Reliance Industries Ltd is expected to face pressure on margins across key products like polymer and polyester. This pressure comes due to weakening global cycle as the world braces for a slowdown in growth.
RIL, India's largest private sector company, recently shut down five of its polyester and polyester intermediate plants in Patalganga, Maharashtra out of seven.
Along with that RIL closed its polyester factory unit ocated at Boulapur in Orissa’s Dhenkanal district in the backdrop of the economic downturn.
Confirming the move, AR Bhutt, general manager, RIL said, “The products of the polyester plant have been commercially unviable owing to a slack in demand in the wake of economic recession. The management had no other option but to close the factory due to losses.”
Analysts tracking the company believe that on the polymer side, the global cycle will deteriorate from second half of 2009. They believe that margins over FY10-11 for RIL will decline to mid cycle levels.
A report by ABN Amro on RIL indicates that the polymer margins year to date have been strong, but have been countered by steep decline in polyester and polyester intermediaries.
“The higher oil price provides some upside for RIL's gas-based cracker during 1HFY09, but this advantage will likely erode with weakening in oil prices, in our view,” the report states.
“Our assumptions on regional polymer margins for FY10/11 are well above previous lows of FY02-04,” the report adds.
The margins across key products are likely to witness a decline. For PP, the margins have declined from $678 /tonne in 2007 to $611 /tonne in 2008. While the margin is expected to $648 /tonne in 2009, for 2010 and 2011, it is expected to decline to $550 /tonne and $450 /tonne respectively, the ABN Amro report states.
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