Indian Petrochemical Industry to Bear Rs. 8500 Cr Loss Due to Lockdown: ChemAnalyst
by Chem Analyst Chemical Database PriceThe pandemic has dragged
India’s petrochemical industry into extreme uncertainty as the demand outlook
seems bearish even if lockdown restrictions are eased. Several downstream
industries are likely to remain shut or work with less labor at reduced rates
which would mean lesser consumption of petrochemicals and inventory pileups if
plants run at full capacities. As a result, several players declared production
cuts or temporary halts including both state-run and private players like
Indian Oil Corporation (IOC), Bharat Petroleum Corp Ltd (BPCL), and Haldia
Petrochemical Ltd (HPL). As per the sources, sensing the demand slowdown, IOC
is planning to shut down its 800 KTPA cracker located at Panipat, Haryana. HPL
has also closed its steam cracker and polymer units fearing rise in inventory
levels. BPCL has also reported that the company has reduced the run rates of
the refinery-linked petrochemical units in Kochi and Mumbai to less than a
third. IOC is expected to be hardest hit by inventory losses as refinery
operating conditions remained dull in Q4. Although overall performance of
Reliance Industries Ltd (RIL) is likely to stay less affected due to continuous
expansions in its consumer businesses, telecom and retail, refining performance
in Q4 may show a decline due to lower refining margins. It is expected that
BPCL may report a net loss of INR 552 Crore in Q4, while Indian Oil may incur
higher losses at INR 2380 Crore. HPCL will witness loss of about INR 630 Crore
in the final quarter of FY20 due to huge decline in marketing volumes.
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Petrochemical industry being
highly dependent on crude, might not incur revenue loss to the extent of that
of feedstocks, however, the projected figure are close to INR 8500 cr. for the
industry. As the nature of work is mostly contractual, the industry is set to
downsize nearly 140-150 thousand workforces in the current fiscal, to counter
the impact of revenue-loss.
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Crude benchmark prices have
nosedived to 18-year low with US WTI reaching negative for the first time in 40
years. While storage capacities are already overwhelmed with excess supply,
sellers are now facing an intense pressure to sell-off their stocks at the
lowest purchase price agreed upon by the buyer. Fall in feedstock price to such
unprecedented low is consequential to the ugly outbreak of the pandemic
COVID-19 which has dragged demand for the commodity to a near-zero level. This
situation has been further aggravated by the price war between Saudi Arabia and
Russia who have disagreed upon production cuts, leading to an over-supply in
the international market.
Although this drop in crude
oil prices would have little impact in stimulating demand in the short-run,
downstream industries such as refining, petrochemicals, chemicals etc., might
enjoy a temporary peak margin in their business operation during the current
cycle. The downstream companies have an option to strategically and in an agile
manner, shift their production lines to change product-mix as per the current
market demand and capture higher margins resulting from spiked price
differential between feedstock and finished products. But this position would
be possible not before Q1 2021 whereby the recovery in demand is anticipated to
take-on a U-shaped movement thereafter.
Amidst such crude price
volatility and business uncertainty, Indian business are not prepared well
enough to take on a sustained hit to their earnings and might look at options
of downsizing. Economists and industry analysts are predicting massive
unemployment during the year with highest ever layoff rates, going up to 30 per
cent. Either the Indian government needs to collectively increase spending on
providing a minimum wage to the workers or persuade employers to detest any
de-staffing until the effect of pandemic subsides. Either way, it is high time
that some sort of remedial measure be in place to tackle the gradually
unfolding challenges to the Indian economy and to have a contingent plan to save
the businesses from bankruptcy. Moreover, the plight of the badly hit Indian
economy could be understood from the fact that it necessitated liquidity
injection by the government in the form of “Atmanirbhar Bharat Abhiyan”
offering a stimulus package of INR 20 lakh crore to the economy. This is a huge
infusion almost to the tune of 10 percent of India’s GDP, a percentage high for
any country to save and generate employment, create value and provide a safety
net for the industries. But it is anticipated that even with this spending, it
would take a collective effort to take the economy out of crisis. And
petrochemical industry needs to tap into the situation by planning to withhold
capex and increase overall efficiency of business by targeting alternate supply
markets in the meanwhile.
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Created on May 22nd 2020 02:34. Viewed 336 times.