance Plastic 1,589

% share 4.2% 9.8%

Total Basic Major Petrochemicals (I+II+III+IV+V) 16,269



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Synthetic fibres/yarn

Synthetic fibre is artificial fibre or man-made fibre made completely from chemical substances or petrochemicals. It

comprises small unit or polymer which is created from many repeating units that are called monomers. Monomer (a small

molecule) is a chemical substance whose basic molecules can join together to form polymers. Some common synthetic

fibres include polyester, rayon, nylon, acrylic and spandex. These fibres are used to produce 100% non-cotton fabrics and

blended fabrics which, in turn, are used in readymade garments, home textiles and other industrial textiles.

Polymers

Polymer is a chemical compound with large molecules made of many smaller molecules of the same kind. It is a very large,

chain-like molecule made up of monomers. Some of the common varieties of polymer comprise polypropylene, Linear Low

Density Polyethylene (LLDPE), High Density Polyethylene (HDPE), Poly Vinyl Chloride (PVC), etc. Polymers are used in

packaging, textiles, plastics, auto parts among others.

Synthetic rubber

Synthetic rubber is made from petrochemical feed stocks and is artificial in nature. Synthetic rubbers are of different

chemical types and they have their own characteristics and benefits. They find their application in making of tyres,

automotive hoses, cable insulation, seals etc.

Synthetic detergent intermediates and performance plastic

Synthetic detergent intermediates are the chemicals used as an intermediate in the production or manufacture of

surfactants or detergents. For example, Linear Alkyl Benzene (LAB) is generally used in making of detergents that can be

used for household and industrial purpose. Performance plastic that includes PET chips/polyesters chips finds their

application in textiles industry and PTFE (TEFLON) is used to coat dental fillings, to make non-stick cooking utensils,

windscreen wipers etc.

B. Intermediates

Fibre intermediates are raw materials for polyester and textile industries and also finds its application in industrial

chemicals. Olefins and aromatics are building blocks for other chemicals, fibres among others. They act as intermediates

that are required to produce a variety of products of everyday use.

Table 2: Production of Intermediates in 2018-19 (‘000 tonnes)

I. Fibre Intermediates II. Building Blocks

1. Acrylonitrile (ACN) 0 a. Olefins b. Aromatics

2. Caprolactum 93 1. Ethylene 3832 1. Benzene 1415

3. Mono Ethylene Glycol (MEG) 1160 2. Propylene 4640 2. Toluene 141

4. Purified Terephthalic Acid 3405 3. Butadiene 386 3. Mixed Xylene 249

4. Orthoxylene 406

5. Paraxylene 3332

Total Olefins 8,857 Total Aromatics 5,543

Total Fibre Intermediates 4,657 Total Building Blocks (a+b) 14,400

% share 24.4% 75.6%

Total Intermediates (I+II) 19,057



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C. Other petro-based chemicals

In addition to the above segments, other petro-based chemicals segment also forms a part of the total major

petrochemicals production. The share of this segment however is very small compared to the other two segments

discussed above. The major petro-chemicals produced under this head include Vinyl Chloride Monomer (VCM), C4-

Raffinate, Ethylene Dichloride (By Product) and Phthalic Anhydride (PAN). These chemicals are used are as raw materials

for making materials that finds their usage in finished products. For example, VCM is primarily used to make polyvinyl

chloride (PVC) which has its application in products like PVC pipes, window frames, wire and cable insulation, floor and wall

coverings etc.

Table 3: Production of Other Petro-Based Chemicals in 2018-19 (‘000 tonnes)

Other Petro-Based Chemicals

1. Butanol 22 10. Phthalic Anhydride (PAN) 275

2. C4-Raffinate 380 11. Propylene Oxide (PO) 35

3. Di-Ethylene Glycol 107 12. Propylene Glycol (PG) 19

4. Diacetone Alcohol 4 13. Polyvinyl Acetate Resin 0

5. Ethylene Dichloride (By Product) 339 14. Vinyl Acetate Monomer (VAM) 0

6. 2-Ethyl Hexanol** 59 15. Vinyl Chloride Monomer (vcm) (By Product) 804

7. Iso-Butanol 2 16. Polyol 82

8. Isopropanol (IPA) 58 17. PBT 1

9. Methyl Methacrylate (MMA) 4 18. Polycarbonate 0

Total of 18 chemicals 2,192


Olefinic complexes in India

As already discussed, intermediates are the largest segment of petrochemicals produced in India and forms the basis of

petrochemicals industry. Of the intermediates, olefins accounted for the major share of 46.5% during the year 2018-19.

