Page 131 - CW E-Magazine (14-5-2024)

Point of View

Petrochemical value chains are fi lling up, but the

industry still has a long way to go

In the last couple of years investments in the petrochemicals industry in India have begun to address portfolio gaps that had been
widening for more than a decade. This is, for example, amply evident in the propylene value chain wherein new capacity for several
non-polymer derivatives of the olefin has been created. While these have served to narrow the gap between domestic demand and
supply, it has not eliminated imports. Several more projects are hence in the offing, and this is welcome, even though the external
environment is currently challenging.

Globally, most petrochemical value chains are suffering from overcapacity brought about by a surfeit of investments in China, as
the country’s planners have looked to boost self-sufficiency, and, more recently, by the slowdown in its economy, which has impacted
demand for all sorts of goods and services. This has put pressure on operating rates and margins, and the reversal of the cycle is at
least a year away. The good news is that the projects in the pipeline in India – for phenol & its derivatives; acrylic acid and its esters;
oxo-alcohols, etc. are 1-2 years away and, hopefully, the commodity cycle would have reversed by then.

Competitiveness in petrochemical value chains hinges on several factors: access to growing markets; availability of competitively
priced feedstock; scale of operation; and forward & backward integration to the extent practical. Investors need several of these levers
working in their favour to have the best chance of success.

Market access
On the issue of market access, investors in India have little to complain about. Demand for most petrochemicals are still small,
compared to per capita global averages, and can only rise. This is so for all major classes of petrochemicals – thermoplastics, synthetic
rubbers, synthetic fibres & their raw materials, detergent raw materials, etc.

There are sustainability related challenges that may slow the pace of growth compared to that in the past, and this is most evident
in thermoplastics. Efforts to close material loops through mechanical and chemical recycling; enforcement of extended producer
responsibilities on plastics packaging; restrictions and even outright bans on single use plastics; and, last but not the least, compliance
with forthcoming global pacts on plastics waste, will contribute to some deceleration of demand growth from the historical levels.
It will also impact demands for a host of chemicals and additives that go into making these resins amenable for processing into the
myriad shapes and forms we find useful.

Sustainability challenges in the plastics industry will also pose new opportunities for chemicals aligned with the trend. Compatibilizers
that enable the reconstruction of multi-layer packaging with simpler more homogenous systems; additives that enable a greater fraction of
recycled resins to be used in commercial offerings while providing satisfactory performance; chemicals that enable polymer recognition in
automated recycling systems, are but a few examples of new opportunities.

Competitively priced feedstock
Petrochemical investments have traditionally flowed to regions with abundant and cheap feedstock. In recent times this has meant
the Middle East and North America, with their abundant supplies of natural gas and shale gas, respectively. In much of Asia and
Western Europe ethylene production is based on naphtha cracking – a higher cost route to ethylene, but one that provides a broader
slate of products that can be valorised in diverse value chains.

Crackers in India, China and Europe are now also looking to leverage gas as feedstock, despite having no significant resources of the
hydrocarbon in their respective countries. China now imports more ethane from the US than any other country, and in India, Reliance
has entered into long-term contracts for the same. While the manufacturing economics of doing so are somewhat compromised by
the additional costs involved in ferrying the cryogenic gas across oceans, it is still seen as a commercially viable alternative for making
ethylene derivatives. So much so, other companies in India are also looking to go this route and tying up supplies.

For propylene, refinery operations are also a cost-effective route (aside of naphtha cracking), and every major refiner in India is

Chemical Weekly May 14, 2024 131

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