Challenges ahead for Indian Petrochemical companies in 2024

Hyderabad: Indian petrochemical giants, including Reliance Industries, GAIL, and Indian Oil, are poised to grapple with persistent margin pressures in the upcoming year. Projections from brokerage firm Prabhudas Lilladher suggest that these companies may continue to face significant hurdles, primarily stemming from international dynamics affecting the global petrochemical landscape.

One of the critical factors contributing to the strain on margins is China's strategic shift towards bolstering its domestic petrochemical production. As the world's largest producer and consumer of petrochemicals, China has made substantial strides in enhancing its self-sufficiency, thus reducing its reliance on imports. This shift has tilted the supply-demand balance, creating a scenario where production capacities surpass the existing market demand.

Simultaneously, subdued demand in Europe compounds the challenges faced by Indian refiners. The continent grapples with high inflation and interest rates, which have led to suppressed product margins. The ongoing concerns regarding demand in Europe exacerbate the global oversupply of petrochemicals, contributing to the prevailing weakness in product margins.

Despite ambitious expansion plans announced by Indian refiners like Reliance, Indian Oil, and GAIL, the outlook remains bleak. Reliance's slated expansion across its petrochemical value chain, scheduled for completion by 2026, and Indian Oil's ambitious target of ramping up its petrochemical capacity to 15 mmtpa by FY30 indicate the companies' efforts to expand their foothold. Similarly, GAIL is also on track to expand its capacity by establishing new plants. However, the pace of capacity expansion might potentially worsen the oversupply situation without commensurate growth in global demand.

Adding to the complexities are forecasts indicating a mild recession in the United States and the weakened economic health of Europe. These economic headwinds are expected to contribute to stagnant or sluggish demand for petrochemical products in the next calendar year. As a result, the pressure on Indian refiners' margins is forecasted to persist through 2024.

In summary, the confluence of factors, including China's self-sufficiency drive, subdued European demand, global oversupply, and economic uncertainties in key markets, paints a challenging landscape for Indian petrochemical companies. Despite their expansion endeavors, the road ahead seems strewn with obstacles, indicating a continued struggle to bolster margins in the upcoming year.