The olefinic cracker complexes in India have a combined ethylene capacity of 7.1 million tonnes which include naphtha

crackers, natural gas crackers, dual feed crackers and off gas crackers as can be seen in the table 4 below. The increased

capacity stands at 7.3 million tonnes as on 11 March 2020.

Table 4: Olefinic complexes in India

Cracker type

Ethylene capacity ('000

tonnes)

Naphtha crackers 2,562

Natural gas crackers 1,671

Dual feed crackers 1,313

Off gas cracker 1,500

Total 7,047

Source: Department of Chemicals & Petrochemicals

It can be seen that naphtha is the major feedstock used among all the crackers mentioned as naphtha crackers have a

capacity of 2.6 million tonnes. This is followed by natural gas crackers with a capacity of 1.7 million tonnes, off gas cracker

with a capacity of 1.5 million tonnes and dual feed crackers with a capacity of 1.3 million tonnes. It is to be noted that the

cracking yield of ethylene is the highest when feedstock natural gas- ethane is used, followed by natural gas- propane and

then naphtha.


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Trend in major petrochemicals trade by India

It can be seen from the table 4 below that India has been a net-importer in all the 3 segments of major petrochemicals

except for intermediates segment during FY18 when exports exceeded imports by 0.7 million tonnes.

Table 5: Trend in exports-imports of major petrochemicals

Exports FY14 FY15 FY16 FY17 FY18 CAGR

Basic Major Petrochemicals (million tonnes) 2.6 2.3 2.7 3.0 3.3 5.9

Exports as % of production 19.5 16.8 18.4 19.1 21.0

Intermediates (million tonnes) 2.0 2.0 2.4 2.2 3.9 18.6


Other Petro-Based Chemicals (million tonnes) 0.1 0.1 0.1 0.1 0.2 19.1


Total exports of major petrochemicals (million tonnes) 4.7 4.4 5.3 5.3 7.4 12.1


Imports FY14 FY15 FY16 FY17 FY18 CAGR

Basic Major Petrochemicals (million tonnes) 4.3 5.1 5.7 5.9 6.4 10.5

Imports as % of consumption 28.5 31.2 31.8 32.1 34.1

Intermediates (million tonnes) 3.0 3.3 3.2 3.5 3.2 1.9


Other Petro-Based Chemicals (million tonnes) 2.2 2.4 2.7 2.7 3.3 10.2


Total imports of major petrochemicals (million tonnes) 9.5 10.7 11.7 12.1 12.8 7.9



Nevertheless, the overall major petrochemical exports grew at a faster CAGR of 12.1% compared with imports that

increased at a CAGR of 7.9% during the period FY14 to FY18. This was mainly on account of exports from intermediates and

other-petro based chemicals segment that rose at a higher CAGR of 18.6% and 19.1%, respectively, compared with their

imports. The inbound shipments of intermediates increased at a CAGR of 1.9% and that of other petro-based chemicals

grew at 10.2% CAGR. The exports of basic major petrochemicals however rose at a slower 5.9% CAGR compared to imports

that increased at a CAGR of 10.5%.

It is to be noted that the share of exports of major petrochemicals in production which was in the range of 13.5%-15%

during FY14 to FY17 expanded to 20.1% during FY18 and the share of imports of major petrochemicals in consumption

increased to 30.4% in FY18 from the range of 26%-28% during FY14 to FY17. Also the above table 4 indicates that India is

highly dependent on imports of other petro-based chemicals segment compared to the other two segments.


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Demand drivers for major petrochemicals industry

Petro-chemical based products are used by us in our day to day activities and have been playing a crucial role in

development and smooth functioning of various industries and human life. To understand this better, the usage of various

petrochemical based products in numerous industries that diverse from construction to computers and electronics is

explained below.

