Rising petrochemicals supply in India to reduce import demand: Moody's

Growing petrochemical capacities in India as well as China will continue to bolster supply, according to Moody's. India is currently a net importer of petrochemicals.

The pace of investment in petrochemicals production capacity will likely accelerate in India, reflecting the high potential for demand growth, the credit rating agency says in a report.

Rising self-sufficiency in petrochemicals in major emerging markets China and India will reduce their import demand, prompting their suppliers to seek new markets in other regions, Moody's says.

This comes at a time when Indian state-owned oil and gas companies are investing significantly to increase capacities to boost the country's petrochemical supply.

For instance, Indian Oil Corporation Ltd (IOCL) in March this year approved a $7.4 billion investment for the construction of a petrochemical complex in Odisha. Capacity for petrochemicals in the country will further increase by around two million tonnes per year following the planned completion of Hindustan Petroleum Corporation Ltd's (HPCL) Barmer refinery and petrochemical complex in January 2024 that is estimated to cost around $8.7 billion. Bharat Petroleum Corporation Ltd (BPCL) is also planning for an ethylene cracker at its Bina refinery that is estimated to cost $5.9 billion.

The investments are in line with their mandate to boost the country's self-sufficiency while capitalising on growing domestic demand. "Potential for demand growth is high in India as consumption of petrochemicals per capita is still low compared with China. Despite recently surpassing China's population, India's 2021 demand for polyethylene and polypropylene was less than one-fifth that of China's," the report says.

India's petrochemical sector is projected to grow at about 11% per annum from 2021-27 to $100 billion in 2027, and will continue to grow at a similar rate to reach $350-$370 billion in 2040, according to a report by McKinsey & Company in March 2023.

"We expect India's petrochemical supply will grow rapidly in the next five years to meet domestic demand growth. But rapid growth will add to oversupply risks if domestic demand growth is weaker than market expectations," says Moody's.

"Petrochemical supply will grow significantly in China this year as new capacities come on stream and giant plants in the country ramp up operations. Although India, another major emerging market, is a bright spot for demand, growing domestic supply will constrain its ability to absorb excess supply from the region," the rating agency says.

Producers in Korea, Japan and Taiwan, which together accounted for nearly half of China's petrochemical imports in 2022, will have to seek alternative markets as China's imports decline, it adds.

China's capacity growth in petrochemicals will likely slow in the next five years from the pace over the last decade, as attention grows on higher value-added products such as specialty chemicals.