The first half of the first decade of the 21st century is drawing to a close, ushering significant changes worldwide. Oil, a scarce commodity, became very expensive, particularly in 2004, followed by a quantum jump in prices in 2005. 2005 was particularly a very bad year for oil prices. Price increased from almost US$45/barrel at the beginning of the year to as high as US$70 on August 31,2005. A rise in oil prices of almost 50% in 12 months has adversely impacted the growth of economies globally. As expected, inflation has not been spared.
High oil prices have directly impacted petrochemical feedstock and polymer prices. Higher prices of polymers have obviously hampered the growth and consumption of polymers to some extent. Had prices been lower than current levels, polymers would have witnessed a healthier growth.
Fortunately, a milder winter being experienced in the northern hemisphere so far this season, has controlled demand and oil prices have softened to some extent, dipping to levels of US$56-58/barrel by mid December 2005. Experts believe that oil may attain an average price of US$55/barrel in 2006 as compared to an average price of US$61/barrel in 2005. This estimated 10% decrease has raised the expectations of economists for a better growth globally in 2006 as compared to 2005. However, as economies grow, so does demand for oil prices- as economic growth is accompanied by an increase in demand for oil. With growing economies and corresponding growth in demand, oil prices are likely to reach the level of US$70/barrel sooner than later.

Due to rise in oil and feedstock prices there is a clear shift for new petrochemical capacities. Saudi Arabia and other Middle Eastern countries, with access to abundant oil and feedstock are increasingly building up newer petrochemical capacities. Over the next decade, ethylene capacity in the Middle East is projected to double to 30 million metric tpa and propylene capacity will triple to 7 million tpa. Borealis and Abu Dhabi National Oil Co. are planning a US$2.5 bln project in Ruwais, Abu Dhabi, to be completed in 2010. Innovene and Saudi development firm Delta International signed a MOU to build a US$2 billion petrochemical complex in Al-Jubail, Saudi Arabia, for completion in 2008. SABIC is planning an ethylene cracker for Al-Jubail by 2012.
With the Middle Eastern region bringing over 15 million tons of polymers on stream in the next 5 years, more reorganization, particularly from the European producers is expected in the near future. The high costs of running old petrochemical plants, located particularly in Europe, are increasingly compelling producers to either curtail production or exit from the business.
A prime example is that of Basell, a joint venture between BASF and Shell, being sold to Access Industries for US$5.4 billion. Both BASF and Shell decided to withdraw from this business with US$8.3 billion in 2004 sales, in the largest leveraged buyout in the chemical industry's history in August 2005.
Another example of European oil producer going out of petrochemical business is that of State Oil, divesting from its Borealis’ Polyolefin business.
The little known Ineos is set to become the sixth-largest chemical company in the world with its purchase of Innovene, the former BP olefins and derivatives unit. The US$9 billion deal, announced in October, will combine Innovene's US$18 billion in annual sales with Ineos' US$8 billion.
American oil major Exxon continues to participate in commodity petrochemical business along with another American polymer producer Dow, who continues to grow in this business. Cargill purchased Dow's 50% interest in their Cargill Dow polylactic acid joint venture and renamed it NatureWorks.

Interestingly, the same does hold true in the case of specialty polymers as well as ETP businesses. Solvay, the leading producer of ETP, has acquired Gharda Chemicals’ polymer business located at Panoli, Gujarat in India. Gharda Chemicals developed PEEK technology in-house and received several US and European patents for innovative process that is different from the Victrex. This acquisition will not only give Solvay the required platform to become the second international supplier of PEEK, but will consolidate its position as a leading supplier of Polysulphone.

