Petrochemicals: Hike import duty on polymers

Petrochemicals are chemicals manufactured from petroleum feed stocks.

Petrochemical manufacturing involves manufacture of building blocks by cracking or reforming operation; conversion of building blocks into intermediates such as fibre intermediates (Acrylonitrile, Caprolactam, Dimethyl Terephthalate/Purified Terephthalic Acid, Mono Ethylene Glycol); precursors (Styrene, Ethylene Dichloride, Vinyl Chloride Monomer, etc) and other chemical intermediates; production of synthetic fibres, plastics, elastomer, other chemicals and processing of plastics to produce consumer and industrial products.

Sector expectation

The sector expects the import duty on two basic feed stocks, viz. naphtha and propane, shall be reduced from 5% to nil.
Import duty on polymers, chemicals and fibre intermediates should be rationalised and increased to 10% from current 5%.
Excise duty on Naphtha to be brought down to 8% from current 16% and maintain excise duty on polymer at 8%.
Customs duty on capital goods imported by Petrochemicals sector be made 'nil' and the customs duty on catalysts imported for use in manufacture of petrochemicals (like EDC, VCM and Styrene) be made 'nil'.

India has huge growth potential in petrochemicals going by the current per capita consumption of polymers and petrochemicals. This growth potential has not materialized largely due to the high excise duty rate on petrochemicals.

So the sector expects cut in excise duty, which will boost the consumption of petrochemicals thereby partially or fully offsetting the loss in revenue from excise duty.

Analysts/market expectations

It is likely that the excise duty on Naphtha could be brought down on par with general CENVAT rule at 14% from 16%.

Stocks to watch

RIL, Finolex Industries, DCW, Bombay Dyeing

Outlook

Petrochemical sector in recent times has been hit hardly by the volatility in crude prices and demand destruction worldwide due to global recession. Indian petrochemical sector too performed meekly.

Globally import duty on polymer ranges from 6.5% (Europe and USA) to as high as 30% in Malaysia. In Saudi Arabia it is at 12.5% where feedstock cost is almost one-sixth in India.

So it becomes pertinent to rationalize duty on polymers to generate more investment in the sector.

Outlook: Neutral