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Global Markets of Polypropylene and Plastics

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Devansh Doshi
Devansh Doshi

Packaging and automobiles are major sectors for plastic consumption in India. India imports raw materials for plastics and exports some finished plastic goods. While India imports most primary forms of plastics, it has a trade surplus in polypropylene. The global polypropylene market can be segmented into volume players like Saudi Arabia and innovators like the US. India exports polypropylene at low prices compared to other exporters. Expanding primary plastics production may ensure long-term sustainability as 3D printing threatens processed plastics exports.

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November 2014 An Indo-GCC focus edition
Trade Winds | Special Edition A look at the trade figures for the HS code for plastics shows up some interesting facts. India is a net importer of plastics. This should not be surprising as we are a country of one billion plus people. Packaging is a major sector where plastic is an important input. Another major sector for plastics’ consumption is automobiles. Hyundai makes i20 and i30 in India and exports them to Europe but it hasn’t launched i30 in India which shows that India is an important manufacturing hub for the company. Construction, transportation, medical devices, and electrical goods other sectors where plastics consumption will be on the rise. India has a relatively meagre share of 1.1% in world exports and 1.7% share in world imports. Looking at the trade balances in plastics items, one finds that India imports raw materials and export finished goods. In 2013, India had a negative trade balance of 145 million USD in scraps showing India’s potential of processing plastics. But largely we consume a lot, leaving little for exports. But what might surprise you that in 2013, 55% of export value in plastics was in primary form. While we are net importers of the primary forms of plastics, polypropylene stands out to be an exception. There is a positive trade balance of 314 million USD in polypropylene in 2013. IOC, HCPL, RIL, and BPCL are the major producers in India. With capacity expansion and new players planning to enter the market, India’s production of polypropylene is set to increase. Global Suppliers of Polypropylene An analysis shows that the global markets can be segmented in two parts: the volume players and innovators. The Volume Players When crude oil undergoes fractional distillation, polypropylene is formed. Hence logically the countries endowed with crude oil Global markets for Polypropylene and Plastics By Devansh Doshi MBA (IB) 2013-15 CommodityWatch Packaging is a major sector where plastic is an important input. Another major sector for plastics’ consumption is automobiles. 11% 10% 9% 8% 7%7%7% 40% 0%0%0%0%0%0%0%0%0%..11 0.2% World Top Exporters of Polypropylene in 2012 Saudi Arabia Belgium Korea, Rep. United States European Union Germany Singapore RoW 3.17 3.19 4.37 5.72 0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 Korea, Rep. Singapore Belgium Saudi Arabia RCA of The Volume Players in 2012 Indian Institute of Foreign Trade 34
Trade Winds | Special Edition reserves are bound to be the top exporters in this category. Hence Saudi Arabia continues to enjoy high relative comparative advantage in polypropylene exports. Other countries South Korea, Belgium, and Singapore have large production capacity and low domestic demand propelling a high comparative advantage for them The Innovators USA, Germany, and France are the top exporters besides having relatively lower comparative advantage than the volume players. The polypropylene industries in these countries are on the decline. But what keeps their plastics exports high is their ability to innovate and use polypropylene for manufacturing other plastic items. These countries also find it profitable to market their surplus production. Global Markets for Plastics A simple analysis of global trade balances of various countries in plastics reveals that there are four segments of players: consumers, processors, suppliers, and exporters. These four segments tell us about these countries respective capacities and demand in this sector. Exporters