Agriculture

Pesticides, fungicides and herbicides used for protection of plants and crops are products made from petrochemicals.

Other petrochemical based products like Polyvinyl Chloride (PVC) and High Density Polyethylene (HDPE) are used to make

irrigation pipes, rigid sheets. Also, Low Density Polyethylene (LDPE) film/sheet linings are used in lining of various sizes of

ponds for water conservation. Even packaging of agricultural products is difficult without the usage of plastics. Thus,

petrochemical based products are almost used at all stages in agriculture.

Apparels

Apparels are made of natural, man-made and blended fibres. While natural fibre does not involve petrochemicals, blended

and man-made fibres involve the usage of petrochemicals. The common man-made fibres that are based out of

petrochemicals include polyester, nylon, rayon and spandex. Polyester for example is made of key raw materials, Purified

Terephthalic Acid (PTA) and Mono Ethylene Glycol (MEG). Blended yarn is integrating fibres of various lengths, origins,

thickness or colour to prepare yarn. It also helps in reducing the cost by integrating expensive fibres with the not so

expensive ones. The major types of blended yarn in India include polyester/cotton and polyester/viscose yarns. The other

major blended yarn includes cotton/viscose, acrylic/cotton, poly/acrylic, poly/wool among others. Also, synthetic dyes in

various shades are produced using petrochemicals which are applied to apparels.

Automotive uses and transport

The petrochemical products provide the benefit of light weight, design flexibility and durability to automotive bodies and

components. Various petrochemical products find application in transport and automotive uses. For example, synthetic

rubber, a petrochemical based product, is usually used for aircraft and bicycle tyres and also automotive vehicles and

motorcycles. Styrene Butadiene Rubber (SBR), a common synthetic rubber, is used for belts, tyres and hoses as it has great

abrasion resistance and durability. High Density Polyethylene (HDPE) gasoline tanks in automotives help in prevention of

fires as its excellent shape resistance does not allow leak in case of a collision.

Computers and electronics

Petrochemical based plastics have benefitted the computers and electronics industry as well. The LCD flat screens generally

used in televisions and computer monitors involve application of liquid crystalline plastics that uses 65% less electricity

compared to screens with cathode ray tubes. The new refrigerators are insulated with thermal efficient plastic foam with

interiors created of durable, easy to clean plastics. Polystyrene plastic is used in making of refrigerator trays and linings.

Plastics are used in making of cable sheathing and small internal components that are not visible like micro-chips. Polyester

plastic is used in switches and electrical insulation and also polyethylene plastic find its application in electrical insulation

among others.


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Construction

Plastics which are petrochemical based products have changed the construction industry as durability, flexibility, great

strength to weight ratio, cost-effectiveness, rust resistance and low maintenance are the advantages associated with them.

They are used in construction that involves seals, windows, doors, pipes, cables, floor coverings and insulation. PVC and

polyethylene are normally used in making of large pipes for sewage, drainage and potable water and cabling.

Petrochemicals supports making of sealers for concrete. Sealers better the water tightness of concrete which makes it

simple to clean and prevent concrete from damage caused by toxic spills. For example plasticisers that are known as water-

reducing admixture products decreases the volume of water required in concrete mix. Paints used in construction consists

synthetic binders (involves resins like acrylics, vinyl-acrylics, polyesters, epoxy resins etc.) that supports it to stick to

surfaces and impacts paint’s strength, longevity, gloss and flexibility. Also, solvents adjust paint’s viscosity and other

petrochemical based additives modify surface tensions, improve flow and finished appearance among others.

Another petroleum product, asphalt which is a by-product of crude oil refining is used on roads, streets, footpaths, airport

runways, playgrounds etc. Asphalt pavements are considered to be safe, smooth, cost-effective and durable.

Food

Food additives derived from petrochemicals are primarily divided into food flavourings, food colourings and food

preservatives. Food flavourings involve wide usage of petrochemical butyric acid which when converted into butyric esters

develops aroma and taste in food and beverages. Food preservatives like benzoic acid that can be synthesised from

petroleum based intermediates like phthalic anhydride or toluene are generally used in fruit juices and soft drinks.

