Meltdown, raw materials scarcity cripple plastic industry

By Aparajita Gupta, Kolkata, Jan 1 : Low demand for plastic products due to global economic meltdown, coupled with scarcity of raw materials, has hit the plastic industry hard.

"Most of the plastic units are facing problems and many of them have even shut down due to the economic downturn and non-availability of raw materials with primary suppliers," K.K. Seksaria, president of Indian Plastics Federation (IPF), told IANS.

There are more than 55,000 manufacturing units across India with a workforce of around 3.7 million, but many of them have either stopped or cut down production.

Though not in significant quantity, India's plastic industry exports finished products to the US, Bangladesh, Sri Lanka, Mauritius and European countries, Seksaria said.

Demand for plastic products in sectors like automobile component-manufacturing and white goods fell sharply, while that in packaging and consumer product processors sectors did not drop much, he said.

The primary raw material producers are trying to get some undue financial advantages from the government, said Seksaria, adding: "That's why they are creating an artificial supply gap in the market."

"Maybe, they want the government to increase anti-dumping duty and customs duty on raw materials," he said.

The IPF has 850 members across the country. The total plastic processed in India is around six million tonnes per annum.

The three major companies supplying primary raw materials to the industry are Haldia Petrochemical Ltd (HPL), Reliance Industries Ltd and GAIL India Ltd.

HPL ruled out any supply gap, saying it had supplied record volume of 78 kilo tonnes of polyethylene and polypropylene in the domestic market in November 2008.

"This is the highest ever monthly volume supplies to domestic processors since our inception," the company said in a statement.

"Plastic processors kept reducing their inventories of both raw materials and finished products to virtually 'zero' level as they witnessed unprecedented fall in prices, and also suffered demand shrinkage during July-October 2008," it said.

The company added: "They (plastic units) suddenly wanted to build up inventory from mid-November as they felt bottoming out of price and there was a deluge of orders with HPL and it has not been physically possible for any company to match supply."

Asked about HPL's claims, Seksaria said: "We bought less amount of raw materials during that period (July-October) because we already had an inventory of finished products and as crude price was falling we had to sell those finished products at low prices."

Polymer prices also fell with the fall in crude oil prices.

HPL said it also corrected raw material price downwards from a peak of Rs.95 per kg to below Rs.40 per kg in line with the international price trend.

But according to the federation president: "HPL reduced the price till October but now again the price has started spiralling. At present, the rate is Rs.52-55 per kg for various grades of raw materials if one purchases directly from them."

"But if one purchases from the open market it is around Rs.80-100 per kg for various grades due to artificial scarcity of raw material," Seksaria said.

HPL supplied 13 kilo tonnes of polymer in West Bengal in November, which has been 46 percent higher than the average of July-Octber sales, the company statement said.

"They have supplied 13 kilo tonnes, but the actual requirement of raw material was much higher around 35 kilo tonnes," Seksaria said.

Reliance Industries, another major supplier, did not respond when contacted.

Earlier, the All India Plastics Manufacturers' Association (AIPMA), the 63-years old body of the plastics manufacturers in India, said plastic industry was hit hard by the slowdown.

"We are keen on equitable distribution of raw materials," Seksaria said.