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A long drawn battle for the acquisition of 26%
shares of IPCL has come to an end, with RIL as the not so surprising
winner. The average market share of the combine will be 72%. A virtual
monopoly will be witnessed for products like mono-ethylglycol (MEG)
and Paraxylene (PX), with the combine holding almost 94% and 98%,
respectively of the Indian market share. In the plastics business,
the combined entity would have 75% share of the building blocks
of Ethylene/Propylene at almost 2.8 million tonnes compared to the
total Indian capacity of 3.70 million tonnes. Similarly the total
capacity of polymers of the combined entity at 2.7 million tonnes
out of the total Indian capacity of almost 4 million tonnes would
have almost 68% share.
| RIL-IPCL Polymer Capacities (KT) |
Product
|
|
IPCL
Total |
RIL
Hazira |
RIL
Jamnagar |
RIL
Total |
RIL-IPCL
Total |
India
Total |
RIL-IPCL
Share(%)
|
| Feedstock |
|
|
|
|
|
|
|
|
Ethylene
|
|
830 |
750 |
0 |
750 |
1580 |
2300 |
68.7 |
| Propylene |
|
235 |
350 |
600 |
950 |
1185 |
1400 |
87.7 |
| Total |
|
1065 |
1100 |
600 |
1700 |
2765 |
3700 |
74.7 |
| Polymers |
|
|
|
|
|
|
|
|
| LDPE |
High Pressure |
160 |
|
|
|
160 |
160 |
100.0 |
| LLDPE/HDPE |
Swing |
220 |
400 |
|
400 |
620 |
1020 |
60.8 |
| HDPE |
Slurry |
160 |
|
|
|
160 |
460 |
34.8 |
| PP |
|
160 |
400 |
600 |
1000 |
1160 |
1370 |
84.7 |
| PVC |
|
205 |
300 |
|
300 |
505 |
788 |
64.1 |
| PET |
|
|
80 |
|
80 |
80 |
160 |
50.0 |
| Total Polymers |
|
905 |
1180 |
600 |
1780 |
2688 |
3958 |
67.9 |
The benefits accruing out of such a huge market share in any scenario,
whether it is favourable or difficult cannot be denied. In fact, a
payment, higher by almost Rs.650 crores at Rs.231/share compared to
the floor price of Rs.130/share to acquire 26% of the IPCL equity
by RIL is possibly due to this consideration. However, this is not
the only factor due to which RIL has been aggressive in acquiring
IPCL.
One of the other reasons is that RIL has been able to obtain significant
inherent assets that are locked in IPCL particularly at Gandhar and
Nagothane complexes. These complexes have inherent capability of increasing
the cracker capacity by almost 500KT of Ethylene. In fact, IPCL has
been considering the expansions for the last couple of years. It is
quite possible that this investment would now be implemented.
In Polyolefins, RIL would get the benefit of the complete range of
Polyolefins, including LDPE from IPCL, which was causing some competition
to LLDPE from RIL.
RIL did not have suitable technology to manufacture high molecular
weight HDPE as well broad molecular weight distribution HDPE. With
the latest 160KT Elenac (Basell) slurry technology available with
IPCL at Gandhar, the marketing width of the combined will be significantly
enhanced.
While the present Union Carbide technology PP grades of RIL are good
for homopolymers, the availability of Spheripol technology at IPCL
could improve the marketability of impact copolymer grades due to
their superior performance.
RIL has larger capacities plants (Average 200KT size of each plant
in PE & PP) compared to IPCL where average size, particularly
of PP is rather small (190KT total capacity between 4 plants). The
economic size of polymer plants has since increased to almost 300KT
for PP and linear PE and almost 250KT for tubular LDPE. The combined
entity possibly would rationalize the plants. It is quite likely that
smaller uneconomic plants would be phased out and will be replaced
with the larger economic sized plants.
Product rationalization will be done very soon to achieve the best
performance that the different technologies would offer. This no doubt,
would improve the profitability of the combined entity, as also the
availability of suitable grades for various applications would provide
benefits to the processing industry.
It is known that LDPE is a mature product and has
been growing at a very low rate. The meager availability of 160KT
in India and relatively lower availability of LDPE internationally
has almost stifled the growth of LDPE in India. Domestically, RIL
was very aggressively competing with LDPE from IPCL so as to increase
the sale of its LLDPE. Besides, the present IPCL capacity of 80KT
in tubular LDPE technology is not World Scale. In fact, IPCL has
been considering setting up a new 200KT tubular LDPE plant for the
last 2 years. RIL so far has not shown any interest in LDPE. However,
the additional LDPE could provide a better marketing opportunity
not only in India but also in the Asian markets particularly China.
What remains unanswered is "Will the combined entity develop
additional LDPE capacity?"
In PVC, RIL and IPCL both have the same technology.
RIL has achieved a remarkable production level of about 280-300KT
on a 150KT capacity plant. Their experience could be translated
to IPCL. It is therefore quite likely that the production of PVC
could increase by about 150 KT at IPCL plants after implementing
the process changes. Indian PVC processing industry would benefit
from this increased productivity, since present capacity is lower
than demand.
RIL has proven to be the most efficient Indian
petrochemical company. It is therefore quite inevitable that the
present efficiency of IPCL would enhance significantly. The improved
efficiency would benefit the shareholders of IPCL and hence the
nation.
The processing sector may have doubts that the
combined entity would inevitably lead to higher prices of polymers.
However, the present market is predominantly governed by international
prices. The combined entity still has a very small share of the
global capacity in all polymer products.
The largest share would be in Polypropylene at about 2.8% (1.2 million
tonnes out of the global capacity of 38 million tonnes). In Polyethylenes,
the share is just about 1.3% (0.94 million tonnes out of 65 million
tonnes). The story is same for PVC.
In such a scenario, the combined entity cannot arbitrarily hike
prices. Major players like Basell in PP or Dow and ExxonMobil with
much larger capacities and Middle East polymer producers like Sabic
and Equate with tremendous inherent advantages of cheaper feedstock
prices would provide the leverage to control prices. Even the South
Eastern producers would be in a position to exert leverage, since
they would find it better to export to India compared to China.
The Indian Government is expected to reduce the import duty gradually
from the present 30% to meet the WTO requirements. While the combined
entity of RIL-IPCL could have a strong influence to delay the inevitable
decrease in the import duty, it is not possible that the duty would
be kept at the higher levels for long time.
The Indian plastics processing industry that is
predominantly widely fragmented and possibly ridden with inefficiencies
should take lessons from this acquisition. Instead of fearing the
impact on polymer prices from the combined entity which now holds
almost 68% share of the Indian plastics raw materials, they should
look towards becoming globally more competitive. The acquisition
of IPCL by RIL definitely provides benefit to the shareholders of
IPCL. It will also unlock the inherent potentials of IPCL and improve
its productivity and efficiency.
What is most important is that India would benefit from this
acquisition.
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