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Customs duty cut on PTA to aid polymer players

The Budget is unlikely to have any impact on Reliance Industries owing to the cut in customs duty on some petrochemical products, but Bombay Dyeing may face some drop in its bottomline.

"Reliance Industries (RIL) is unlikely to face any erosion in the bottomline owing to the marginal cut in customs duty on some petrochemical products like DMT, PTA and MEG to 20 per cent," analysts said.

This is mainly because off the fact that a large section of petrochemical products are being used for internal purposes. However, companies such as Bombay Dyeing may see some drop in the bottomline due to the recommendations.

An analyst said: "Market forces are fixing the prices of many petrochemical products in India. So there will be no drastic impact on the performances of large companies in the long run. Reliance makes PTA and MEG, while Bombay Dyeing is the producer of PTA.

Small players may get products at cheaper rates through cheaper imports. Besides this, the rationalisation of excise duty will largely benefit firms such as Reliance. "At present, excise duty on many Reliance products is pegged at 24 per cent and it will come down to 16 per cent," analysts added.

Battling with high feedstock prices and excess supplies through the year, the petrochemicals sector has been looking for salvation in the budget. The industry wanted tariff barriers to continue at the current levels. Performance of most petrochemical producers was marred by hikes in feedstock prices, which followed at the $14 per barrel jump in crude prices during the year.

New capacities being commissioned in the domestic industry as well as in the Southeast Asian market also affected demand-supply balance in the region. Domestic producers are faced with an excess polymer production of around 0.8 million tonne. Production by the end of current financial is expected to touch 4.4 million tonne against a demand of 3.6 million tonne.

KG Ramanathan, chairman, chemical and petrochemical manufacturers association had earlier demanded that the government maintain the present base rate level plus 10 per cent surcharge for petrochemical goods to ensure that the industry survives the difficult period ahead.

However, the plastic industry may be one of the major beneficiaries of the Budget. The plastic industry, which is an end-user of petrochemical products, wanted custom duty to come down to 15 per cent as recommended by the Rakesh Mohan committee.

Indian petrochemical industry has the capacity to export polymers worth more than 1 million tonne, which will go up further as some of the Indian petrochemical majors are currently operating at much lower than their installed capacity.

End product prices among polymers, which firmed up during the first two quarters of the current fiscal, indicated downward trends during the last two quarters of the current financial year.

Several petrochemical majors in India are looking at the possibility of going for value added products with a view to consolidate their export markets.

Meanwhile, the problem of plenty, which the industry faced in the current year is likely to aggravate next year as four more production facilities go onstream in the Gulf.

Source: Business Standard

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