India has enjoyed record growth in recent years, due largely to a strong inflow of funds from overseas investors eager to get an early foothold in what will inevitably become one of the world's largest economies. An expected slowdown in foreign investment inflows could cause problems for the expansion of the petrochemicals industry, particularly with a slower rate of demand growth for plastics than seen in recent years, with BMI's latest Indian Petrochemicals Report forecasting the closure or consolidation of small, inefficient producers. In 2009, India had combined olefins production capacities of 3.03mn tpa ethylene, 2.87mn tpa propylene and 280,000tpa butadiene. In the polyolefins segment, India has capacities of 720,000tpa high density polyethylene (HDPE), 220,000tpa low density polyethylene (LDPE), 1.19mn tpa linear low density polyethylene (LLDPE), 835,000tpa polyethylene terephthalate (PET), 2.55mn tpa polypropylene (PP), 460,000tpa polystyrene (PS) and 1.53mn tpa polyvinyl chloride (PVC). In other segments, it has 14.83mn tpa ammonia and 665,000tpa methanol. Output is set to accelerate over the next five years as capacity is expanded. By 2014, combined olefins capacities are forecast to reach 15mn tpa, an increase of over 140% compared to 2009. During the same period, polyolefins capacities are set to almost double to 13.71mn tpa. While PVC capacity is set to remain at 1.53mn tpa throughout the period, PE capacities will grow by 170%, due in large part to a trebling of LLDPE capacity, and PP will nearly double. BMI believes that, in the context of global market patterns, the product mix is favourable to the development of an exportoriented petrochemicals industry. Our forecasts are based on delays of up to six months on currently planned projects. Despite the global downturn, Indian petrochemicals consumption is expected to continue to grow throughout FY2009/10 with demand strengthening towards the latter part of the year amid restocking in the packaging sector. Growth in the domestic market has offset the declines in exports. In H1, Reliance Industries Ltd (RIL) reported domestic demand for most petrochemicals was strong with polymers up 25%. Producers also focused on adapting their marketing strategies, such as increasing sales to other emerging markets, raising quality benchmarks and developing niche products. Overall, plants were operating near capacity towards the end of 2009 having recovered from 75-90% operating rates earlier in the year, which should bode well for capacity expansion in the near term. Another factor in favour of Indian producers, as opposed foreign imports, is the immediacy of supply. In an uncertain economic environment producers have run down inventories to minimise losses and placed more importance on rapid market response. Over-capacity and high inventories are major downside risks and producers will be keen to keep a tight market to prevent price volatility. Even when bearing in mind the delays and cancellations, India will host a rapidly expanding petrochemical industry. The Indian government forecasts domestic polymer demand reaching 11mn tonnes in 2015, up from 5.8mn tonnes in 2008. This implies that India will remain a net polymer exporter. However, BMI is doubtful that India will come close to increasing the value of its production from the current US$15-18bn to US$30-35bn by 2012-2014, a level that the Tata Strategic Management Group (TSM) says is necessary to cover the rate of domestic demand growth. By 2013, BMI estimates that per capita polymer consumption will reach 13kg. While relatively modest by international levels, it will be far higher than 4.7kg in 2007, which represented 20% of the global average. Moreover, it will make India the world's third-largest plastics consumer after the US and China.
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