© 2013 Platts, McGraw Hill Financial. All rights reserved.
Rupee's dive hits Indian petrochemicals demand, limits trade September 3, 2013 By Anton Ferkov, Fumiko Dobashi, Chen Huixin, Wong Wen Yin, Michelle Kim, and Shashank Shekhar
A rapid fall in the rupee
• India's petrochemical markets have been reeling from a rapid fall in the rupee, with the impact greatest on the polymer sector, as buyers in the country shy away and sellers struggle to transfer the increased import cost to domestic sales prices.
• Petrochemical prices on a CFR South Asia basis have lagged increases in CFR China and Northeast Asia prices, but have led the way down when the other regional CFR prices headed south, according to Platts data.
• India's rupee resumed its downward trend against the dollar on Friday, following gains on August 29.
• The rupee has lost 3.5% of its value in the past week to trade around 66.69 to the dollar August 30 afternoon Indian time, although it was up from a record closing low of 68.80 on August 28.
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Value of Rupee
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Customers do not want to import now
• Of the various petrochemical products, demand for polymers was hit hardest as the country's polymer converters were struggling with the high import costs.
• This in turn hit Middle East polymer producers as they typically export their surplus to India -- one of their main markets -- where buyers were now backing off on the weaker rupee.
• These Middle East producers were forced to source for outlets elsewhere. For instance, some polymer trading houses in Dubai have been directing their cargoes to buyers in Africa instead of India.
• "I have not exported even a kilogram of cargo to India for the past three months as even regular customers do not want to import now," a Dubai-based trader said.
• "Economies in Africa are doing much better and this probably reflects in their currencies that have not been impacted by the strengthening of dollar."
• Meanwhile, Indian polymer converters have been lamenting about the falling rupee, and have switched their focus from the import market to the domestic market for feedstock.
• "It is difficult for importers. If positions are open, they will have big risks," a trader said.
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CFR South Asia versus CFR Far East Asia price spread narrows
• Reflecting the weakness in the Indian market versus the China and North Asia markets, the spread between CFR South Asia and CFR Far East Asia prices for raffia-grade polypropylene narrowed to $15/mt August 28, with CFR South Asia assessed at $1,480/mt and CFR Far East Asia at $1,465/mt.
• On June 5, CFR South Asia was $55/mt over CFR FEA.
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PP raffia spread
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Margins for finished products were squeezed…
• "Margins for finished products were squeezed by the high [polymer] feedstock cost due to the weak rupee. Converters found themselves being trapped as they were unable to pass the cost to the consumer and thus they have to lower their runs," said an Indian trader.
• A similar price spread was seen for CFR South Asia versus CFR Far East Asia film-grade high density polyethylene prices.
• August 28, the spread was $20/mt with CFR South Asia assessed at $1,480/mt and CFR FEA at $1,460/mt. On June 5, CFR South Asia film-grade HDPE was $55/mt above CFR FEA, according to Platts data.
• For PVC, another major polymer, Asian buyers were being very cautious due to weakness across most currencies in the region versus the dollar.
• "Cost-wise, it is necessary to increase October PVC offers due to increasing VCM and EDC [feedstock] prices, however, demand-wise it is very difficult to do as Asian currency risks aggravate buying sentiment, so buyers have adopted a wait-and-see strategy," a trader said.
• The major difference between PE and PP versus PVC is that the Middle East is not a major supplier of PVC as it is a major net importer of the product.
• Therefore, the spread between CFR China and CFR India for PVC has remained relatively stable.
• The spread between CFR India and CFR China for PVC was $35/mt on August 28 with CFR India assessed at $1,045/mt and CFR China at $1,010/mt.
• On June 5, CFR India was $40/mt above CFR China, according to Platts data
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India intermediates prices lose steam
• Compared with polymers, prices for intermediates have seen less impact from the falling rupee, mainly as the Middle East is a less dominant producer for these products, and buyers in India often compete with buyers in China, Northeast Asia and Southeast Asia.
• Still the falling rupee has slashed the buying appetite for many of the intermediates, making it more difficult to realize a price increase.
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Sellers are moving Korea-origin cargoes to China
• For instance, for purified terephthalic acid, Indian demand typically rises in summer, but market sources said buying appetite this year was not as strong as previous years.
• "Because of the falling rupee, buyers in India are hesitating to buy imported PTA cargoes," said an Indian trading source.
• Another trading source in India said the weakening rupee has dampened sentiment in the Asian PTA market.
• "Sellers are moving Korea-origin cargoes to China because of bearish demand in India, which is also pushing down the price basis CFR China," said a source from China.
• According to Platts' data, the CFR China PTA price benchmark started to fall from mid-August. The CFR China PTA price benchmark fell $53/mt from August 7 to be assessed at $1,072/mt Tuesday.
• The CFR India PTA price benchmark moved down faster than that of China, being assessed at $1,098/mt on August 30, down $57/mt from August 7. Platts publishes the CFR China PTA assessment on an daily basis and CFR India on a weekly basis.
• For acetic acid, another intermediate, which is used as feedstock for PTA production, the same cautiousness was seen among buyers.
• "It does not make sense to import as the price increase [in the domestic market] is lagging [the rise in import costs due to the falling rupee]," a major trader in India said.
• The cautiousness was seen over August, with prices on a CFR Far East Asia having increased $15/mt since August 1 to close at $495/mt on August 29 and prices on a CFR South Asia basis up just by $4/mt to $483/mt over the same period.
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India ACN market
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CFR China basis prices increased by
• Similarly for the acrylonitrile market, the same cautious sentiment was seen with Indian customers inquiring but wanting to have an offer indication first before placing any bids.
• ACN prices on a delivered basis to China and India also reflected similar trends as other petrochemical products – CFR China basis prices increased by $60/mt from August 6 to August 26 to $1,810/mt while CFR India prices lagged behind with a $30/mt increase over the same period to $1,840/mt.
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