Glycerine a petrochemical based food additive has a double effect of food flavouring and preservative. Food dyes derived

from petroleum are used to add colour to the food.

Healthcare and cosmetics

Petrochemicals find their usage in healthcare products. For example, ASA or Acetylsalicylic acid forms a vital part of many

over the counter pain medications. Also, petrochemical resins are used in drug purification. Resins and plastics are used to

make artificial limbs and joints. They are also used in medical facilities for storing blood and vaccines, disposable syringes

and other items of medical equipments which are used one time to prevent a person from contagion. Special polymers are

used primarily during cardiac surgery or for auditory and visual stimulators. Petrochemical based products also find their

application in cosmetics. Mineral waxes and synthetic waxes made from petrochemicals are used in creams to provide

thickening and emulsifying properties and are also used in lipsticks and lip balms, baby products, make up, nail care,

skincare, hair care, fragrance and sunscreen among others.

Packaging

Petroleum based plastics finds wide application in packaging. PET plastic is used for plastic bottles that are used for soft

drinks, juice, water which provides the advantage of great resistance to many solvents, clear and smooth surfaces. The

HDPE plastic that has temperature capabilities and higher tensile strength is used for bottles of shampoo, household

cleaners, cereal box liners etc. The LDPE plastic that are used for squeezable bottles are tough, flexible and relative

transparent.

Source: World Petroleum Council and CARE Ratings


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In addition to the above mentioned industries, segments like water storage and supply, sports and leisure, industrial

segment among others also involve wide usage of petrochemical based products that helps in smooth operations of their

businesses.

As discussed earlier, naphtha is a major feedstock used by crackers to make petrochemicals in India which is derived from

crude oil. Thus, the prices of petrochemicals tend to move in line with that of crude oil. Before we begin to discuss the

prices of petrochemicals, let us have a look at the movement in crude oil prices.

Trend in crude oil prices

The Brent crude oil prices had declined by 12.7% y-o-y to USD 61 per barrel during the year FY20. This was due to the US-

China trade war which affected the global economic growth and subdued oil demand. It was despite production cuts

undertaken by OPEC+ group.

Chart 2: Movement in Brent crude oil prices (USD/barrel)

Source: CMIE Note: The prices for June 2020 are up to 20

th June 2020

In the month of March 2020, the crude oil prices plunged by 42.5% to USD 32 per barrel on m-o-m basis and fell to the

lowest level of USD 18 per tonne in April 2020 due to severe spread of coronavirus which affected its demand and lack of

storage facilities for crude oil. Further, oil price war between OPEC and Russia also affected the prices in March 2020. The

prices however improved in the following period on account of moderate pick-up in demand backed by opening up of

economic activities and supply cut efforts by OPEC and its allies.

In the following section, we discuss the trend in various petrochemical prices which will help us understand the influence of

crude oil prices on petrochemical prices to an extent.

Trend in prices of petrochemicals

A. Basic major petrochemical prices

i. Synthetic fibre/yarn prices

During FY19, the prices of PSF and PFY (126 D) rose by 17%-23%. The trend in prices however witnessed a change in FY20 as

the prices saw a steep decline during April 2019-February 2020.

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The prices of PSF declined by 13.5% to Rs.108per kg and that of PFY

(126 D) fell by a sharper 19.2% to Rs.99 per kg during the mentioned

period. Lower raw material prices (PTA and MEG) led to the drop in

prices of PSF and PFY (126 D) varieties which are discussed later in the

report.