These are the countries that have positive trade balance in primary and processed forms. These countries have access to raw materials and sufficiently large production capacity. The major countries in this segment are Belgium, Netherlands, Japan, South Korea, and United States of America. They are the biggest competitors for India in the global markets. Processors These countries have established capacities for processing of primary forms of plastics. The major countries in this segment are China, Germany, India, and Italy. China and India have huge internal demand for plastics since they have a large population. Their oil resources are used for production of plastics. Germany and Italy have huge processing capacities and generally supply processed plastics to other EU members. Consumers These are the countries that have huge internal demand for plastics and inadequate production and processing capacities. The major countries within this segment are Brazil, Indonesia, Mexico, Myanmar, Norway, and Yemen. Huge internal demand results in imports of raw material and finished goods. Their production capacities are utilized to the maximum. These countries have a negative trade balance in primary and processed forms CommodityWatch 1 1.41 1 0 0.5 1 1.5 Germany France USA RCA of The Innovators in 2012 Suppliers Exporters Consumer Processor Positive Balance of Primary Form Negative Balance of Primary Form PositiveBalanceofProcessedForm Indian Institute of Foreign Trade 35
Trade Winds | Special Edition trade balance in primary and processed forms of plastics. India should be looking at these markets because of low competition from domestic players in these countries. Except South Africa, all African countries fall under this category. Low level of development and manufacturing competitiveness is the reason for this trend. Niger, Sao Tome and Principe, Botswana, Burundi, Cape Verde, Namibia, Rwanda, Mauritius, Mauritania, South Africa, and Mozambique are some of the African countries that have less than 0.5 value of RCA. This opens up an opportunity for India to export to these countries. Suppliers These countries have huge capacities for production of plastics in primary forms but lack processing capabilities. This results in large exports of primary forms of plastics and import of processed plastics. The major countries are France, Japan, Kuwait, Saudi Arabia, Singapore, and UAE. As we can see most of these countries have access to crude oil which makes production cheaper. But lack of processing capability makes them pay more for processed products. India’s Polypropylene Exports An interesting observation in this graph is that despite importing a major share of crude oil, we still manage to export polypropylene at the lowest price as compared to other top exporters. This exemplifies our operational expertise. The graph below shows that our export market concentration index has been quite low. But the rise needs to be kept under check. As discussed earlier in this article, India exports polypropylene. Conventional wisdom says that more processed products fetch a higher value and hence higher profit. Hence we should focus on developing capacity for innovative and micro targeted products that will boost our image in the global market. 3D printing can be seen as the biggest threat to processed plastic products trade. With the proliferation of 3D printers and advancement of the technology, it might sound a death knell for processed plastics exports. They lower the cost of producing these processed plastic goods and are capable of mass production as well. Hence, future developments in this area of technology are going to be a major inhibitor in the global trade of processed plastics. Keeping this in view, expanding production of primary forms of plastics seems to ensure long term sustainability. As this technology will become more widespread, the demand for plastics in primary forms is bound to increase.● CommodityWatch 0 500 1000 1500 2000 2500 Saudi… Belgium Korea,… United… Germany Singapore France Netherlan… Thailand Hong… Taipei,… India Unit Price of Polypropylene in USD per ton 0.0755 0.152 0.1167 0.1256 0.1795 0 0.05 0.1 0.15 0.2 2008 2009 2010 2011 2012 HH Market Concentration Index for Polypropylene Indian Institute of Foreign Trade 36

