Feature

Indian Petrochemical Industry

Posted on 21 January, 2010 | Tags: Ethylene Capacity, Industry Outlook, Petrochemicals, test

Petrochemicals dominates the global chemicals market with a share of almost 40 percent. The coming years are expected to see the petrochemicals industry undergoing a major metamorphosis, particularly with the Middle East as a major petrochemicals supplier and China emerging as a major processing hub and end-use market - Bhargav Vadia

Petrochemicals are the downstream of the oil and gas industry - an industry whose products affect our daily lives. Petrochemicals are a part of our daily lives - the carpeting on which we walk, plastic soda bottles from which we drink, clothing we wear, fertilizers that grow our crops, tires we rely on for transportation, paints we use to brighten our surroundings, pharmaceuticals we need to remain healthy, cosmetics, and many other applications.

Petrochemicals get their raw Indian Petrochemical_0.jpgmaterial - known as feedstocks - from the refinery: naphtha, components of natural gas such as butane, and some of the byproducts of oil refining processes, such as ethane and propane. These feedstocks are then cracked to obtain the building blocks of the petrochemical industry: olefins, that is, mainly ethylene, propylene, and the so-called C4 derivatives, including butadiene - and aromatics, mainly benzene, toluene, and the xylenes. These products are then processed to produce a wide variety of consumer and industrial products.

Global Petrochemical Industry

Petrochemicals dominates the global chemicals market with a share of almost 40 percent. The growth of the chemical industry, currently 2-3 percent above the average world GDP, is likely to face a slowdown in the coming 2 years owing to the global economic slowdown.

The coming years are expected to see the petrochemicals industry undergoing a major metamorphosis, particularly with the Middle East building its strength as a major petrochemicals supplier and China emerging as a major processing hub and end-use market for petrochemicals. The chart below shows the flow of raw materials from the Middle East to the processing hubs and end-use markets of China and India from where the finished products will reach the markets of North America and Europe.

 
Indian Petrochemical_1.jpgAsian markets are undergoing a sea change in the form of high demand markets for petrochemicals. It was projected that the coming years will see China, India, and the rest of Asia becoming hubs for processing of end products as well as a high demand end-use market. By 2018, 60 percent of the petrochemical growth is likely to take place in Asia, with China accounting for about one-third of the growth. However, with the recent recession hitting the industry, Asian markets also have been affected since Europe and North America have cut down on import of finished goods. Even though Asia is expected to soon become a significant end-use market, the current world economic scenario will have a negative effect on the industry and instead of growing at about 2-3 percent above GDP; the market is expected to grow at a much lower rate. However, this recession will affect the Western markets more than Asian ones.

Petrochemical Industry in India

The petrochemical industry has been one of the of the fastest growing industries in the Indian economy; it provides the foundation for manufacturing industries such as pharmaceuticals, construction, agriculture, packaging industry, textiles, automotive, etc. The petrochemical industry in India is oligopolistic with four main players dominating the market, namely Reliance Industries Ltd. (RIL) along with Indian Petrochemical Ltd. (IPCL), Gas Authority of India Ltd (GAIL), and Haldia Petrochemicals Ltd. (HPL).

Indian Petrochemical _2.jpg
Currently, India has three naphtha- and three gas -based cracker complexes with a combined ethylene annual capacity of over 2.5 MMTA. Besides, there are four aromatic complexes also with a combined Xylenes capacity of 2.9 MMTA. Polymers account for more than 60 percent of total petrochemical production. As shown in the figure below, the industry has been stagnant in terms of capacity addition. Combining the demand for all the key segments in the petrochemical industry, aggregate demand for the entire petrochemical sector in India was around 20 MMTA in 2008

Key Issues and Challenges

The Indian petrochemical industry faces a number of challenges for sustained growth, putting India at a competitive disadvantage in the competition with China. India's ethylene capacity is far smaller than China's and is unlikely to rise above its Asian rival's levels in the next 5-7 years. This will make it impossible for India to develop applications further downstream. Other major issues faced by the Indian petrochemical industry are lack of low cost feedstock and dependence on western countries for technology. New crackers and derivatives projects announced are making slow progress and their coming on stream might be further delayed.

The Petrochemical Industry Outlook in India

The major driver for the growth of petrochemical industry in India is its (India's)ongoing economic development. With the Government announcing an infrastructure development program of over INR 500 Billion, coupled with growth in key end-use sectors like auto, personal / lifestyle products, and retail (packaging), a boost is expected in the demand for petrochemical products in India. The Government has set in place policies to promote investment in the petrochemical sector, and several key domestic companies have unveiled ambitious expansion plans for the next few years. Two major elements in this support are the decision to allow 100 percent foreign direct investment projects in this sector, and establishment of a series of special economic zones (SEZs) and a number of petroleum, chemicals, and petrochemical investment regions (PCPIRs).

The refining capacity in India is expected to rise from 135 MMTA in 2006-07 to 210-225 MMTA in 2011-12, translating into increased availability of 8-10 MMTA of naphtha. This additional availability of naphtha has already prompted petrochemical majors to announce major downstream expansions in naphtha crackers. The olefin-based capacity is expected to increase from 5 MMTA to 10 MMTA and aromatics based capacity is expected to increase from 3 MMTA to 6 MMTA.

Conclusions

The future of the Indian petrochemicals industry is bright with domestic demand driving the market for products. With Government support slowly falling into place, the future could see more investments from multinationals as well as domestic companies. 

 

- Bhargav Vadia, Business Development Manager - South Asia & Middle East, Materials, Frost & Sullivan

 

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