IOC- a strong competitor to Reliance in Polymers

IOC poses a polymer challenge to RIL


Public sector refiner Indian Oil Corporation (IOC) is coming up as a strong competitor to India’s largest petrochemical producer, Reliance Industries Ltd (RIL), especially in polymers. IOC is working on a strategy to add more value to naphtha produced from its refineries instead of dumping the liquid fuel in the market. RIL currently holds 75-80% of the polymer market in the country and has the power to set prices. However, this scenario could change soon, with IOC marking its big-bang entry into the polymer business by commissioning the country’s largest naphtha cracker project at Panipat.
Source
http://www.financialexpress.com/news/ioc-poses-a-polymer-challenge-to-ril/616226/0


While heightened competition could bring benefits to the downstream plastic processing industry, there is tremendous growth potential for the upstream petrochemical industry as well. The domestic demand for petrochemicals is growing fast from a low base, even as there is a big export market out there to be tapped. India exports polypropylene even as it produces enough polyethylene to meets its requirements. Domestic capacity expansion provides opportunities for both exports as well as import substitution.

India has established itself as a leading exporter of petroleum products like petrol and diesel. The country also has the potential to emerge as a petrochemical export hub if the government’s policy to create mega integrated complexes called petroleum, chemicals and petrochemicals investment regions (PCPIRs) is implemented. This is expected to attract investment of $280 billion. RIL has 62 million tonnes per annum (mmtpa) refining capacity while IOC has 60.2 mmtpa. But IOC is in the process of adding another 18 mmtpa—3 mmtpa through expansion of existing Panipat refinery and 15 mmtpa through a greenfield project at Paradip. Both companies can easily meet feedstock requirement for their petrochemical projects from their own refineries.

Petrochemical is one of the fastest growing sectors in the country. Despite a sharp fall in the petrochemicals market in 2009-10, RIL’s revenue from the vertical petrochemical business increased from Rs 52,758 crore to Rs 55,251 crore on the back of high volumes. Its Ebit margin for the segment was 15.5%. However, competition for marketshare is going to be fierce given that IOC is an emerging player unlike RIL, which has strong foothold in the petrochemical business.

The working group on chemicals & petrochemicals has identified the demand potential in commodity polymers to go up from 5.3 million tonnes in 2006-07 to 12.5 million tonnes by 2011-12. For example, IOC’s Panipat naphtha cracker plant will source feedstock from the company’s refineries at Koyali, Mathura and Panipat. That means there is no risk of feedstock price volatility for the plant. Naphtha currently sells at $700 a tonne. However, if naphtha is further process naphtha into petrochemicals, the revenue generation will swell to $1,100-1,300 per tonne. So, the superior cost economics of the petrochemical business is obvious. To take advantage of this, the company has planned an investment of Rs 30,000 crore in the petrochemical projects over the next few years.

IOC has built the Panipat naphtha cracker project to add value to excess naphtha from its existing refineries. However, its 15 mmtpa-capacity Paradip refinery is coming up as an integrated petrochemical complex. That signals a basic shift in the company’s refining business model towards more value added products. The downstream plastic processing industry is set to benefit from the growing price competition in the domestic polymer market. The Panipat naphtha cracker will produce 800,000 tonnes per annum (tpa) of ethylene, 600 tpa of propylene, 125 tpa benzene, and other products like LPG, pyrolysis fuel oil, components of petrol and diesel. Non-petrochemical products will be sent back to the IOC’s Panipat refinery for further processing.

IOC’s Panipat naphtha cracker is designed to produce 600 tpa of polypropylene, 300 tpa high-density polyethylene (HDPE), 350 tpa linear low density polyethylene (LLDPE) with 350 tpa swing production of HDPE and 325 tpa mono ethylene glycol (MEG) plant.
The polypropylene (PP) unit is designed to produce high quality and high value niche grades, including high-speed bi-axially oriented polypropylene (BOPP), high clarity random co-polymers and super-impact co-polymer grades and polyethylene.
BOPP is used for food packaging and laminations while high clarity random co-polymers are used as raw material for manufacturing food containers and thin walled products. Polyethylene finds applications in batteries, automobile parts, luggage and heavy duty transport containers whereas polyethylene is used for making injection moulded caps, heavy duty crates, containers, bins, textile bobbins, luggage ware, thermoware, storage bins, pressure pipes for gas and water, blow-moulded bottles and jerry cans.

It is not that IOC is to the petrochemical business. It is already producing methyl tertiary butyl ether (MTBE) and butene-1, linear alkyl benzene (LAB) paraxylene and purified terephthalic acid (PX/PTA) at its various refineries. RIL’s polymer production increased 33% to 4.1 million tonnes in 2009-10 because of polypropylene production from its new SEZ facility and higher polyethylene production. Ethylene production increased 5% to 1.8 million tonnes and propylene production from cracker units increased 6% to 735 thousand tonnes.
Propylene production from refineries at Jamnagar has increased by 101% from 8.64 tonnes to 1.73 million tonnes due to the incremental production from SEZ refinery. Polyester production volume increased 9% to 1.7 million tonnes. During the year, production of RIL’s fibre intermediates (PX, PTA and MEG) increased to 4.6 million tonnes.