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Though less than 5% of the oil and gas is used for conversion to chemicals, the unprecedented volatility in feedstock prices and intense currency fluctuations are throwing to winds all calculations and protection measures undertaken by chemical producers. There is little choice for chemical producers but to pass on the higher feedstock prices to downstream customers. However, in many cases its difficult to pass on the costs, due to consumer resistance, consumers moving to other alternatives and the need to maintain markets in the face of intense competition. Many companies are seeing a threat to the high profits they made in the first half of the year, which could erode fast. The problem is compounded in India due to imports of very competitively priced chemicals and the high interest rates the Reserve Bank is imposing to curb demand.
Lately, there has also been a slowdown in project construction in the domestic market which is affecting capital equipment manufacturers. Besides, there is intense competition for available domestic projects, from firms in Korea, Japan and other countries who offer competitive and efficient services due to their consummate capabilities in working as a consortium, a characteristic, Indian companies are unable to emulate, despite discussing this since the last several decades.
Our internal inefficiencies, higher cost of production, higher business transaction costs (an euphemism), higher energy costs, higher feedstock cost and so on lead companies to pressurize the government to unleash the anti-dumping mechanism. This has upset many foreign countries particularly Saudi Arabia and China. While Chinese pricing methodologies are not transparent, competing with Saudi Arabia and other Middle East suppliers who have access to advantaged feedstocks and cheap energy would be extremely difficult for Indian companies – and the anti-dumping duties will only remain as a sore point in trade relations. Now, that more and more Indian companies are looking to invest overseas, it would be prudent for Indian companies to undertake joint ventures in strategically safe countries, which have cost competitive feedstocks and energy. The output could be imported to India for further value addition that requires higher knowledge skills and inputs.
India shouldn't miss the bus as the Middle East gets more into downstream areas. Saudi Arabia is becoming a leader in the petro-chemical industry accounting for 50% of the Gulf Co-operation Council's (GCC) 105.7mtpa of petrochemical capacity in 2009. There are several new capacities kicking off in the last quarter of this year in the Middle East, which is expected to improve the availability of ethylene, propylene and their derivatives across the regions. In the downstream area, one single project – the Sadara Chemical Co., in Saudi Arabia, a joint venture between The Dow Chemical company and Saudi Aramco, where site preparation has already commenced will see a mammoth investment of US$20 billion, comprising 26 manufacturing units. This will be the single largest chemical cluster, anywhere in the world once it comes up. The complex with flexible cracking and multi feedstock capability will manufacture a differentiated product slate of over 3 million metric tonnes per year of products such as polyurethanes, propylene oxide, propylene glycol, elastomers, lldpe and ldpe, glycol ethers and amines. And where will all these be sold? Two huge markets these projects would target are China and India. Until, the Gulf states get into 'home grown technology', JVs will remain the business model for such investments, which Indian industrialists should seriously consider.
Energy and water are two areas of concern for Indian industry. According to the International Energy Outlook (IEO 2011), China, and India lead the growth in world demand for energy, with the countries together to account for 50% of the projected increase in world energy use over the next 25 years. In this context the looming energy shortage in India is extremely serious with no overall vision plan to exploit all sources of energy. We are heavily dependent on coal and oil & gas. The country is now hit with a coal shortage also, leading to power plant outage. In such a scarcity situation, the public outcry against nuclear energy in India is totally misplaced and based on orchestrated disinformation. If one takes past record in terms of mishaps and deaths, even including the Chernobyl disaster and lately the much quoted Fukushima (which was the result of a natural catastrophe and not a malfunctioning of the nuclear plant), nuclear energy is the safest and greenest. It is far, far, safer than many chemical plants (if one were to compare with Bhopal and other incidents) and the daily deaths from automotive accidents. The fear is highly exaggerated by some motivated groups and those who lost out in their agenda against the Indo-US nuclear treaty, who are blowing up what could go wrong in the wake of a nuclear meltdown – which is an imaginary and hypothetical case. It is high time the scientific community came out in the open and rebutted all the fears and false propaganda through hard scientific facts in plain language, understandable to the general public.
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