Indian petrochemical producers face raw material shortages amid LPG mandate

Indian petrochemical producers are bracing for potentially acute raw material shortages expected to hit downstream petrochemical plant operations following the recent announcement by the Ministry of Petroleum and Natural Gas.

The Indian government ordered March 9 all oil refining companies operating in the country to maximize and ensure that propane and butane streams produced, recovered, fractionated, or otherwise available with them are utilized for the production of LPG and to make it available to the three public sector oil marketing companies: IOCL, HPCL, and BPCL.

The government's notice stated that all oil refining companies shall not divert, utilize, process, crack, convert, or otherwise employ propane or butane streams for the manufacture of petrochemical products or other such downstream derivatives.

The government said it was taking the initiative to ensure the continued supply of domestic LPG. "All Public sector OMCs shall ensure that LPG so procured is supplied/marketed solely to consumers of domestic LPG only," it said in the notice.

Phenol/acetone impact

Propylene is a key raw material in the industrial production of phenol and acetone, primarily used to produce cumene through alkylation with benzene. This cumene is then oxidized to produce phenol and acetone.

Several Indian phenol/acetone producers have curtailed plant operations, with propylene and the supply of other raw materials affected due to the diversion of LPG gas for household heating, market participants said.

"Propylene disruption is there. Raw material availability is the matter now," said an Indian phenol, acetone, and IPA producer.

Another domestic IPA producer said the company might be forced to stop its plant due to a shortage of feedstock propylene.

Indian state-owned chemicals producer Hindustan Organic Chemicals has temporarily shut its propylene recovery unit and reduced the production load of its phenol and cumene plant due to a disruption in the continuous supply of LPG from supplier Bharat Petroleum Corp. Ltd., the company said in a stock exchange filing on March 9.

"Due to the continuous disruption of LPG supply, the HOCL plant is compelled to temporarily shut down operations of PRU unit today, i.e., March 9, and all other down the line units by two days," it said in the filing to the Bombay Stock Exchange.

Other phenol, acetone, and IPA producers in India are expecting plant shutdowns amid a lack of feedstock.

"We had given an advance intimation to our customers regarding feedstock disruptions and possibility of an FM shortly," said a domestic IPA producer.

Polymers impact

Polymer producers are bracing for a massive shortage of raw materials following the government's notification, with most pointing to a more immediate impact on polypropylene production in the country than on polyethylene output.

Multiple market participants said that the government-backed PP producers could easily expect a fall in runs by around 30%-40%, with the non-integrated players likely to face the double whammy of expensive feedstock, naphtha.

"With LPG being used also as a fuel, we now have to rethink our fuel source, which could very likely be naphtha for the cracker. This will further support prices in the domestic market, making it dearer for the naphtha buyers," a producer source based in the country said.

Domestic naphtha prices have increased by Rupee 180-190/kg since March 6, multiple market participants said.

"It just does not make sense for non-integrated players to buy naphtha at such high cost," another PP producer based in India said.

Market participants are focusing on using the available stock of feedstock to produce polymers, and there is uncertainty about where their run rates will be once that stock is used up, they said.

Further, amid the disruption in the Strait of Hormuz, hardly any PP is being offered to India for imports from any origin, except China. "The disruption in supply has impacted run rates across polymer producers in the globe, with many choosing to curtail exports, especially from Asian origins," another producer based in India said.

Meanwhile, following the steep spike in PP prices, and ahead of the end of the financial year in the country, many homopolymer consumers lowered their stockbuilding before the conflict in the Middle East flared and led to almost nil bookings from the region, multiple buyside sources in India said.

The downstream sectors, especially in the food packaging segment, are concerned about having to halt operations due to the unavailability of homopolymers in the market. "Most converters have just 5-12 days' worth of upstream stocks," a buyside source based in India said.

Butyl Acrylate impact

Butyl acrylate is produced by only two producers in India: Bharat Petroleum Co. Ltd. and Indian Oil Co. Ltd., both public sector undertakings (PSUs) with a crucial role in supplying LPG for domestic purposes.

"nBA acrylic acid plants are under shutdown due to feedstock unavailability," said one of the domestic producers.

For butyl acrylate, the source said that the inventory is not much, with the BA plant operating at a little above 50 percent, that is, about 200 metric ton/day. "BA plant can run only for the next 8-10 days," the source added.

When enquired about the situation of the other domestic producer, an India-based trader said, "The situation of all the PSUs remains the same."

While the domestic supply is strained, the chemical faces an international supply shortage as well. A North Asia-based producer said, "We have limited C3." The source said they are not offering right now, but when they do, they expect a quick and firm conclusion.

"No offers to India due to Strait of Hormuz closing," said a Middle East-based producer.

Amid the increasing supply constraints, domestic prices soared high, with a Rupee 60/kg increase week over week to Rupee 175-180/kg from Rupee 115-117/kg, which translates to $591/mt on import parity terms on a CFR India basis on March 09.

Platts is part of S&P Global Energy.