Source: Office of Textile Commissioner

ii. Polymer prices

Chart 4: Movement in polymer prices (Rs. per kg)

Source: CMIE Note: The prices for June 2020 are up to 22nd June 2020

The prices of polypropylene hovered around Rs.94-Rs.101 per kg and the prices of LLDPE and HDPE were in the range of

Rs.83-Rs.89 per kg and Rs.100-Rs.114 per kg, respectively, during the period April-November 2018. In the following month

December 2018, the prices of polypropylene, LLDPE and HDPE declined by 7%-12%, respectively, on m-o-m basis. After a

year in December 2019, the prices of polypropylene fell by 7.5% y-o-y to Rs.80 per kg and the prices of LLDPE decreased by

17.9% to Rs.66 per kg and that of HDPE declined by 22.7% to Rs.71 per kg. The prices of LLDPE and HDPE were the lowest

during the month (December 2019) for the period mentioned in the above chart and for polypropylene the price was

lowest at Rs.75 in June 2020 so far. The PVC prices also had remained range bound during FY19 hovering around Rs.76-

Rs.81 per kg. In April 2019, the prices fell to their lowest level of Rs.72 per kg for the mentioned timeframe and post this

price of PVC remained in the scale of Rs.73-Rs.78 per kg.

In the first 6 months of 2020 up to 22 June 2020, the prices of polypropylene, LLDPE and HDPE were range bound and

declined by 13%-14% y-o-y to average at Rs.79 per kg, Rs.69 per kg and Rs.73 per kg, respectively. Demand-supply

disruption caused on account of lockdown due to Covid-19 and weak consumption from user industries like building &

construction, automotives among others impacted the prices. Also lower feedstock price (which is discussed in the report

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FY19 (Apr-Feb) FY20 (Apr-Feb)

PSF PFY (126 D)

Chart 3: PSF and PFY prices (Rs. per kg)


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going ahead) supported the fall in prices of these varieties. Ethylene is used as a feedstock for making both LLDPE and

HDPE while propylene goes in the making of polypropylene. It is to be noted that the prices of LLDPE and HDPE have almost

moved in tandem. The prices of PVC remained in the range of Rs.73-Rs.76 per kg during January-22 June 2020 and

averaged at Rs.75 per kg in this period, marginal decline of 1% y-o-y. The feedstock required for making PVC is VCM; the

trend in prices of VCM is discussed later in the report.

B. Intermediate prices

i. Fibre intermediate prices The primary or key raw materials used to make polyester are Purified Terephthalic Acid (PTA) and Mono Ethylene Glycol

(MEG). During FY20, the domestic prices of PTA declined by 15.4% to Rs.60 per kg and that of MEG fell by a steeper 29% to

Rs.46 per kg.

Chart 5: Movement in PTA and MEG prices (Rs. /kg)

Source: CMIE Note: The prices for June 2020 are up to 16th June 2020

The US-China trade war impacted the prices of these raw materials during the year. In addition to this, excess capacities of

PTA in China kept the prices of PTA under check. Also, higher port inventory of MEG in China affected its prices. India is net

importer of PTA and MEG and thus the demand-supply situation in the international market have a direct influence on the

domestic prices. Moreover, lower crude oil prices during the year exerted pressure on prices of PAT and MEG. The crude oil

prices had declined by 12.7% to USD 61 per barrel during FY20. PTA and MEG are derivatives of crude oil and thus their

prices are influenced by the movement in crude oil prices. Moreover, Covid-19 outbreak impacted the polyester demand in

China (the largest polyester market) which, in turn, has kept the prices of raw materials PTA and MEG under pressure so far

in the year 2020.

Also, demand for apparels continues to remain tepid in the Indian market post lockdown that came into effect from 25

March 2020 due to Covid-19 thus affecting the prices of fibre intermediates. Resultantly, the prices of PTA declined by

22.3% to Rs.44 per kg and that of MEG fell by 10.4% to Rs.38 per kg in April 2020 on m-o-m basis. The prices of PTA and

MEG were the lowest at Rs.43 per kg in May 2020 and at Rs.38 per kg in April 2020, respectively, for the duration

considered in the above chart.

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ii. Building block prices (Olefins and Aromatics)

a. Olefins

Chart 6: Movement in propylene and ethylene prices in USD/tonne (CFR)


th June 2020

During FY20, the international prices of propylene declined by 15% to USD 855 per tonne and that of ethylene fell by a

sharper 29% to USD 769 per tonne. Well supplied markets amid lower demand were the prime reasons that led to the price

fall. Higher capacity additions for ethylene production also weighed on its prices. It is to be noted that the prices of

ethylene were higher than that of propylene for most of the months during FY19. The trend however reversed during FY20

as the prices of propylene were higher than that of ethylene for most of the months in FY20.

