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 export-oriented 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.