Indian petrochemical industry battles demand loss amidst Covid-19 pandemic

GlobalData Energy 15 July 2020 (Last Updated July 15th, 2020 16:04)

India is currently the third largest affected country in the world with more than nine lakh reported COVID-19 cases, only behind the US and Brazil. The first case in the country was reported in Kerala at the end of January 2020 and increased gradually at a slower pace during February-April 2020.

Indian petrochemical industry battles demand loss amidst Covid-19 pandemic

India is currently the third largest affected country in the world with more than nine lakh reported COVID-19 cases, only behind the US and Brazil. The first case in the country was reported in Kerala at the end of January 2020 and increased gradually at a slower pace during February-April 2020. There has been a sharp increase of new COVID-19 cases in June 2020. The government had implemented a nationwide lockdown, with several state governments still continuing it, in order to help prevent the spread of coronavirus.

The COVID-19 pandemic has presented newer challenges in India, as the nation-wide lockdown imposed in late March (eased over the past few weeks), has resulted in workforce shortages and supply chain disruptions across the country. Most of the upcoming projects are largely concentrated in developed western states such as Gujarat and Maharashtra, largely targeting the growing demand in the country. Companies would implement contingency plans to mitigate impact on vendor services and equipment deliveries due to COVID-19 lockdown and restrictions.

Globally, India leads with the largest pre-construction capacity additions in the world. The outbreak of COVID-19 pandemic and consequent lockdowns have set forth new constraints in the progress of petrochemical projects. Companies are likely to re-evaluate their investment plans on new projects and this could alter financial investment decisions (FIDs), especially projects targeting FIDs in 2020 foresee higher risk of postponement. Global oversupply concerns and weaker domestic demand are also expected to elevate risks of project/FID delays over the short term.

The demand for petrochemicals in India is likely to be hit hard in 2020, as growth concerns in key end-use segments such as construction, automotive etc. have impacted at large. Some of the other end-use segments such as packaging, healthcare, consumer etc., often termed as essential services, continue to grip demand going down further. Demand growth of key polymers in India is expected to deteriorate in 2020 to around 1%, after an average growth of around 5% over the past few years.

The outbreak has significantly impacted business operation of the companies, through interruptions in production and supply chains, labor shortages, idling/closure of plants etc. Producers are likely to maintain lower utilization rates and would continue to closely monitor changes to future economic conditions, which looks challenging in the short term. Companies are likely to slash capital and operational spend, in response to demand crunch and drop in oil prices caused by the spread of the COVID-19 pandemic.