Elite Conference 2015 : Indian Polyester Outlook: Threats & Opportunities Mumbai 19 June 2015 Presented by: Anant Kishore ( ED & CEO )
Preface Indian Polyester Outlook This paper will present current Indian Polyester scenario, Growth, Demand / supply situation, Raw material availability and it s cost impact. Also it will review challenges and opportunities in Indian Polyester sector.
PTA ~ Polyester Value Chain
Crude, Naptha, Px Trend 1500 120 1400 1300 110 1200 1100 1000 900 800 700 Px in $ / Ton Naptha Px Crude Crude / Naptha in $ / Barrel 920 65 100 90 80 70 600 60 500 400 300 350 50 40
Px, PTA Spread 1500.0 1400.0 1300.0 1200.0 1100.0 1000.0 900.0 800.0 700.0 600.0 500.0 Fig. in $ / Ton Px PTA Spread 230.0 220.0 210.0 200.0 190.0 180.0 170.0 160.0 150.0 140.0 130.0 120.0 110.0 100.0 90.0 80.0 70.0 60.0 50.0 40.0 30.0
PTA, MEG, Melt Cost Trend 1500 1400 1300 1200 1100 1000 900 800 700 600 500 Fig. in $ / Tons PTA MEG Melt
Raw Material Scenario
India Px & PTA 7,000 6,000 Px Supply / Demand Fig. in 000 Tons PTA surplus situation 2016!!! 9,000 8,000 7,000 6,000 PTA Supply / Demand Fig. in 000 Tons 5,000 5,000 Production 4,000 3,000 2,000 Production Capacity Total Consumption 4,000 3,000 2,000 1,000 Capacity Total Consumption 1,000 0 2012 2013 2014 2015 2016 2017 Px Capacity Addition Capacity Addition Expected as, 2014 :- 400,000 tons (OMPL) 2015 :- 500,000 tons ( OMPL) 2016 :- 2,250,000 tons ( RIL Jamnagar ) 0 2012 2013 2014 2015 2016 2017 India is still short of PTA till new plant capacity does not come into production. As the antidumping duty on PTA has been provisionally imposed, there is cost input on imports as well as local supplies making it difficult for Polyester producers. PTA cost has gone up & taken away almost 5% of margins from the bottom line. PTA Capacity Addition Capacity Addition Expected as, 2015 :- 1,100,000 tons ( RIL Dahej ) 2016 :- 1,700,000 tons (RIL Dahej, JBF ) 2017 :- 600,00 tons ( JBF )
China vs India ( Px & PTA ) 25,000 Px Supply / Demand Fig. in 000 Tons 50,000 45,000 PTA Supply / Demand Fig. in 000 Tons 20,000 40,000 15,000 10,000 5,000 Production Capacity Total Consumption 35,000 30,000 25,000 20,000 15,000 10,000 5,000 Production Capacity Total Consumption 0 2012 2013 2014 2015 2016 2017 0 2012 2013 2014 2015 2016 2017 Px / PTA / Polyester Capacity Fig. in 000 Tons Px PTA Polyester India China India China India China 2012 2685 8597 4065 23798 5889 43270 2013 2685 9780 4575 32936 6824 48559 2014 3068 12006 4575 38047 7767 53833 2015 4167 12550 6780 46020 8638 56741 2016 5855 13417 8175 47563 8937 60017 2017 5855 13750 8175 47330 9164 62092 China is net importer of Px as it remained the central point of consumption growth. Px imports into China is ever increasing. PTA capacity addition in China still growing. Worldwide, China still dominates PTA pricing dynamics.
Polyester Production & Growth Forecast
India Polyester Production Filament Capacity / Production 6,000 5,000 4,000 Fig. in 000 Tons Filament demand is bottoming out. Almost all Filament production will be for captive use!! Staple Capacity / Production Fig. in 000 Tons 3,000 2,000 1,000 0 2012 2013 2014 2015 2016 2017 PET resin Capacity / Production 2000 Fig. in 000 Tons 1800 1600 1400 1200 1000 800 600 400 200 0 2012 2013 2014 2015 2016 2017 Capacity Production For Polyester, no new capacity addition in pipeline Capacity Production PSF Virgin + Recyclate capacity Virgin Recyclate Total 2012 950 250 1200 2013 950 350 1300 2014 1050 450 1500 2015 1050 550 1600 2016 1100 600 1700 2017 1150 650 1800 Industry utilization of Filament & Fiber is 74~75% for last 2yrs.There is excess capacity in Filament & Fiber. PSF capacity is hampered by the growth of recycled fiber. Recycled fiber is covering almost one third of total fiber capacity. Currently it is 0.37million tons whereas virgin fiber is 1.12 million tons. Recycled product prices are Rs 18 ~ 20/- lower than virgin fiber which takes away the margin of virgin PSF
India Polyester Production Growth Forecast Fig. in 000 Tons 2013 2014 2015 2016 2017 Staple 1,230 1,322 1,415 1531 1654 Filament 2,890 3,105 3,338 3,605 3911 Total 4,120 4,430 4,785 5,257 5,690 Pet Resin 790 968 1,113 1,280 1,408 Fig. in % 2013 2014 2015 2016 2017 Staple 9 7.5 7.0 8.2 8.0 Filament 7 7.5 8.0 8.5 8.0 PET resin 15 20 15 15 10
China vs India ( Polyester Production ) 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 Filament Capacity / Production 0 Fig. in 000 Tons 2012 2013 2014 2015 2016 2017 PET resin Capacity / Production Fig. in 000 Tons 2012 2013 2014 2015 2016 2017 Capacity Production Capacity Production 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 Staple Capacity / Production 0 Fig. in 000 Tons 2012 2013 2014 2015 2016 2017 Capacity Production Filament Staple Fiber PET India China India China India China 2012 2700 18645 1124 9295 720 4670 2013 2890 19873 1230 9748 790 5332 2014 3077 20425 1325 10188 880 5781 2015 3365 21881 1400 10655 982 5705 2016 3667 23755 1590 11206 1250 5885 2017 3970 25339 1720 11877 1362 6223
Reversal of Cotton
Reversal of Cotton Initial Forecast by USDA shows that world cotton consumption will exceed production for first time in 6yrs. India may mirror these trend. Cotton prices are down from record > 2$/lb to 70 cents / lb this year signaling cotton prices are going to be all time low. Farmers have little interest in Cotton crop cultivation. Will be switching over to alternate cash crops this year. As a result, major cotton producing countries like, USA, China, India, Pakistan & Australia are going to reduce area for cotton cultivation. World Cotton Production down by 10% this year World Cotton area is projected to decrease by 7% next year to 31.2 million hectares. Will this s cenario pave way for Polyester growth?