Fortunately for the World, overall economy in 2005 is expected to achieve better growth rates than the last 2 years. It appears that people have accepted higher oil prices and its impact on the price of the other commodities. While no clear picture emerges for the global GDP growth in 2005, it is expected to be in the region of 3.5-4%. While the outlook for GDP growth in Europe does not seem to be quite positive for 2005, Asia, with China and India both growing quite well, is expected to contribute well to the global economic growth. Asia is expected to drive the global economic growth between 2005 and 2010. China is expected to grow at 7.5%, while India has shown a growth of 8% in the first half of the financial year of 2005.
It would not be surprising that India will end up with 8% growth in GDP in 2005. India can continue to achieve 7.5% growth in GDP in the coming 5 years despite the fact that the communist parties are part of the Government and restrain radical reforms such as labour laws. India has received foreign investments to the tune of US$10 billion in 2005- a definite boost to the Indian economy. This figure shows growth of more than 10% in 2005 - increasing from US$9 billion in 2004. Despite robust economic growth, the Indian polymer industry did not have a very good 2004, growing by only about 4%. Only two commodity polymers showed decent growth- LLDPE grew by more than 12% while PP grew by 4%. PVC was practically flat or showed a very marginal increase during 2004. Polystyrene, however, experienced a negative growth. EVA has grown well in the last 2 years and will attain consumption levels of 50 KT in 2005. ETP apparently grew well, and particularly Polycarbonate had an impressive growth.

The compounding business also showed significant growth resulting in addition of sizeable capacity. The masterbatch business also showed about 12% growth, with impressive increase in capacities.

India’s largest polymer producer Reliance Industries has demerged its petrochemical business from Infocom, Power and Capital businesses due to a separation between the two Ambani brothers. Post demerger, Reliance Industries has chalked up very impressive expansion plans.
* Refinery capacity will be increased from the existing 33 million tons to 60 million tons latest by 2010.
* Along with this increase, RIL will increase its PP capacity to almost 2.6 million tons in 4 steps from the existing 1.2 million tons.   The   first 250,000 ton plant will be on stream by early 2006, whereas the last plant will be set up by 2010.
* During 2005, RIL has almost completed expansion of Ethylene capacity from 700 KT to 1 million tons.
* RIL has also set up a new 280,000 KT PET chip capacity for bottles using new technology from Dupont.
* PVC capacity at RIL has seen a marginal increase of about 30 KT.
* RIL will also increase its export of PP from India that currently stand at over 300,000 tons from its existing plants.
* RIL will achieve full capacity of 60 KT of HDPE with slurry process, 15 KT of EVA with autoclave process and 2 KT of UHMDPE this    year, at the NOCIL plant it started in 2004.
* IPCL also plans to increase its LDPE capacity by about 10 KT this year.
* GAIL has increased its PE capacity by 20-30 KT.
* Finolex, another PVC manufacturer will set up a second plant with capacity of 130 KT at its existing site.
* GAIL has also finalized setting up of a project in the state of Assam located in eastern India. This project, consisting of 220 KT    capacity will be a swing plant to manufacture LLDPE/HDPE. The new plant will, in all probability, select Nova technology currently    under implementation at its plant in Auriya, Uttar Pradesh state in the northern part of India.
* Reliance Industries is setting up a special export zone near its refinery located at Jamnagar, where it has invited international    petrochemical giants like Exxon, Dow and others to build up petrochemical projects to manufacture polymers for export    purposes.

The plastics processing sector that showed mixed performance in 2004, possibly due to higher price of polymers, is expected to do better in 2005.

Some new capacity build up was witnessed in PVC pipes in 2005. PVC pipe is expected to recover in 2005, hence PVC may show some growth although it may not be as spectacular (16%) as what was observed in 2003.
PE pipes continued to show good performance in 2005, with total demand for pipes pegged at just below 100 KT pa. Reliance Industries, after acquiring Nocil’s PE plant, attained a total capacity of 80 KT of PE pipes. This, along with the fact that telephone ducting, a major market of PE pipe, has not shown any growth, has prevented any further investment by independent processors in this sector.
New processing capacity has been added in raffia sector, expected to do quite well in 2005.
Cement sector that consumes almost 190 KT of PP woven bags is expected to achieve a growth of almost 12% in 2005.
Fertilizer industry, using HDPE woven sacks is expected to show growth of about 4% in 2005. Demand has been coupled with enhanced export opportunities as major traders from Europe such as Interjute and Zakencentral have increased their buying from India. FIBC export is expected to rise, making this sector attain a level of about 60 KT.
PE film had a mixed year in 2005. The blockage of drains due to heavy rains in Mumbai on 26 July 2005 has led the Maharashtra State Government to call for a total ban on PE bags and films. Sale of PE bags has been adversely affected in these 4 months in Maharashtra.

