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Pratim Ranjan Bose

Kolkata, Sept. 24 Haldia Petrochemicals Ltd (HPL) seems to have been caught in the crossroads of short-term sacrifices for a longer-term gain.

While a low naphtha price and weak rupee regime is welcome in the longer term perspective, in the short-run the company is facing a lower demand for its products — leading to rising inventory — as buyers are postponing purchases in anticipation of slide in product prices.

To add to the problem, the sharp fall in feedstock as well as polymer product prices is adding pressure on margins due to trade losses involved.

Sources close to the company told Business Line that the naphtha prices had come down from as high as $ 1100 a tonne to $ 750 in last two months. Overall naphtha prices have reportedly dropped by 38 per cent from the peak rate in this fiscal.

Meltdown in feedstock price has naturally led to frequent downward product price revisions by HPL. According to available information, the company has revised its polymer product prices at least in 10 occasions between April and September 2008 as against about 11 revisions in the full year of 2007-08.

The impending situation, therefore, made HPL’s customers hopeful of further cut in product prices. As the company continues to operate at 110 per cent capacity utilisation, HPL’s polymer product inventory has moved by nearly 25-30 per cent during the last one month as most of the downstream processors rationed their purchases.

Incidentally, HPL is a fully naphtha-based petrochemical producer as against fully gas-based facility of GAIL and mixed (gas and naphtha) feedstock usage pattern of Reliance.

The longer-term scenario, however, is bullish and profits for this fiscal may surpass the projections, if naphtha stabilises at the reasonable levels and rupee continues to be weak.

According to the industry norm, HPL consumes feedstock and sells its products at dollar-denominated price, which is converted into Indian rupee at the prevailing exchange rate for accounting purposes.

The rupee became weaker by a little over 500 paise between April and September this year. According to a back-of-the-envelope calculation, if the rupee stabilises at this level the company’s bottomline may receive a net positive impact of about Rs 20 crore a month for next six months of this fiscal.

More Stories on : Outlook | Petroleum

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