This is one crucial component omnipresent and conspicuous everywhere, be it households or extensive infrastructure. However, unlike most discoveries and inventions, it was not the culmination of research and experiments, but a result of a combination of natural elements. Yes, that is how PVC, which India imports in shiploads and offer lucrative margins to importers, came into being

Satyapal Menon | The Dollar Business

The serendipitous discovery of Polyvinyl Chloride (PVC) is attributed to Eugen Baumann, a German Scientist, who found a white solid particle inside a flask of vinyl chloride that was left exposed to sunlight. This was in the year 1872. Later, after many attempts to make this brittle polymer more flexible and viable for commercial applications, the required properties were finally achieved with amalgamation of plasticising additives. Since then, by all stretches of imagination, PVC has evolved from its rather brittle beginnings to become the most flexible substitute for concrete, wood, rubber and steel products in complex & multiple applicability.

Infra Oxygen

Today, the enormity of its necessity is reflected by the fact that global consumption of PVC resins – HS Code 39042110 – has been consistently witnessing a dynamic momentum in growth rates, with Asia-Pacific region accounting for more than half of the global pie during CY2013 – a little over 20 MMT out of a total world-wide consumption of nearly 40 MMT. The utility of PVC end-products are spread across various segments comprising electrical, electronics, agriculture, automobiles, packaging, pharmaceuticals, and agriculture. And there are basically two types of PVC raw materials that are used for various end products – suspension and paste resin.

Desi Needs

India is among the biggest consumers of PVC end-products, with incessantly burgeoning consumption in infrastructure and agriculture sectors. According to estimates, India accounts for 6% of the total global PVC resins consumption. In fact, highlighting just how important plastic, and consequently PVC, has become in modern India, Surjit Kumar Chaudhary, Secretary (C&PC), Ministry of Chemicals & Fertilisers, speaking at a recent conference, said, “The future belongs to the plastics and polymer industry as it will play a vital role in realising the economic aspirations of a developing India.” Inexplicably, despite enormous potential, India’s production and supply of PVC resins is only slightly over half of its demand, i.e., 1.25 MMT, as compared to a total demand of around 2.25 MMT. According to industry sources, while the demand for PVC resins have been recording nearly double-digit CAGR during the last five years, production has been growing at less than half of this at 4%. With demand galloping and indigenous production on a stroll, the over dependence on imports seem to be an inevitable consequence.

Pointing out that net exports of plastics have not increased over the years, while net imports have risen manifold, Chaudhary stated the government was committed to decrease this gap through the ‘Make in India’ campaign. “There is a need to boost the plastics industry in the country and further advance the per capita consumption of plastic,” he said. It’s worth noting that despite huge aggregate demand, India’s per capita plastic consumption is very low at around 9.7 kg as compared to China and US, where the corresponding numbers are 90 kg and 120 kg respectively.

From the East

An analysis of India’s PVC resins imports over the last 10 years reflect a stunning 43.6% CAGR from just over $25.06 million in FY2004 to over $935.23 million in FY2014. In fact, The Dollar Business Intelligence Unit estimates that in the current financial year, this number is all set to cross the $1 billion mark and can actually reach close to $1.25 billion. When it comes to sources of imports, while Taiwan had a lion’s share in India’s imports of PVC resins during the FY2014, with imports valued at $314.68 million, followed by South Korea, which accounted for over 22% of India’s imports, valued at $207.05 million and China, which accounted for over 18%, valued at $169.33 million. China’s share in the pie has risen considerably in the current financial year and it is all set to become the biggest source of Indian PVC resins imports.

 

It’s worth noting that among the major PVC exporters to India from Taiwan are CGPC Polymer Corporation, Formosa Plastics Corporationand Ocean Plastics Co Ltd. Similarly, China based exporting companies comprise Qingdao Haijing Chemical Group Co Ltd., Yibin Tianyuan Group Co Limited, Xinjiang Shihezi Zhongfa Chemical Co. Ltd., Shandong Ocean Chemical Chlor-Alkali Resin Co. Ltd., and Xinjiang Zhongtai Chemical Co. Ltd. On the other hand, South Korean exporters include LG Chem and Hanwha Corporation.