New capacity addition in 5 and 7 layer PE films is on the rise. India has 5 players in layer PE film. With the introduction of 7 layer lines by Supreme Industries and Vishakha Polyfab, Indian food packaging sector will be able to increasingly use barrier films for packaging. Until the Indian market graduates to higher packaging, 7 layer films would be available for the international packaging companies in India.
Competition is quite fierce in the commodity monolayer and 3 layer PE film sectors. The traditional markets of PE film - milk packaging as well as detergent packaging will continue to grow.

In the BOPP film sector, Jindal Polyester is to expand capacity by 45 KT at Nashik in Maharashtra in Q1- 2006.
TQPP film sector has been adversely affected because BOPP film is increasingly used to replace TQPP film. New capacity totaling to 4 KT capacity is being built in PP non woven by 2 new entrants in Q1-2006.
BOPET film is expected to achieve 15% growth in 2005.

Rigid packaging sector has also shown growth, though not as good as the flexible packaging sector.

Rotational moulding sector is growing very well and is expected to achieve 12% growth in 2005. Sintex is a leading manufacturer of rotational moulding products with the capacity of 12 KT/year. Most of the rotational moulding is for water tanks (almost 85-90%). However, with the setting up of a division of the US Rotational Moulding Association in India, the development of other products is expected in the near future. The Indian rotational moulders have started in this direction with the development of fuel tank for the farm sector (tractors, etc) as well as insulation boxes/containers. Two leading European rotational moulding companies have set up plants in India. Saeplast Ltd from Iceland, a leading manufacturer of doublewall PE containers with PU insulation used for fisheries industry, set up a joint venture plant at Ahmedabad in Gujarat State. Motion Technology Ltd. from Norway set up a fully owned plant at Pune in Maharashtra.

Wire and cable sector has shown some growth mainly due to increased spending on infrastructure projects by the Government, as well as capacity addition in power by the private sector. Wire and cable industry is expected to have good growth potential in the next 5 years due to increased capital outlay for power projects in India.

Injection moulding sector continues to grow well mainly because of good growth in the automotive sector, coupled with good opportunities in consumer products due to a rise in surplus available with middle class Indian families. India is increasingly becoming a preferred source for auto parts that including plastic moulded parts.
PET bottles continue to grow at almost 15%.

Indian plastics processors are increasingly looking for international opportunities. Plastindia 2006, to be held in February, will have a separate hall under the name of Proplast and will showcase the capabilities of Indian processors. Those international buyers looking for plastic finished products for any application certainly should visit this exhibition and look for any business tie ups with Indian leading plastic processors.

Indian financial year will end up in March but we take this opportunity to estimate the expected consumption of polymers in India during 2005 financial year. According to our present knowledge, the consumption of polymers in India during 2005 is expected to show a good growth. Our estimates of polymer in India for 2005 are:

A cautious reading delivered previously that doubling in crude oil prices since 2003 could undo global recovery has seen a turnaround, as reflected in IMF’s world growth forecast for 2006 at a robust 4.3% rate compared with a 3.9% average in the past decade.

This reflects a better than expected performance in USA and China, coupled with upswings in Japan and Europe.
Japan, the world’s second largest economy is conquering a bout of deflation and periodic recession that lasted over a decade. 2005 has been the toughest and most challenging year the Japanese economy faced, with the country poised for a rebound. The government projected Japan's real economic growth in GDP terms at between 2-2.5% for 2006.
As China remains a transitional economy, the start of the coming 2006-10 period may become a time of adjustment and preparation for accelerated growth in the following years. China's new economic situation indicates rapid economic growth in the following four years.

The U.S. economy, as measured by GDP, is projected to grow by 3.6% in 2005 and 3.3% in 2006.
Growth in the EU is forecast growth of 1.5% in 2005 and 2.1% in 2006.

Latin America's largest economy, Brazil, is expected to expand by 2.3% in 2005. Argentina, South America's No. 2 economy, recorded 8.2% growth in 2005 as it continued to rebound from an economic meltdown in 2002.