The domestic polyester industry is faced with an uncertain raw material availability situation. This has forced the industry to shelve most of its future investment/expansion plans as the supply of key raw material, PTA (purified terephthalic acid) to the industry is expected to be impacted in the near future.
Industry observers are of the view that though the demand and supply equilibrium of PTA is currently maintained, the scenario is all set to change adversely in the near future if the right measures are not initiated at the earliest to increase the supply of this key raw material. Moreover, the demand-supply scenario is so precariously placed that in case of any shut-down by PTA players (three are only three – RIL, IOCL and MCPI Pvt Ltd), the supply is adversely impacted and then the polyester manufacturers have no option but to curtail the production. Currently, at 6.5 million tonnes per annum, PTA production is equivalent to its consumption by the polyester industry to produce PSF (production: 1.3 million kg), PFY (3.8 million Kg), PET bottles (1.5 million) and films (0.6 million).
On one hand, the domestic PTA capacity is restrained, while on the other, imports of PTA has become unviable following the Indian government imposing anti-dumping duty (around two years ago) ranging from $83.08 per tonne to $168.76 per tonne depending on the producer and country of exports. PTA originating from five countries, China, Iran, Taiwan, Indonesia and Malaysia is attracting duties. PTA imports invite 5 per cent customs duty, while PTA is at present priced at around $720 per tonne.
"Availability of PTA, our key raw material is likely to be an issue going forward if supply constrained is not addressed. At present, we have adequate supply of PTA, but this may not be the case if various issues impacting the supply are not resolved in a time bound manner.
In this uncertain situation, we are not in a position to take any business decision for future. Most of the polyester players are in a fix and holding on to their future expansion plans, even as demand is growing consistently," says MS Bagheria, President, PTA Users Association and chairman of Filatex India. The Rs 1,500-crore polyester manufacturing company has currently kept on hold its 200,000 tonnes per annum expansion plan due to PTA supply issue.
Bhilosa Industries, undertaking an expansion plan of 0.5 million tonnes of PSF/ PFY, is closely monitoring the situation. IOC (Haldia) is also looking to put up around 300,000 tonnes capacity. Similarly, Wellknown also has expansion plan for around 200,000 tonne polyester capacity.
"If the supply of PTA is not increased adequately, all these plans will go haywire. Most of the players are indecisive at present and this will adversely impact the overall polyester industry going forward. It is high time that government and other stakeholders come forward to address this situation," believes RK Vij, adviser (polyester) at Indo Rama Synthetics and general secretary of PTA Users Association. The association, formed few years ago to address issues related to PTA users, has already made representation to relevant government agencies and ministries to take up the matter of anti-dumping duty on PTA imports.
The current equilibrium of PTA production and consumption is not going to last long as the consumption is likely to surpass the production of PTA as the domestic polyester industry will have to grow at a CAGR of over 6-7% in order to meet the growing demand from user industry. Capacity utilization of PTA is hovering above 80% in the last decade. Demand for PTA will increase at a CAGR of 7.8% between fiscal year 2016 to 2021 and is expected to reach 8 million tonnes from the present level, says a report.
The domestic polyester industry has also urged the government to look into the inverted duty problem. While raw material PTA is levied with a higher GST of 18%, polyester yarn now attracts a GST of 12% after the recent GST revision. PSF continues to attract higher GST of 18%.