Indian petrochemical industry – The growth continues

Indian petrochemical industry – The growth continues

11:22 AM, 15th July 2017
Petrochemical industry contributes about 30 percent to India's chemical industry which is likely to become $250 billion by 2020. © Dow Jones & Company Inc
Petrochemical industry contributes about 30 percent to India's chemical industry which is likely to become $250 billion by 2020. © Dow Jones & Company Inc

The growth story of the Indian economy is incomplete without mentioning the role that petrochemical industry plays in this journey.  With new joint ventures and expansions in place, this rapidly growing industry is all set to take the burgeoning global demand in its stride. 

By Debarati Das

Petrochemicals play a vital role in shouldering the growth of any economy by being the backbone to some of the crucial industries including agriculture, infrastructure, healthcare, textiles and consumer durables. The exuberant growth of the Indian economy cannot be spoken without mentioning the role that petrochemical industry has and is expected to play in this journey.

India is the sixth largest manufacturing country in the world exemplifying its spot in the global economic landscape. India’s economy grew faster in 2015-16 than earlier estimated and with that the IMF expects the Indian economy to grow at 7.2 percent in 2017–18 while the World Bank has projected a GDP growth of 7.6 percent in 2017–18 and 7.8 percent in 2018–19. To top it all, there is an aura of enthusiasm in the market due to the various reforms that the country is undergoing currently which further indicates an epoch of high growth in the near future.

Petrochemical industry has its own growth story to tell. This industry contributes about 30 percent to India's chemical industry which is likely to become $250 billion by 2020. In this journey, the petrochemicals industry itself is expected to reach $100 billion by 2020 growing at a compounded annual growth rate (CAGR) of about 14 percent, according to a study by the Associated Chambers of Commerce and Industry of India (ASSOCHAM).

Being the third largest energy consumer in the world after US and China, the domestic oil demand alone is likely to climb to 500 million tonnes by 2040. However, the country’s current domestic refining capacity is only 230-235 million tonnes and hence, the main focus of the Indian petrochemical industry right now is to plan capacity addition, not just to meet its domestic demand but also gear up for the demand arising from export market.

One major progress in this area came in June this year when three Indian public sector oil companies, Indian Oil Corp. Ltd (IOC), Bharat Petroleum Corp. Ltd (BPCL) and Hindustan Petroleum Corp. Ltd (HPCL), joined hands to build one of the world’s largest integrated refinery-cum-petrochemicals complexes in Maharashtra.

This 60 million metric tonnes per annum (MMTPA) west coast refinery-cum-petrochemicals complex will be built at an estimated cost of $40 billion, and will be commissioned by 2022. The refinery is designed to produce Euro-VI and above-grade transportation fuels and will have in-built flexibility for processing a wide spectrum of light and heavy crude oil grades, utilizing various blending techniques.

In addition, the government has also finalised another 55 million tonnes of brownfield refinery expansion at existing refineries along with a new 9 million tonnes unit planned at Barmer, Rajasthan keeping in mind the future fuel demand and the export potential of the country.

With the rising buying capacity, the demand for petrochemical is also on a roll. Petrochemical products cover the entire spectrum of daily use items ranging from clothing, housing, construction, furniture, automobiles, household items, toys, agriculture, horticulture, irrigation, and packaging to medical appliances. This has given polymers the much needed impetus in the country. While on one had the per capita consumption of polymer has reached its saturation level in US, India is expected to maintain high economic growth propelling India’s polymer consumption.

On the other hand, globally, several regions, such as Northeast Asia, Southeast Asia, the Middle East, and India are expected to start investing in new ethylene capacity to meet the rising demand for ethylene. 

The Asian polyethylene (PE) markets which witnessed a generally stable price trend throughout 2016 is in anticipation on whether the price stability can be replicated in 2017 amid mounting pressure from additional global capacities.

According to a report by the Chemicals & Petrochemicals Manufacturers’ Association (CPMA), India, a slow-moving consumer goods sector, and persistent weak downstream demand for finished goods in the first half of 2017 is expected to exert downward pressure on polymer prices in the region. In the meantime, generally weak Southeast Asian currencies are likely to continue to hamper imports in 2017. India may turn into a net exporter of polyethylene (PE) in the second half of 2017, as the country will welcome hefty new capacities in the western state of Gujarat.

