India remains bright spot amid struggling Asian chemicals markets

India is expected to remain a driving force in Asia for petrochemical demand in 2024 given its strong economic growth and resilient industrial production. But greater demand, however, is unlikely to bring much relief to domestic producers struggling with pressure on margins, as prices of key bulk chemicals are expected to remain suppressed due to ample supplies and new capacities coming on stream.

The market for chemical commodity products in India is expected to grow at around 7% in 2023 and 8% in 2024, according to S&P Global Commodity Insights analysts. This is higher than economic growth, which S&P Global Ratings has pegged at 6%-7.1% annually in fiscal years 2024-2026.

The robust demand growth is being driven by a sharp pickup in India's economic activity after it emerged from COVID-19 lockdowns. The S&P Global India Services PMI Business Activity Index was at 58.4 in October, clearly signaling expansionary conditions for output and new orders.

While India's domestic chemicals demand is expected to stay strong in 2024, price expectations are not very robust as the market struggles to find the right balance amid new production capacities coming on stream in the country and in the rest of Asia, changing trade flows, weak global demand and volatile upstream prices.

Some players were hopeful that prices of some chemicals should reach a state of consolidation soon and improve H1 2024.

"Prices seem to have bottomed out," said an Indian producer. "There has to be an improvement as inventory levels stabilize by next quarter."

Polymer producers to grapple with market oversupply despite firm demand

India's import of polyolefins -- the largest chunk of its petrochemical import basket -- surged significantly in 2023, led by higher demand and increased imports from China, where downstream demand scenario stood weak.

India's polypropylene imports were at 1.02 million mt in January-September, up 39% year on year, while polyethylene imports increased to 2.34 million mt, up 108% on the year, driven higher by demand from packaging, infrastructure, durables and automobile sectors.

"India's polymer demand is up 25% year on year, polyester demand is up 12% year on year and oil demand is up about 5%," said V Srikanth, CFO, Reliance Industries in its recent H2 FY2024 media and analysts call. "So overall, the Indian demand is holding very well. When you look at refinery operating rates, unsurprisingly it is up on the back of firm demand for refined products."

An Indian polymer produce said the country's polymer demand in Q1 2024 is expected to surpass that in other countries, but a major struggle for the market would be maintaining the margins and cost competitiveness. He further expressed concerns about significant capacity additions not only in India, but also in other regions like China which could impact overall margins.

India plans sizeable capacity additions for polymer through 2024 and beyond. HPCL-Mittal Energy's new 1.2 million mt/year PE capacity came on stream in 2023. HPCL's Rajasthan Refinery's 1.2 million mt/year PP and 1 million mt/year PE is on track and is expected in 2024, while Nayara Energy's new 440,000-450,000 mt/year PP plant in Vadinar is likely to come on stream in 2024, according to company sources. Other capacities like GAIL's PP line in Usar is also expected in 2025.

Taking advantage of the China Plus One strategy adopted by global players, some Indian chemical producers are planning to ramp up production levels in 2024 with an eye on domestic demand and export opportunities. However, cheaper Chinese imports for several petrochemicals such as phenol, acetic acid, nitric acid, aniline among others may continue to remain a key concern for Indian producers.

Overall demand for aromatics too looks strong into 2024.

Despite external headwinds, Deepak Phenolics reported high-capacity utilization for their phenol plant driven by strong Indian demand in the July-September quarter.

"While key export markets are grappling to demand pressures due to the global situation, the good news is that domestic consumption and demand remains largely intact," Deepak Nitrite CEO Maulik Mehta said in its earnings call for the quarter ended September.

Group CFO Sanjay Upadhyay, in the same call, said "circumstances" are expected to improve in the second half of 2024. "We are reaching the bottom of the cycle and things can only go up from here," he said.

Going into 2024, mandatory Bureau of Indian Standards certification to maintain the standard and quality of imported products could help regulate imports and promote local production of some chemicals. BIS norms were implemented for MEG, PTA and polyester fibers in 2023, and are likely to be implemented for imports of PE, PP, and a few more chemicals in 2024. The requirement of BIS certification could help curb imports from China for a while, as Chinese companies are yet to apply for the certifications, a market source said.

Middle East to see more capacity additions in 2024

Middle East-based petrochemical producers have also seen their margins squeezed across much of 2023 amid volatile feedstock prices, supply length and persistent soft demand across key export markets.

"On overall basis, lingering uncertainty in the global macroeconomic outlook continues to add pressure on our company's product portfolio in comparison to the previous year," stated lndustries Qatar in its Q3 2023 financial results.

Polymer producers are preparing for global demand to remain underwhelming in the first months of 2024.

"Fundamentally there are not much changing elements in the Turkish market, demand wise customers are trying to find the lowest price material, which is the available from the Middle East, Russia and sometimes the US," a producer said.

Interesting would be to see how new supplies would be absorbed as Saudi Arabia will have additional capacity addition in 2024 with Advanced Polymers bringing online its new propane dehydrogenation, polypropylene and Isopropanol plants.

Overall, weak demand and ample supply are likely to keep methanol supplies healthy in 2024 which could limit the profitability of Middle East producers.

Methanol buyers in China and India view the market "mostly long" amid expectations that least two new Iranian plants that could start production within next six months to one year.

"We expect methanol demand in India to increase at par with the country's GDP going into 2024," a Saudi Arabia-based producer said. "Prices in Asia should consolidate but a lot depends on olefins dynamics in China. If prices fall below profitable levels, players may look to optimize run rates to balance the excess supply.'

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Chemical Trends H1 2024
This feature is part of our bi-annual report analyzing the biggest themes and trends that will dominate chemicals markets in the year ahead. Explore more features below, or to read articles looking at the year ahead for a wider range of chemical markets, visit Platts Connect

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