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India’s petrochemical demand may grow by 7% in FY 2024-25 on stellar consumption growth

02 Apr 2024 16:50 IST
Perceived to move in tandem with the country’s economy, India’s petrochemical demand is likely to grow by 7 percent in the financial year (FY) 2024-25 due to stellar manufacturing and services sectors. The forecasted growth for 2024-25, however, is similar to the expansion projected for the recently ended 2023-24, but substantially lower than the post-pandemic move recorded in the previous two financial years.

An official paper presented recently at the World Petrochemical Conference 2024 in Houston, the United States, estimates India’s petrochemical demand may rise 7 percent to 61 million tonnes in FY2024-25, compared to a similar growth projected in the financial year 2023-24 with demand estimating at 57 million tonnes. In the previous two subsequent years, total petrochemical demand grew by 8 percent to 53 million tonnes, and 13 percent to 49 million tonnes.

This growth is attributed to the forecast of robust economic growth fuelled by the government’s massive infrastructure spending and the resurgence of post-pandemic consumer activities. After contracting in the financial year 2020-21 due to pandemic-related disruptions in factories and trade, India’s petrochemical consumption rebounded and outpaced the growth of the gross domestic product (GDP). This growth projection signifies an increase in the consumption of petrochemical value chains in the future and a healthy growth rate for the industry.

India’s petrochemical production (‘000 tonnes)

Categories

FY 2022-23

FY 2021-22

Variations (%)

Synthetic fibre

4,006.38

4,040.01

(-)0.83

Fibre intermediate

4,988.03

5,481.67

(-)9.01

Polymers

11,486.62

12,470.65

(-)7.89

Synthetic rubber

344.86

382.63

(-)9.87

Synthetic detergent intermediates

703.02

780.39

(-)9.91

Performance plastics

1,960.16

1,697.68

15.46

Olefins total

11,296.05

12,527.02

(-)9.83

Sources: Department of Chemicals and Petrochemicals, Government of India, and Polymerupdate Research


The paper presented at the WPC 2024 conference by M S Battu of HMEL, India’s petrochemical demand declined by 8.5 percent to 43 MTPA in the financial year 2020-21, compared to 47 MTPA in the previous year. Following the de-growth, India’s petrochemical demand gained momentum in the financial year 2021-22, driven by an overall economic recovery and a resurgence in factory activity. As the pandemic’s impact subsided, primary petrochemical and derivative resumed their business activities, coinciding with the recovery in consumer demand. Since then, India’s petrochemical demand for gas consistently surpassed the growth of the country’s economic growth.

Stellar economic growth
Barring a significant contraction in the financial year 2020-21 due to a slowdown in industrial activities, the overall demand for India’s petrochemicals and raw materials consistently surpassed the country’s economic growth. The First Advanced Estimates recently released by the Government of India pegs India’s gross domestic product (GDP) growth at 7.3 percent for the financial year 2023-24. The Indian economy had grown by 7.2 percent in FY 2022-23.

Echoing confidence in the Indian economy, global rating agency Fitch Ratings estimated India’s GDP growth forecast at 7 percent, a 0.5 percent increase from its earlier projection of 6.5 percent. According to Fitch, prospects for emerging markets (excluding China) have also brightened, particularly in India, where the agency expected growth to reach 7.8 percent in FY 2023-24. India’s GDP growth has been recorded at over 8 percent in the October-December 2023 quarter on robust consumption and manufacturing growth.

India’s aggregate petrochemical demand (million tonnes)

Financial year (April-March)

Volume

Growth (%)

2024-25*

61

7

2023-24*

57

7

2022-23

53

8

2021-22

49

13

2020-21

43

(-)6

2019-20

47

7

Source: Chemicals and Petrochemicals Manufacturers’ Association (CPMA); * Projections


“India’s real GDP expanded by 8.4 percent year-over-year in the October-December 2023 quarter of 2023, resulting in 7.7 percent growth for the full calendar year 2023. Global headwinds are fading, with the Indian economy should be able to comfortably register 6-7 percent of the real GDP growth. Fitch Rating forecasted around 6.8 percent growth in calendar year 2024, followed by 6.4 percent in 2025.

