 Budget 2005-06: Petrochem
The Indian petrochemical industry is in a nascent stage with nearly 70% of the production capacity being controlled by Reliance Industries and its subsidiary IPCL. Although in a surplus situation, demand is likely to pick up since the per capita consumption stands at a paltry 4Kgs as compared to the global average of 24 Kgs. With this background, there is immense potential for capacity addition in the country. Read more
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Customs duty on ethylene, propylene, butadiene and other petrochemical products reduced from 10% to 5%. |
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Customs duties on LDPE, HDPE, LLDPE and certain other polymers reduced from 15% to 10%. |
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Reduction in excise duties on PFY from 24% to 16%. |
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Customs duties on petroleum products, excluding petrol, diesel, LPG and kerosene, reduced from 20% to 10%. |
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Telephone connectivity to be given to 66,822 villages. |
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Reduction in duties on polymers is likely to reduce the protection enjoyed by domestic players. |
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Reduction of excise duties on PFY is likely to help integrated players as it shall help reduce costs for the textiles business, which use the product as an intermediate. |
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Although yet to be confirmed, in case other petroleum products include naphtha, production costs are likely to go down for the petrochemicals industry as most of the petrochemicals players in the country use naphtha as a feedstock. |
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Telephony expansion is likely to help increase sales of polymers such as HDPE, which is utilized for cables and wires |
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The current emphasis given on infrastructure by the government is likely to help the petrochemicals sector remain buoyant. High product prices in the international markets have helped the petrochemicals companies during the current fiscal and we believe that this trend is likely to continue in the medium term on the back of lack of significant capacity addition. |
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Customs duties on PTA, MEG (Intermediates for polyester), fiber and yarn to be reduced by 10% and 5% respectively. |
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Import duty on chemicals and catalysts to be reduced from 20% to 10%. |
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Excise duty for all synthetic fibres and yarns should be brought down to 8%. |
| Budget 2002-03 |
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Budget 2003-04 |
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Budget 2004-05 |
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Special Excise duty (SED) of 16% abolished on most products except PFY, which continues to attract SED.
Peak rate of excise duty reduced to 30% from 35%.
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Reduction in basic customs duty to 25%
Reduction in excise duty on select petrochemical products. Basic excise duty on PFY and other yarns reduced to 20% from 25%.
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Excise duty on LNG (liquefied natural gas) exempted. Countervailing duty exemption to continue.
Excise duty on Polyester Fibre yarn to continue at 16%.
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| [Read more on Budget 2002-03] |
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[Read more on Budget 2003-04] |
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[Read more on Budget 2004-05] |
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| Key Positives |
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| With IOC and ONGC setting up petrochemical plants in the next few years, high competition is likely to check prices of petrochemical products.
| Since domestic per capita consumption is very low as compared to global standards, there is enormous scope for new entrants to establish themselves.
| The polymers industry demand growth in the past has been at double digits and the prospect of the sector is positive in the foreseeable future with the prices just in the peak of their cyclical nature.
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| Key Negatives |
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| The recent increase in cost of crude to USD 45 per barrel (Indian mix) levels resulted in increased prices of feedstock (since naphtha is a refinery product). This has impacted margins of the industry to an extent.
| Any further reduction in the customs will result in further pressure on prices and consequently margins.
| Demand potential being so high, the domestic market is an attractive destination for global majors such as Exxon Mobil and Dow Chemicals. This shall be a major setback for the domestic players as they are smaller in size compared to these global majors.
| Rationalization of natural gas prices could result in higher raw material cost going forward.
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