Commodities

‘Rising crude oil prices a concern for polyester film industry’

Subramani Ra Mancombu Chennai | Updated on July 23, 2021

Rates have impacted the recent quarter; sector's growth seen at 9 per cent over the next few years

Rising crude oil prices, besides depreciating Indian rupee, are causing concern to industries such as polyester film that are dependent on crude oil derivatives, one of the country’s leading producers of value-added polyester films has said.

“The increase in crude oil prices has impacted company margins in the recent quarter,” said CJ Pathak, Director, Garware Polyester Ltd.

Benchmark Brent crude oil prices have gained some 42 per cent since the beginning of this year. On Friday, it was quoted at $73.47 a barrel.

Basic raw materials

Pathak said that selling prices of polyester films vary, factoring in the increase or decrease in the prices of purified terephthalic acid (PTA) and mono ethylene glycol (MEG), the basic raw materials for the manufacture of polyester chips derived from crude oil.

Crude oil prices and (currency) exchange rates have a major role in the prices of PTA and MEG. The Indian rupee has been volatile this year. Currently, it is nearly two per cent lower since the beginning of the year to the dollar at 74.44.

Going forward, the Garware director sees the behaviour of crude oil prices being unpredictable. “Crude oil price depends on several factors such as increased supply from Organization of Petroleum Exporting Countries (OPEC) and other oil-producing countries, opening up of the economies after the Covid, which in turn will generate more demand for oil, as also the currency fluctuation,” he said.

Consumer acceptance

Consumers of polyester films seem to be accepting the fluctuating trend in prices. Any price movement - up or down - is immediately passed on to the customer in commodity. In contrast, while in specialty products such as value-added polyester films, the hike or cut is passed on with time lag depending on the contracts, said Pathak.

As these costs are passed onto the end-consumer with some lag, it does not impact the medium to long term manufacturers. “However, it unfortunately results in unstable finished goods prices to consumers, causing discomfort to the end-users as the rise in raw material costs is recovered from end-customers,” he said.

The Indian polyester film industry has been facing other problems, mainly due to the Covid pandemic shutdowns. “The lockdowns did pose a challenge in terms of workforce and logistics leading to pressure on sales and pricing. In exports, the sea freight has doubled in the past year with infrequent sailing schedules and delayed deliveries to customers,” the Garware official said.

Soaring sea freight

Across the world, countries are worried over sea freight charges besides non-availability of containers and sailings of vessels delayed. The Freightos Baltic Index has nearly doubled this year to 6,505 from 3,448 on January 1.

The Covid pandemic also resulted in irregular sailing schedules and delayed deliveries to customers, Pathak said, adding that GHFL, on the other hand, has been operating at full capacity since the curbs were relaxed.

“We have (since) seen a surge in demand as the global economies have opened up,” he said.

GHFL housed most of its workforce with all amenities taking advantage of its space, the Garware director said.

Growth prospects

With a supermarket and packaged food sectors gaining a foothold, the polyester film industry is forecast to grow by 9-12 per cent in large Asian economies such as India and China over the next few years, the Garware director said.

“Capacities in the thin films continue to be added in India by many companies with the supermarket and packaged food sector gaining traction,” said Pathak.

Garware, which produces value-added polyester films through Garware Hi-tech Films Ltd (GHFL), added a new line for paint protection films in December last year,

While most companies in India focus on thin films up to 50 microns, Garware focusses on value-added lines that produce thick films up to 350 microns.

“Thick films are the value-added ones that are used for various uses like insulation in hermetically sealed compressors, sustainable packaging, sun control films and laminations,” Pathak said.

GHFL, the pioneer in specialty film manufacturing and largest exporter, has focussed on value-added lines to overcome such global problems. The company added a new line for paint protection films in December last year, while adding capacities to its lamination film line, witnessing good demand in the global market.

GHFL produces 76 per cent of value-added films exported to over 80 countries, and is the only manufacturer of sun-control films and paint protection films in India. Globally, it is among the top three players in sun-control films, besides holding 90 per cent market share in the manufacture of shrink films used in label application.

Published on July 23, 2021

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

This article is closed for comments.
Please Email the Editor

You May Also Like