The Reserve Bank of India (RBI) projected a 7 percent real GDP growth for the financial year 2024-25, up from the previous projection of 6.6 percent. This projection includes a growth rate of 7.2 percent for April-June 2024, 6.8 percent in July-September 2024, 7 percent in October-December 2024, and 6.9 percent in January-March 2025. These forecasts were made after the Monetary Policy Committee (MPC) meeting concluded in February.

Among the key drivers on the demand side, household consumption is expected to improve, while prospects of fixed investment remain bright owing to an upturn in the private capex cycle, improved business sentiments, healthy balance sheets of banks and corporates; the and government’s continued thrust on capital expenditure. Improving the outlook for global trade and rising integration in the global supply chain will support net external demand. Headwinds from geopolitical tensions, volatility in international financial markets, and geo-economic fragmentation, however, pose risks to the outlook.

Per capita polymer consumption trend

Country

Volume (kgs)

South Korea

137

Taiwan

124

United States of America

98

China

77

Malaysia

76

Thailand

65

Japan

58

Singapore

56

World

35

Brazil

33

Indonesia

18

India

12

Sources: APIC Report 2021, PWC Report Nov ’21, and Polymerupdate Research


Manufacturing sector at a 16-year high
According to HSBC India Manufacturing PMI (Primary Manufacturing Index), India’s manufacturing sector closed out FY 2023-24 (March 2024) with a ‘stellar performance’, as companies stepped up hiring in response to strong production and new orders. The HSBC Manufacturing PMI estimates India’s manufacturing sector has grown to a 16-year high of 59.1 in March from 56.9 in February.

While these numbers indicate the highest since February 2008, it was marginally lower than HSBC’s preliminary estimates of 59.2. The PMI reading above 50 hints at expansion and below this threshold a contraction. According to the report, India’s manufacturing output rose for the 33rd consecutive month in the final month as growth quickened across consumer, intermediate, and investment goods sectors.

Consumption-centric growth
The demand for products in the petrochemical value chain in India is expected to have accelerated. Polyolefins are projected to witness a growth at 7.7 percent, while surfactants and synthetic rubber are expected to record phenomenal growth rates of 6 percent and 6.1 percent respectively, in the financial year 2023-24. Other key petrochemicals, according to a report published recently by the Chemicals and Petrochemicals Manufacturers Association (CPAI), may also experience a growth of 9 percent in the financial year 2023-24.

The leading industry body representing the entire petrochemical industry in India further asserts that the vision for the next five years for this sector is to achieve investment-led growth, primarily driven by the private sector. To accomplish this objective, the government is diligently working on policies to attract investment from both domestic and foreign sources. The work plan includes further liberalizing the direct investment (FDI) policy, simplifying labour laws, enhancing the ease of doing business, implementing power sector reforms, and last improvement in banking, insurance, and pension sectors.

Apart from these, the government’s ongoing efforts to promote economic development in India are the main factor influencing the expansion of the petrochemical industry. The government implemented several initiatives to improve the industry’s overall competitiveness, quality, and output. Initiatives such as ‘Make in India’, the ‘Aatmanirbhar Bharat’, and the ‘Production-linked Incentive (PLI) Scheme’ have been implemented to attract domestic manufacturing and facilitate exports.

Meanwhile, the industry has taken several measures to promote growth with the introduction of innovative products. These include mandatory standards set by the Bureau of Indian Standards (BIS), public procurement policies for chemicals and petrochemicals, schemes for establishing plastic parks, and adequate support for research and innovation through the establishment of centers of excellence. All these policy initiatives, along with the low cost of manufacturing capital goods and manpower, and the overall demand scenario, are boosting business confidence to plan larger petrochemical complexes in India.

Conclusion
With substantial capacity additions planned in both primary production and end-product consumption, the Indian petrochemical industry could witness the implementation of new projects worth approximately US$144 billion (over Rs 10 lakh crore) as the country seeks to bridge the gap between the shortage of domestic and supply.


DILIP KUMAR JHA
Editor
dilip.jha@polymerupdate.com