Plastic processors hit hard as few traders create artificial scarcity

New Delhi, Dec 6 (SocialNews.XYZ) Plastic, owing to man's own folly, had been often branded a menace. But it emerged a hero in humankind's battle against coronavirus. PPE kits worn by Covid-19 warriors the world over, are made from plastics. Cocooned in these kits, the warriors went about their job, saving millions of lives.

Unfortunately, some petty-minded profiteers hell-bent on making short-term gains have plunged the industry into crisis.

As India is gradually emerging from the Covid-19 lockdown, some traders have resorted to hoarding plastic raw materials and making a quick buck by selling it to genuine small processors at a substantial premium over the list prices of resin manufacturers.

S. Dandekar of APC Polymers Pvt. Ltd. said, "Plastic raw materials such a PVC, Polyethylene (PE) and Polypropylene (PP) and ABS are being sold in the open market at a substantial premia by a section of large and MSME plastic traders and a few processors-turned-resellers. Their unethical ways have triggered panic in the plastic raw materials market, pushing prices significantly above the list prices offered by resin manufacturers."

Describing the market situation, Dandekar said, "PVC is sold at a premium of Rs 15-25 per kg based on grades, PEs at a premium of Rs 4 per kg, and PP at Rs 4 per kg over and above the manufacturers' list prices for PVC (high K) Rs 108 per kg, PEs Rs 87-108 per kg and PP Rs 96-97 per kg."

As per the modus operandi, these traders and processors are buying very large quantities from domestic, as well as overseas resin manufacturers, claiming substantial volume-based discounts, and selling it to processors at a substantial profit. Some of the processors are not converting raw materials into final products. Instead, they are reselling it to other processors at huge premia, thereby making a quick buck without even engaging in their main business of making plastic products. This has resulted in artificial scarcity of plastic raw materials and increased incidences of higher prices and squeezing margins for genuine processors.

The plastic raw material producers, which include large PSUs and private sector companies, are serving their contract and non-contract customers every month, providing material at almost import parity prices. Over the past few months, international prices which dropped following a steep fall in crude prices have been recovering from the low levels reached during the peak of Covid-19 crisis. Domestic prices too must directionally align with import prices, but Indian polymer manufacturers have shown considerable restraint in pricing, keeping in mind the fragile demand and the nation's economic situation.

In sharp contrast, some traders and processors are selling a part of their volumes in the open market at huge profits and artificially shoring up prices by hoarding raw materials. To hide their unscrupulous act, they are blaming the resin producers for the higher prices.

Domestic demand is firming up post-lockdown, and resin makers are producing the required quantity. But artificial material shortage has been created by spreading rumors in the industry and prices have been raised to make quick substantial profits.

Domestic resin producers have taken a series of measures to boost and incentivize processors and negate the impact of lockdown. An MoU has been launched with a lower entry barrier and simplified registration process. Furthermore, almost all producers offered rebates and discounts to protect smaller and genuine processors from the impact of negative price deltas prevailing in the open market owing to the greed of some traders.

The resin production normalised following the opening of the economy post-lockdown. However, in the absence of immediate domestic demand, resin manufacturers initially resorted to more exports to keep plants running. As the processing sector slowly ramped up, regular supplies to domestic processors were resumed.

It should be noted that the domestic sales of commodity polymers by all producers in the October-November 20-21 period have surpassed that of the average monthly sales of financial year 2019-20.

Supplies of all major polymers increased by at least 10 per cent over the past six months compared to the corresponding period last year. Hence, there was more than adequate supply to domestic processors. In fact, polymer manufacturers have increased supplies to domestic customers to ensure that processing units face no shortage of raw material as they resume normal operations. The June - November 2020 and corresponding 2019 data corroborate it.

Import of plastic raw materials is freely allowed and import duty on most polymers is well below 10 per cent. The sector has been importing material for a long time without any issues. There are multiple players, and imports are free as the sector adheres to the principles of free market economy. As per Customs data, PP imports have dropped by 36 per cent this year as compared to the same period last year. Similar has it been with PE and PVC -- imports dropping by 6 per cent and 30 per cent respectively.

Lower imports can be contributed to the initial low domestic requirement due to lockdown, coupled with competitive pricing by the Indian producers throughout the year. The main reason for tight availability of PVC globally, is force majeures declared by Westlake, Formosa USA and three plants in Europe. Other import-dependent countries like Brazil and Turkey have seen higher rate increases then India. Of late, imports have come down owing to shortage of containers and vessel space across Asia.

There is an urgent need to clean up the industry to safeguard the interest of genuine plastic processors. The government must intervene to curb this unscrupulous practice of selling plastic raw material in the open market at a premium by both large plastic converting units and MSME units.

Source: IANS