Prices of propylene (USD 747 per tonne) and ethylene (USD 609 per tonne) averaged at their lowest levels in March 2020

during the years FY19 and FY20. Post this, the prices of propylene declined by 19.5% to USD 602 per tonne and that of

ethylene fell by a steeper 38.1% to USD 377 per tonne in April 2020. The greater fall in ethylene prices was mainly due to its

higher supply while the supplies of propylene were better balanced and also the commodity sees demand coming in from

segments like packaging, hygiene wear, sanitary, etc. Nevertheless, prices of both the varieties improved by 16%-28%

during May 2020 on a sequential basis while on a yearly basis the prices of propylene declined by 18.5% to USD 696 per

tonne and that of ethylene dropped by a sharper 46.3% to USD 481 per tonne during the month. In the following month

June 2020 (up to 20 June), prices of propylene improved by 5.3% (averaged at USD 733 per tonne) and that of ethylene

spiked by 50.2% (averaged at USD 723 per tonne) m-o-m primarily backed by higher crude oil prices. The prices of these

varieties however were lower by 7%-18% y-o-y. Going ahead, it remains to be seen if the spike in ethylene prices will

sustain.

b. Aromatics

The prices of benzene declined by 21.3% to Rs.62 per kg in FY20 due to higher supplies in the international market and fall

in crude oil prices by 12.7% to USD 61 per barrel during the year. Benzene is a natural constituent of crude oil. Prices of

benzene decreased sequentially for third month in a row in May 2020 witnessing a sharp fall of 28% to Rs.44 per kg on m-o-

m basis and continued to decline in June 2020 as it averaged at Rs.40 per kg (up to 16th June 2020). This was the lowest

benzene price recorded since April 2018 as shown in the above chart.

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Propylene (South Korea) Ethylene (South East Asia)


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Chart 7: Movement in benzene prices (Rs. per kg)


th June 2020

Sluggish demand from user industries like automotive and construction due to lockdowns and low crude oil prices led to

the slowdown in benzene prices. It is to be noted that from the average of USD 61 per barrel during FY20, crude oil prices

have plunged by 52.8% to USD 30 per barrel in May 2020.

iii. Other petro-based chemical prices

Chart 8: Movement in VCM prices in USD/tonne (CFR)


th June 2020

The international VCM prices remained almost flat in FY20 with a marginal fall of 0.3% to average at USD 734 per tonne

during the year. In April 2020, the price of VCM however plummeted by 34.7% to USD 475 on m-o-m basis and continued

to decline by 5.3% to USD 450 per tonne in May 2020. This was primarily on account of sharp slowdown in construction

activities due to lockdown restrictions in many countries which affected the demand for PVC that is used to make pipes,

window frames, vinyl sliding among others. VCM is primarily used to make PVC. Also ethylene which is used as feedstock to

make VCM has seen its prices decline by 38.1% in April 2020 on m-o-m basis. Ethylene and chlorine are the initial

feedstocks that go in the making of VCM.

The trend in VCM prices however reversed in June 2020 (up to 20 June) as the prices averaged higher by 30.1% to USD 586

per tonne influenced by the growth in prices of ethylene.

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13

It can be seen that prices of almost all the petrochemical products discussed were under pressure and fell in the broad

range of 0.3%-29% y-o-y in FY20. Weak demand due to slowdown in global manufacturing amid US-China trade war, well-

supplied markets and lower crude oil prices were the prime factors that impacted the movement in petrochemical prices

during the year. The moderation in prices is likely to continue in FY21 as well due to Covid-19 which is explained in the

following section.

Petrochemicals industry amid Covid-19

India witnessed nation-wide lockdown from 25 March 2020 onwards due to severe spread of Covid-19. This affected the

demand-supply situation of various downstream segments of petrochemicals industry as only the essential sectors were

allowed to operate while the not so essential ones were asked to remain shut initially. Even while restrictions were eased

gradually, demand-supply disruptions continued. Resultantly, the demand for petrochemical products was impacted and

the effect of this was seen in lower petrochemical prices during the 2 months of lockdown April-May 2020 which is shown

in the table below. It can be seen that prices of all the petrochemical products mentioned in the table 6 declined in double-

digits during April-mid June 2020 except for PVC prices which saw a marginal growth of 1.6%.