With this, India will target China, Turkey, Africa and Southeast Asia as its possible export markets as the country’s domestic PE capacity will increase by 2.01m tonnes by mid-year. The country has always been an importer of the polymer until late last year. But by the second half of the year, India’s PE capacity will have outpaced domestic demand, making exports necessary for its local producers, said CPMA.

Over the years, the Indian petrochemical industry has witnessed major demand from key application industries like packaging, construction and automobiles. This tread is likely to continue but with much more vigour. For the petrochemical industry, the opportunities are huge if the demand encourages domestic manufacturing.

To make the most of this exuberant growth, various state-owned energy companies are making major investments to boost their petrochemical activities. Others are working towards capacity expansions to fill the gap between domestic demand and supply. Overall, a wind of optimism is blowing through the Indian petrochemical industry and the growth in GDP and industrial output is expected to be higher this year

However, there are areas which are keeping the industry in anticipation:

The GST Bill: Anticipated as a major economic event to happen in the Indian economy, the GST regime in India is expected to transform India into a unified market with a single tax structure. Although the industry is maintaining a positive outlook towards GST, the ramifications will only be fully understood once it is implemented. Most investors are looking forward to the “ease of doing business” in India with this Bill. However, many investors are in a wait and watch mode hoping that the Bill will be implemented without further procrastination giving clarity to the situation. 

Infrastructure improvement:  One of the major setbacks for foreign investments has always been the deplorable state of infrastructure in the country. Major infrastructure projects are in the pipeline to attract foreign companies to establish factories in India. The government has set a target of constructing 15,000 km of highways in the next financial year, road building targets of 40 km per day, domestic waterways (inland& coastal) projects, line doubling and capacity expansion projects of railways, etc to ease industrial logistics in the country. All that remains is the actual completion of these ambitious projects.

National Chemical Policy: Yet another revolution that the industry has forever been waiting for is the National Chemical Policy which intends to provide enabling environment, infrastructure and duty structure for the chemical industry in the country. It will place a framework for promoting safety & security and R&D in the sector helping the industry to grow and become more competitive.

Foreign investment: This whole excitement around the idea of ‘Growing’ and ‘Reforming’ India has not just enticed the Indian businesses but has also enthused foreign investors to make India their investment destination with renewed expectations. According to CPMA, overseas investment in India is likely to surge to a record number accelerating India’s status as an island of economic stability. Invest India, the government’s official investment promotion and facilitation agency, is shepherding proposals worth $62 billion spanning across 295 deals.

Gearing up for growth: To make investment easy, the Central government is looking into the Petroleum, Chemical and Petrochemical Investment Region (PCPIR) project, which has been in a limbo since it was first unveiled in 2007, and plans to revive the same. The centre also plans to induce skilled workforce into the industry to handle the growth in the future with over 100 Central Institute of Plastics Engineering and Technology (CIPET). The government envisages the need for over 4 lakh skilled plastic engineers in the country while the availability is hardly 45,000 per year. At present, there are only 23 CIPETs in the country.

Capacity expansion:  In order to make the most of the growth that is currently happening, most companies are gearing up their capabilities with expansion plans, technology transfers etc. ONGC Petro additions Limited (OPaL) started its two HDPE/LLDPE swing units with nameplate capacities of 360,000 tonnes/year each and a 340,000 tonnes/year stand-alone HDPE facility this year. Reliance Industries too is expected to start-up its LDPE and LLDPE/HDPE units with a combined capacity of 1.1m tonnes/year in the first half of 2017.

Regulation Upgradation: Global regulations and sustainability parameters has had a major impact on the Indian industry gearing them to meet various global regulations to be in sync and face the global competition. For instance, various oil marketing companies (OMCs) will be investing Rs 90,000 crore by 2020 on fuel upgradation programme to meet the BS-VI specifications.

The fuel upgradation programme took off with the notification of vehicular emission norms for new vehicles in 1991. The industry is working towards BS-IV fuel with 50 ppm sulphur parameters. However, in 2016 the government decided to meet the international best practices to leapfrog directly to BS-VI norms by skipping BS-V altogether by April 1, 2020 giving the industry to fast forward its milestones.

Challenges can be seen as a hurdle or an opportunity. However, the pace at which the Indian petrochemical industry is growing, the only way to ascertain its permanent status in the global market is to grab every challenge with both hands and make them the stepping stones to growth.

© Chemical Today Magazine

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