Several Indian petrochemical producers have cut polymers production after the government restricted access to feedstock natural gas supplies following the de facto closure of the strait of Hormuz.
The government last week told gas distributors to start full or partial curtailment of gas supplies to petrochemical plants, including ONGC Petro Additions (Opal), Gail's Pata petrochemical complex, Reliance's oil-to-chemicals units and other high-pressure, high-temperature gas consumers, as well as power plants.
New Delhi has also directed local refineries to prioritise domestic cooking gas needs by redirecting propane, butane, propylene, and butenes output away from petrochemical production.
Before the disruption, India's domestic LPG output met about 40pc of national demand. About 90pc of India's LPG imports came from the Middle East.
State-controlled Indian Oil has shut one of two polypropylene (PP) production lines at its Paradip facility in Odisha, with the other running at lower run rates, market sources said. The company's Panipat naphtha cracker is also running at reduced rates, a source said, without disclosing current rates at the plants. The Panipat and Paradip facilities have PP production capacities of 600,000 t/yr and 680,000 t/yr, respectively.
Mangalore Refinery and Petrochemicals, a subsidiary of state-owned ONGC, has also cut output at its 440,000 t/yr PP plant in Mangalore in the southern state of Karnataka, a market source said.
Reliance Industries has reduced output at some of its PP facilities, another market source added. The company has total PP production capacity of 2.97mn t/yr across Hazira, Jamnagar and Vadodara in the western state of Gujarat and Nagothane in neighbouring Maharashtra.
On 5 March, Opal said production from its Dahej plant was affected by feedstock supply disruptions caused by the Iran war. State-owned Gail has also brought forward its planned shutdown of the Pata complex by a week to comply with the latest government order. The plant has a linear low-density polyethylene/high density polyethylene (LLDPE/HDPE) swing unit with a capacity of 610,000 t/yr and a separate HDPE unit of 200,000 t/yr.
Risks of full shut down
The Middle East accounts for 53pc of India's total PP imports, or 847,000t, and 62pc of India's total PE imports, or around 1.28mn t. With overseas supply largely absent, converters are relying on domestic producers for prompt shipments. But continued reduced output at local producers could tighten supplies further.
Indian converters, particularly small-scale producers, risk facility shutdowns as domestic polymers prices have gone up by over 40pc for most grades since the war began because of the supply crunch.
"There will be a demand destruction," if the conflict drags on, a Mumbai-based market source said.
Smaller converters are unable to absorb the higher prices, another market source added. "We are already hearing that many customers are planning on closing down," the source said.
To fill the gap left by Middle East producers, some Chinese suppliers are sending PP cargoes to India, but volumes are limited as some expect prices to rise further. PE supply is even tighter, several market participants said.