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Global Markets of Polypropylene and Plastics

  • 2. Trade Winds | Special Edition A look at the trade figures for the HS code for plastics shows up some interesting facts. India is a net importer of plastics. This should not be surprising as we are a country of one billion plus people. Packaging is a major sector where plastic is an important input. Another major sector for plastics’ consumption is automobiles. Hyundai makes i20 and i30 in India and exports them to Europe but it hasn’t launched i30 in India which shows that India is an important manufacturing hub for the company. Construction, transportation, medical devices, and electrical goods other sectors where plastics consumption will be on the rise. India has a relatively meagre share of 1.1% in world exports and 1.7% share in world imports. Looking at the trade balances in plastics items, one finds that India imports raw materials and export finished goods. In 2013, India had a negative trade balance of 145 million USD in scraps showing India’s potential of processing plastics. But largely we consume a lot, leaving little for exports. But what might surprise you that in 2013, 55% of export value in plastics was in primary form. While we are net importers of the primary forms of plastics, polypropylene stands out to be an exception. There is a positive trade balance of 314 million USD in polypropylene in 2013. IOC, HCPL, RIL, and BPCL are the major producers in India. With capacity expansion and new players planning to enter the market, India’s production of polypropylene is set to increase. Global Suppliers of Polypropylene An analysis shows that the global markets can be segmented in two parts: the volume players and innovators. The Volume Players When crude oil undergoes fractional distillation, polypropylene is formed. Hence logically the countries endowed with crude oil Global markets for Polypropylene and Plastics By Devansh Doshi MBA (IB) 2013-15 CommodityWatch Packaging is a major sector where plastic is an important input. Another major sector for plastics’ consumption is automobiles. 11% 10% 9% 8% 7%7%7% 40% 0%0%0%0%0%0%0%0%0%..11 0.2% World Top Exporters of Polypropylene in 2012 Saudi Arabia Belgium Korea, Rep. United States European Union Germany Singapore RoW 3.17 3.19 4.37 5.72 0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 Korea, Rep. Singapore Belgium Saudi Arabia RCA of The Volume Players in 2012 Indian Institute of Foreign Trade 34
  • 3. Trade Winds | Special Edition reserves are bound to be the top exporters in this category. Hence Saudi Arabia continues to enjoy high relative comparative advantage in polypropylene exports. Other countries South Korea, Belgium, and Singapore have large production capacity and low domestic demand propelling a high comparative advantage for them The Innovators USA, Germany, and France are the top exporters besides having relatively lower comparative advantage than the volume players. The polypropylene industries in these countries are on the decline. But what keeps their plastics exports high is their ability to innovate and use polypropylene for manufacturing other plastic items. These countries also find it profitable to market their surplus production. Global Markets for Plastics A simple analysis of global trade balances of various countries in plastics reveals that there are four segments of players: consumers, processors, suppliers, and exporters. These four segments tell us about these countries respective capacities and demand in this sector. Exporters These are the countries that have positive trade balance in primary and processed forms. These countries have access to raw materials and sufficiently large production capacity. The major countries in this segment are Belgium, Netherlands, Japan, South Korea, and United States of America. They are the biggest competitors for India in the global markets. Processors These countries have established capacities for processing of primary forms of plastics. The major countries in this segment are China, Germany, India, and Italy. China and India have huge internal demand for plastics since they have a large population. Their oil resources are used for production of plastics. Germany and Italy have huge processing capacities and generally supply processed plastics to other EU members. Consumers These are the countries that have huge internal demand for plastics and inadequate production and processing capacities. The major countries within this segment are Brazil, Indonesia, Mexico, Myanmar, Norway, and Yemen. Huge internal demand results in imports of raw material and finished goods. Their production capacities are utilized to the maximum. These countries have a negative trade balance in primary and processed forms CommodityWatch 1 1.41 1 0 0.5 1 1.5 Germany France USA RCA of The Innovators in 2012 Suppliers Exporters Consumer Processor Positive Balance of Primary Form Negative Balance of Primary Form PositiveBalanceofProcessedForm Indian Institute of Foreign Trade 35
  • 4. Trade Winds | Special Edition trade balance in primary and processed forms of plastics. India should be looking at these markets because of low competition from domestic players in these countries. Except South Africa, all African countries fall under this category. Low level of development and manufacturing competitiveness is the reason for this trend. Niger, Sao Tome and Principe, Botswana, Burundi, Cape Verde, Namibia, Rwanda, Mauritius, Mauritania, South Africa, and Mozambique are some of the African countries that have less than 0.5 value of RCA. This opens up an opportunity for India to export to these countries. Suppliers These countries have huge capacities for production of plastics in primary forms but lack processing capabilities. This results in large exports of primary forms of plastics and import of processed plastics. The major countries are France, Japan, Kuwait, Saudi Arabia, Singapore, and UAE. As we can see most of these countries have access to crude oil which makes production cheaper. But lack of processing capability makes them pay more for processed products. India’s Polypropylene Exports An interesting observation in this graph is that despite importing a major share of crude oil, we still manage to export polypropylene at the lowest price as compared to other top exporters. This exemplifies our operational expertise. The graph below shows that our export market concentration index has been quite low. But the rise needs to be kept under check. As discussed earlier in this article, India exports polypropylene. Conventional wisdom says that more processed products fetch a higher value and hence higher profit. Hence we should focus on developing capacity for innovative and micro targeted products that will boost our image in the global market. 3D printing can be seen as the biggest threat to processed plastic products trade. With the proliferation of 3D printers and advancement of the technology, it might sound a death knell for processed plastics exports. They lower the cost of producing these processed plastic goods and are capable of mass production as well. Hence, future developments in this area of technology are going to be a major inhibitor in the global trade of processed plastics. Keeping this in view, expanding production of primary forms of plastics seems to ensure long term sustainability. As this technology will become more widespread, the demand for plastics in primary forms is bound to increase.● CommodityWatch 0 500 1000 1500 2000 2500 Saudi… Belgium Korea,… United… Germany Singapore France Netherlan… Thailand Hong… Taipei,… India Unit Price of Polypropylene in USD per ton 0.0755 0.152 0.1167 0.1256 0.1795 0 0.05 0.1 0.15 0.2 2008 2009 2010 2011 2012 HH Market Concentration Index for Polypropylene Indian Institute of Foreign Trade 36