India had set up 4 new crackers with a total additional capacity of almost 1.8 million tonnes of Ethylene in the nineties. The total Ethylene capacity in India, including expansion of IPCL's Nagothane cracker, now stands at 2.4 million tonnes. 1 million tonnes of Ethylene from 3 crackers is derived from natural gas while the remaining 1.4 millions are based on Naphtha. One of the crackers having the capacity of 750KT of ethylene from Reliance indeed can be considered as a World scale plant.

India has today some surplus capacity particularly of Polyethylenes (mainly LLDPE/HDPE) and Polypropylene. It is expected that by 2002 the surplus available in India would be:

2003 will definitely wipe off this surplus capacity. India would then become a net importer of Polyolefins. The Indian petrochemicals industry is currently caught in a down-cycle where realisations are poor and margins are wafer thin.
The slow down in the global economy from the second half of 2000 has exerted tremendous pressure on profitability of the global petrochemical industry.

The newer capacities that have come about in the Middle East and Asia Pacific regions have aggravated these problems further. It is therefore not very surprising that the petrochemical companies are focussing their energy in fire-fighting exercises in the immediate context. IPCL, the largest producer of Ethylene in India is preoccupied with the divestment of Government’s equity. No capacity additions are likely to emerge from IPCL at least until the restructuring is completed. Nocil with the smallest capacity of Ethylene, is not in a position to set up its long cherished dream of expansion in view of the walk out of Basell from the company. Haldia Petrochemical, the newest entrant in the Indian petrochemical business, is involved in setting it's new project in better financial condition. Reliance Industries has not started on its additional capacity of cracker either at Jamnagar or debottlenecking of the existing cracker at Hazira.

The petrochemicals industry in India has always been present across all the major product segments, be it polymers or fiber/fiber intermediates or plain chemicals. The liberalisation process touched the industry significantly as import duties were revised downwards from a peak of 110% in the 1980s to barely 30% currently. This had a profound impact, as producers without scale economies, especially in synthetic fibre and chemicals, went out of business.

The liberalisation process was a blessing as it helped create large-scale capacities that were well integrated across the petrochemical value chain. The result is that today these integrated complexes, including the new ones at Haldia and Auraiya (Uttar Pradesh) of Haldia Petrochemicals and Gas Authority of India Ltd (GAIL) respectively, are well equipped in terms of scale and product slates.

India today has an ethylene capacity of 2.4 million tonnes spread over seven different cracker complexes belonging to

	IPCL (830 KT-3 crackers)
	Reliance Industries (750 KT- 1 cracker)
	Haldia Petrochemicals (420 KT-1 cracker)
	GAIL (300KT-1 cracker)
	Nocil 75KT, the oldest cracker

While four of these - Hazira (Reliance), Haldia, Vadodara (IPCL) and Nocil use Naphtha as feedstock, the others use natural gas. The choice of feedstock is important as it determines the character of the downstream units. A gas cracker would be heavily weighted towards the ethylene stream and related downstream products such as Polyethylenes (PE) or PVC and chemicals such as Mono Ethylene Glycol (MEG), which is a fiber intermediate. With a marginal Propylene output, a gas cracker does not lend itself to downstream capacities in products such as Polypropylene (PP), a fast-growing polymer today. On the other hand, a Naphtha cracker enables a more balanced product slate as Propylene accounts for about 40% of Ethylene output. There are also other product streams such as Butadiene and Benzene, which are inputs for products such as Linear Alkyl Benzene (LAB) and Poly butadiene rubber (PBR).

Almost all the major polymers and commodity plastics are produced within the country though the capacities for some of them such as Acrylonitrile Butadiene Styrene (ABS) and Polystyrene (PS) are on the lower side, which is uneconomical. The most popular polymer is Polypropylene (PP) which accounted for over 1 million tonnes consumption in 2001.
Reliance is the biggest player in the PP market accounting for a million tonnes of the total capacity of 1.37 million tonnes. Reliance manufactures 400KT of PP at Hazira using the Propylene derived from Naphtha cracker. The remaining 600KT PP is based on the Propylene derived from refinery at Jamnagar.

The product that is most diffused in terms of capacities is PVC where there are 6 producers out of which players such as Chemplast Sanmar, DCW and DCM Shriram have less than 60KT capacity each. Finolex Industries (130KT) is based on imported feedstock. Even Reliance with 300KT capacity does not have integrated facililty for manufacture of VCM/EDC. The only integrated large- scale plant of PVC belongs to IPCL at Gandhar. The smaller players directly import their feedstock in the form of Ethylene or Ethylene Di Chloride (EDC) based on their relative prices. Their small size could be a limiting factor while facing a global competition. Finolex is the most integrated in downstream products with almost 40KT capacity of PVC pipes. Its group company, Finolex Cable also uses PVC for cables. The present Indian capacity of PVC is almost in balance with the demand. There is a need to set up a new capacity of PVC.

Polystyrene capacity of 325 KT is spread between three producers. Supreme Petrochem is the largest producer with the capacity of about 205KT. The other two, BASF and LG each have almost 60KT capacity. All these producers import Styrene since there is no local production capacity. The present minimum economic capacity of Styrene is more than 500KT, which is much higher than the Indian demand. The new cracker if based on Naphtha could be used to produce Styrene.

The commodity polymer (PE/PP/PVC/PS) consumption grew at a compounded annual rate of about 12% in the last decade. At about 3.5 million tonnes in 2001, total consumption of commodity plastics is not very high compared to countries such as China, which consumed about 18 million tonnes of these polymers in 2001.

The economic growth from 1991 after liberalisation, indeed reflects that the GDP of India would continue to grow at least at an average rate of 5% for the next decade. It would therefore not be imprudent to expect that commodity plastics would at least grow at the average rate of 10% in the coming decade. The present surplus capacity would definitely be wiped off latest by 2004 if not by 2003. PVC is the first polymer that will go short and Polystyrene perhaps the last one.

There is therefore a clear justification for another World scale cracker to be ready for production latest by 2004. However, it requires almost 18-24 months to build a new cracker. It is therefore the right time to start building up the new cracker now. The question is whether the proposed new cracker should be based on natural gas or Naphtha. There would be a need for additional capacity for Propylene because PP is expected to have a higher growth. However, with an expected expansion of Jamnagar refinery of Reliance from 27 million tonnes to 50 million tonnes, it cannot be ruled out that the additional requirement of Propylence could be met from this refinery. The decision would therefore be more governed by the additional requirements of Butadiene and Benzene. However, the slower growth of synthetic rubber in India may not justify the larger demand of Butadiene. Similarly, Benzene demand is not likely to go up considerably.

The selection and design of next cracker would be more governed by the availability, relative cost and the flexibility of Naphtha and natural gas. Perhaps, the mixed feedstock that is used by Reliance’s refinery at Hazira could be considered for the next cracker.