Table 6: Y-o-Y% change in petrochemical prices during April-mid June 2020

Domestic prices International prices

Polymers Olefins

i. Polypropylene -20.4% i. Propylene -22.3%

ii. LLDPE -13.1% ii. Ethylene -40.6%

iii. HDPE -13.3%

iv. PVC 1.6%

Fibre intermediates Other petro-based chemicals

i. PTA -36.4% i. VCM -30.1%

ii. MEG -19.2%

Aromatics

i. Benzene -13.3% Source: CMIE

It is to be noted that the y-o-y fall in ethylene prices is the steepest at 40.6% during April-mid June 2020. Ethylene prices

have improved sequentially by 27.5% in May 2020 and spiked by another 44.8% in June 2020 (up to 15 June) primarily

backed by higher crude oil prices. However, it remains to be seen if the growth in ethylene prices will continue to sustain

amid Covid-19 disruptions.

Considering the scenario of subdued demand, shortage of storage facilities for finished products and logistics issues many

petrochemical units in India reduced their operation rates in the earlier days of lockdown. Also, disruptions at ports during

lockdown impacted the imports of various petro-based chemicals which, in turn, affected the operations at these units. The

operation rates nevertheless are improving gradually as the restrictions continue to ease.

Also, consumption from downstream industries is expected to improve though at a gradual pace as demand from these

segments will take time to pick up. While demand from packaging, hygiene wear, sanitary is likely to improve or remain

steady, demand from construction and automotives are expected to take a hit. Also, purchase of goods like apparels,

furniture & fixtures, personal products etc. which are not so essential may be postponed as consumers will avoid visiting

shopping areas for some time now. In addition to this, reduced purchasing power of some consumers on account of

lockdown will also delay purchase of not so essential goods and services. Thus subdued consumption from some segments,

in turn, will constrain the demand of petrochemical products by downstream industries. Moreover, labour shortage at


14

some of the downstream industries will also affect production at their end. Resultantly, the petrochemical prices are

expected to remain under check during FY21. Also, the scenario in international market is not expected to be different

which will further impact the prices. The domestic petrochemical product prices do take a cue from the global prices as

petrochemical products used by India are imported as well.

As per the release by the World Bank on 8 June 2020, the world economy is expected to shrink by 5.2% in 2020 due to

Covid-19. This signals slowdown in various industries across the globe. In addition to this, well supplied markets amid weak

demand from downstream segments are also expected to weigh on prices. Considering the demand scenario, some

companies may resort to production cuts in the international market.

Concluding remarks

The prices of almost all the petrochemical products discussed in the report were under pressure and had declined

in the broad range of 0.3%-29% y-o-y in FY20. Weak demand due to slowdown in global manufacturing amid US-

China trade war, well-supplied markets and lower crude oil prices were the prime factors that impacted the

movement in petrochemical prices during the year.

The moderation in prices is likely to continue in FY21 as well given the severe situation of Covid-19. Subdued

demand from downstream industries amid labour issues at their end will affect consumption of petrochemicals.

Also, muted demand scenario in the international market amid well supplied markets is expected to exert pressure

on petrochemical prices.

The y-o-y fall in ethylene prices is the steepest at 40.6% during April-mid June 2020 (USD 518 per tonne) of all the

petrochemical products mentioned in the report. Ethylene prices have improved sequentially by 27.5% in May

2020 to USD 481 per tonne and spiked by another 50.2% in June 2020 (up to 20 June) to USD 723 per tonne

primarily backed by higher crude oil prices. However, it remains to be seen if the growth in prices will continue to

sustain amid Covid-19 disruptions.

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July xx, 2019 I Industry Research June 25, 2020 | Industry ... Jun… · Petrochemicals are downstream hydrocarbons derived from crude oil and natural gas. The downstream process