On the back of sluggish global demand in key economies, combined with an oversupply, the petrochemical companies have been facing significant dent in their operating rates and profitability. As per the report by Icra, the tepid growth of the global economy and inflationary pressures being faced by the major chemical-consuming nations have been weighing on the demand for petrochemicals. However, the domestic demand for petrochemicals is likely to have a steady pace of growth.
As per the report, the operating rates of petrochemical companies have been facing pressures due to sizeable capacity expansions, especially in the Asian regions. In addition, the oversupply is likely to play a key role in keeping the operating rates and margins subdued in the near to medium term, as per Icra.
While the domestic volume growth is facing pressures, the domestic demand for petrochemicals is expected to witness an average annual growth rate of 6 to 8 per cent. However, the profitability and operating rates of domestic players have been squeezed due to the addition of new capacities in the local markets and the influx of cheaper imports as the large overseas producers dump their products due to weak demand in other markets, the report noted.
As far as the prices of Naphtha are concerned, while it has moderated from peak levels, the spreads continue to be under pressure as the prices of end-products remain depressed, which has impacted the manufacturer’s profitability, as per the report.
The outlook on the country’s petrochemicals industry continues to be negative due to the weak credit metrics. Icra has expected that its sample set of companies will see an improvement in their profit generation in the near to medium term but the level is likely to remain below the historic highs.
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