Unholy Fix

In what could be clearly viewed as another blatant and illogical imposition of anti-dumping duty (ADD) on the diktats of a few domestic biggies involved in PVC resins production, the Directorate General of Anti-Dumping and Allied Duties (DGAD) has contrived a rigmarole of calculations to arrive at injury margins vis-à-vis price of domestically manufactured PVC. Indian companies DCW Limited (DCW), Chemplast Sanmar Limited (Chemplast), Reliance Industries Limited (RIL) and DCM Shriram Consolidated Limited had, in 2006, filed complaints to the DGAD stating that low priced imports of PVC was impacting their own revenues, performance, survival and existence. The DGAD ‘fixed’ the injury margins to the domestic sector in a range of 10% to 30% (even 85% to 95 % in some cases) and imposed ADD against importers of suspension grade PVC from China, Taiwan, Indonesia, Thailand, Malaysia, Japan and US. While imports from Taiwan have been levied ADD ranging between $33.62/MT and $61.25/MT, imports from China is subjected to ADD ranging between $91.27 to $147.96/ MT.

Dump Anti-Dumping

While the government continues to cater to minority producers to ensure their protection (it just cannot afford to ignore the commands and the demands of the powerful lobbies, can it?), importers, who comprise a majority, and the entire country as a whole have been left to burden the implications of myopic decisions. Can there be a more glaring example to substantiate this fact than the wide chasm between domestic supply and demand in the country. Moreover, importers of PVC in India contend that some of these companies do not produce the extensive range and grades of PVC that is required by the end-users. Aren’t such measures causing injury, not only to a few players in the industry, but to the economy of the country as a whole, especially when India is encountering gross insufficiencies and inadequacies in domestic production? Don’t such decisions symbolise misplaced priorities when India is looking for affordable solutions to give a boost to crucial sectors like agriculture and infrastructure? The question to be answered by policymakers here is whether opening the doors for untrammeled access to low cost imports and allowing competitive pricing would act as a deterrent or a positive to India’s overall development. It’s worth noting that the companies, which were the applicants for the imposition of ADD, account for about 74% of the total domestic supply, with Reliance Industries being the biggest producer with 650,000 TPA (Tonnes Per Annum) capacity and Chemplast Sanmar being another major producer with 250,000 TPA capacity.

For Plasticulture

According to a FICCI (Federation of Indian Chambers of Commerce and Industry) report on the plastic industry, “Greater use of plastic in agriculture can help to a great extent achieve up to 50% of the intended targets in agriculture. The wider use of plasticulture – a term referred to the use of plastic in agriculture – can reduce the loss of harvest and increase efficiency, thus contributing more to India’s gross domestic product (GDP). It is estimated that agriculture output can be increased by Rs.68,000 crore/annum by using proper plasticulture applications like drip irrigation.”

The report points out that innovative plastic packaging and handling techniques can promote proper harvest management, which will, in turn, contribute towards the agriculture-GDP. The penetration of plastics in agriculture globally is 8% whereas in India, it is substantially lower at only 2%. This indicates the farm segment could be one of the major segments which drive the growth of the plastics industry. But while the demand for pipes and fittings in India has been rising in double digits over the years, market prices are getting distorted by some ludicrous factors, thereby impacting the cost of production.

 

For the Future

The Planning Commission had estimated total infrastructure spending to be about 10% of GDP during the 12th Five-Year Plan, with construction equipment sales galloping at break neck speed.Similarly, IBEF claims that passenger vehicles segment was the fastest growing segment in the last eight years, growing at a CAGR of 12.9%. IBEF also claims the electronics segment in India is growing at a CAGR of 9.2%, with production of electronics hardware goods estimated to reach $104 billion by 2020. It does not require our so-called experts or economists to envision the considerable savings the economy can have if ADD on one of the primary raw materials in these sectors – PVC – could be removed.

A rough estimate of such savings can be made from a The Dollar Business Intelligence Unit study, which, while on one hand, found FOB prices of various grades of Chinese PVC resins to be in the range of $800-1,000/MT (roughly Rs.48,000-60,000/MT, assuming USDINR at 60), on the other hand found the ex-depot prices of various PVC grades (prime grades and off grades) offered by Reliance Industries in the range of Rs.68,000- 71,000/MT. 

Not too late

If the question is whether domestic producers of PVC resins have the capacity to catch up with the ever growing demand, the answer is quite obvious. No, they don’t. Moreover, imports are the need of the hour, since they also make our end-products more competitive because of being cheaper. Hence, policymakers should demonstrate a propensity to be more flexible with imports, instead of flexing their muscles and clamping down on low-cost imports. This will also push your, if you are importing or planning to import it, margins higher.