The invasion, in the second week now, has disrupted Ukraine’s energy supply as Russian artillery has severely damaged infrastructure. On the other hand, Western powers led by the United States imposed sanctions on Russia, which affected 11.6% of crude oil and 14.7% of the world’s natural gas supply. Russia is the third largest crude oil producer and the second largest natural gas producer in the world.
After crude oil and natural gas, prices for naphtha, a key ingredient in polymer production, have also soared to currently trade at $1,192 a ton, up 34% from $889 a ton. ton before the start of the Russian invasion two weeks ago. The surge in naphtha prices prompted Indian polymer producers to raise prices for their products by Rs 6-10 per kg in the past two weeks, following an increase of $100-200 per ton in international markets.
“India is not immune to global developments. The sharp increase in crude oil prices mainly due to supply disruptions due to the ongoing Russian-Ukrainian conflict is having a profound impact on India’s petrochemical industry. Margins for primary polymer producers have come under severe pressure. We are incurring losses,” said a senior official of one of the country’s largest polymer-producing companies, adding, “Part of the increase in the price of crude oil is already being passed on to the process industry. But it’s not enough. Despite a drop in crude oil prices from its recent high, we will need to increase polymer prices by at least Rs 5-6 per kg more to get a break from high input costs. If the price of crude oil rebounds, we will have to raise our polymer prices from the high level by a similar amount. »
Primary producers can only delay their price increase if the price of crude oil drops significantly and stabilizes at the level of $80-85 per barrel and naphtha at $850-900 per ton, which may not happen as well. quickly under the current circumstances where the Russia- Ukraine conflict is taking a new turn every moment, thus posing global uncertainty over supply and the economy.
According to the same official, average polymer prices are currently quoted between US$1,500 and US$1,550 per tonne, which must rise to US$1,700-1,750 per tonne for primary producers to compensate for the increase in oil prices. raw.
In a rapid shift in business dynamics, Indian producers of primary polymers have stopped extending “credits” to processors and therefore requiring upfront payment for booking plastic inputs. During leisure days, primary producers offered two to three weeks of “credit” to downstream processors, depending on their credibility.
While processors reserve inputs in expectation of further price increases, producers of primary polymers discourage bulk reservations for higher realization.
The downstream industry, however, is facing large numbers of order cancellations as consumers postpone purchases due to sudden price increases. For the downstream sector as well, passing on the rising cost of inputs to consumers has been a big challenge.
“The downstream industry is struggling with orders as the majority of early bookings are currently being cancelled, due to a sharp increase in prices. We have passed on some of the cost of inputs to consumers. “Until the prices of inputs and final finished products stabilize, the downstream industry will continue to feel pressure on margins,” said Surendra Sharda, director of Accura. Polyplast Pvt Ltd, a BLP pipe manufacturer based in Ahmedabad.
For Accura, the key input i.e. polyvinyl chloride (PVC) resin prices have risen to Rs 142 per kg now from Rs 134 per kg nearly two weeks ago.
“Normally, the demand for finished products slows down at least temporarily, in case producers revise prices upwards. We had seen him as recently as November. Therefore, we expect the same slowdown in demand to repeat now as well, which will be felt in the coming days,” Sharda said.
DILIP KUMAR JAI
Editor
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