Challenges
Challenges With Regulatory Framework? 1 Higher Excise Duty Period Basic ED (%) Dec 2008 - Jun 2009 4 Jul 2009 - Feb 2010 8 Mar 2010 - Mar 2012 10 March 17, 2012 onwards 12 March 2015 onwards 12.5 Capacity utilisation of Polyester Industry has come down due to high incidence of Excise Duty on the Products 2 Inverted Custom Duty Polyester Chain Custom Duty (%) Present After ADD PX 0 0 PTA 5 10-16% MEG 5 5 PET Chips 5 5 PSF/PFY 5 5 After Anti-dumping on PTA there is inverted Custom Duty on Polyester. No industry can survive if incidence of inverted duty structure is there.
Challenges With Infrastructure / Other issues? 1 Higher Energy Cost Polyester Industry s major cost constituents are: Raw Materials 75% (Incl. Process Chemicals) Power & Fuel cost 10 % More than 85% cost is going into Raw Materials & Fuels. Energy Costs are still high. 2 Logistics Set up Polyester products are moving mainly by road. But the essential infrastructures like, Roads, Ports & even Railways are very poor. The products movement time has gone up & so is the logistics cost.
Converting Challenges Into Opportunities
Converting Challenges Into Opportunities? Higher Incidence of Duties / Inverted Custom Duty Fiber neutrality policy / Excise duties at par with Cotton yarn industry. Year 2008 saw huge investments when excise duty was at 4%. Reduce Excise duty on Polyester & increase in Cotton yarn ( which is Zero presently ). This will also aid Govt. in getting higher revenue. Excise duty on recycled fiber should be treated at par with virgin.they would still get advantage of cheaper raw material so is their selling price based on quality. Govt. has already imposed 2/6% duty on them.
Converting Challenges Into Opportunities? Higher Incidence of Duties / Inverted Custom Duty To bring down import duty on PTA / MEG to zero With inverted duty structure in place, it is very difficult for Polyester industry to survive. OVERALL THERE SHOULD BE CONDUCIVE GROWTH POLICY FOR THE INDUSTRY TO GROW
Converting Challenges Into Opportunities? High Energy Cost Another area of concern is Indian Coal mines. Coal quality is very poor ( Low GCV ) & due to shortage of good Coal, the cost per GCV has gone up by 150% in last 6 months. Power tariffs from all the SEB s has gone up. Now with reduced Crude prices, should not the power cost come down? Need Debate Even Captive power cost based on Gas / Coal has gone up almost 150% in last one year. Power and Fuel constitute major portion of production cost. It is prime responsibility of regulatory bodies to bring down energy cost to aid in lower production cost thereby supporting downstream processes
Converting Challenges Into Opportunities? Logistics Set Up Logistic Cost is another big area of concern Polyester products are moving mainly by road. Due to poor infrastructure, Roads / Ports & even Railways, the movement time has gone up & so is the cost.
In Nut Shell!! Oil prices going to stabilize at lower levels by 2015-16 supporting higher growth. As a result PTA margins are likely to improve. This will also help improving margins in Polyester. Going Forward, India will be PTA surplus by 2016 ensuring availability of PTA. Imports of PTA will continue for sometime till antidumping duty on local PTA is withdrawn. India will witness some growth in value added products with higher margin. Old capacities may shut down. Polyester sector margins may improve slightly due to better utilization of capacity. No New capacity is likely to be come up in immediate future. There will be some limited growth in recycled fiber capacity. POY & PET margins will be under pressure due to excess capacity in India, but should improve after consolidation and better utilization. Last but not least. Polyester Industry has become low margin Industry in India. The cost of production has gone up. More challenges are coming on way due to poor infrastructure, high energy cost, non conducive govt. policies etc The need of the hour is to revisit policies and make them more growth friendly, create good infrastructure to reduce logistics costs & energy Cost.