The impact of the COVID-19 crisis on petrochemicals and chemicals sector will differ across value chains, with segments like packaging witnessing an uplift, a report said.
chemicals sector, the crisis has resulted in several Indian companies getting
order inflows from global chemical players to meet the short-term supply
disruptions from China, which is a credit positive for these players, rating
agency Icra said.
report further said the lockdowns have adversely affected the demand for
chemicals and petrochemicals owing to decline in consumption and shutting down
of manufacturing plants, supply chains and distribution networks.
Packaging, especially food packaging, sanitary
and medical applications, are seeing an uplift mainly due to stockpiling, an
increase in delivery services and the high healthcare-focused activities, it
"The sharp decline in crude oil prices has
significantly altered the ethylene cost curve. While earlier, natural gas and
ethane-based crackers enjoyed a large cost advantage vis-a-vis mixed feed or
naphtha-based crackers, the competitiveness of the latter has improved owing to
the decline in crude oil and consequently naphtha/LPG prices," Icra Senior
Vice President and Group Head, Corporate Ratings, K Ravichandran said.
Accordingly, naphtha/LPG-based crackers are
beneficiaries of a lower crude oil price environment, he added.
"As for the Indian petrochemicals industry,
which is primarily naphtha-based, it is a key beneficiary as tolling margins of
ethylene crackers have improved.
"While prices of various petrochemicals have
declined for Indian manufacturers, the decline in prices of feed stocks has
been higher, thereby improving the spreads," he added.
Regarding impact on the chemicals industry, Icra
said with pesticides getting placed under the essential commodities category,
the functioning of the industry has been close to business as usual.
Additionally, since the application of the
agrochemicals begins by end-May and continues till September, the product
off-take is not expected to be impacted, it added.
While domestic demand is expected to remain
stable, exports are expected to witness headwinds owing to challenges related
to port handling and international logistics. Indian agrochemical industry
imports a major portion of its raw material requirements from Chinese technical
Nevertheless, with easing of the lockdown in
China and the Chinese government offering export rebates to pesticide
manufacturers, the production levels in China have reached around 70 per cent
of the normal production levels.
For the upcoming kharif season, agrochemical
players are not expected to witness any shortage of raw materials. Icra Vice
President and Co-Head, Corporate Ratings, Prashant Vasisht said in the initial
phase of the lockdown in India, several specialty chemical plays had to shut
down their manufacturing plants, barring production of chemicals classified
under essential commodities.
The production, however, is expected to resume
soon as the government has relaxed various norms related to the lockdown.
Additionally, owing to the over-dependence of global chemical players on
Chinese supplies, the disruptions have sent global players scrambling for
alternate supply sources.
"As a result, several Indian players have
witnessed order inflows from global chemical players to meet the short-term
supply disruptions from China, which is a credit positive for these
players," he added.