November 2014

An Indo-GCC focus edition

Trade Winds | Special Edition

A look at the trade figures for the HS code

for plastics shows up some interesting facts.India is a net importer of plastics. This shouldnot be surprising as we are a country of onebillion plus people. Packaging is a major sectorwhere plastic is an important input. Anothermajor sector for plastics’ consumption isautomobiles. Hyundai makes i20 and i30 inIndia and exports them to Europe but it hasn’tlaunched i30 in India which shows that India isan important manufacturing hub for thecompany. Construction, transportation,medical devices, and electrical goods othersectors where plastics consumption will be onthe rise.India has a relatively meagre share of 1.1% inworld exports and 1.7% share in worldimports. Looking at the trade balances inplastics items, one finds that India importsraw materials and export finished goods. In2013, India had a negative trade balance of145 million USD in scraps showing India’spotential of processing plastics. But largely weconsume a lot, leaving little for exports.

But what might surprise you that in 2013, 55%of export value in plastics was in primaryform. While we are net importers of theprimary forms of plastics, polypropylenestands out to be an exception. There is apositive trade balance of 314 million USD inpolypropylene in 2013. IOC, HCPL, RIL, andBPCL are the major producers in India. Withcapacity expansion and new players planningto enter the market, India’s production ofpolypropylene is set to increase.

Global Suppliers of PolypropyleneAn analysis shows that the global markets canbe segmented in two parts: the volumeplayers and innovators.

The Volume PlayersWhen crude oil undergoes fractionaldistillation, polypropylene is formed. Hencelogically the countries endowed with crude oil

Global markets for Polypropylene and Plastics

By Devansh Doshi

MBA (IB) 2013-15

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Packaging is a major sector where plastic is an

important input. Another major sector for plastics’

consumption is automobiles.

11%10%

9%

8%

7%7%7%

40%

0%0%0%0%0%0%0%0%0%..11 0.2%

World Top Exporters of Polypropylene in 2012

Saudi ArabiaBelgiumKorea, Rep.United StatesEuropean UnionGermanySingaporeRoW

3.17 3.19

4.37

5.72

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

Korea,Rep.

Singapore Belgium SaudiArabia

RCA of The Volume Players in 2012

Indian Institute of Foreign Trade 34

Trade Winds | Special Edition

reserves are bound to be the top exporters inthis category. Hence Saudi Arabia continues toenjoy high relative comparative advantage inpolypropylene exports. Other countries SouthKorea, Belgium, and Singapore have largeproduction capacity and low domesticdemand propelling a high comparativeadvantage for themThe Innovators

USA, Germany, and France are the topexporters besides having relatively lowercomparative advantage than the volumeplayers. The polypropylene industries in thesecountries are on the decline. But what keepstheir plastics exports high is their ability toinnovate and use polypropylene formanufacturing other plastic items. Thesecountries also find it profitable to market theirsurplus production.

Global Markets for Plastics

A simple analysis of global trade balances ofvarious countries in plastics reveals that thereare four segments of players: consumers,processors, suppliers, and exporters. Thesefour segments tell us about these countriesrespective capacities and demand in thissector.

ExportersThese are the countries that have positivetrade balance in primary and processed forms.

These countries have access to raw materialsand sufficiently large production capacity. Themajor countries in this segment are Belgium,Netherlands, Japan, South Korea, and UnitedStates of America. They are the biggestcompetitors for India in the global markets.

ProcessorsThese countries have established capacitiesfor processing of primary forms of plastics.The major countries in this segment are China,Germany, India, and Italy. China and India havehuge internal demand for plastics since theyhave a large population. Their oil resourcesare used for production of plastics. Germanyand Italy have huge processing capacities andgenerally supply processed plastics to otherEU members.

ConsumersThese are the countries that have hugeinternal demand for plastics and inadequateproduction and processing capacities. Themajor countries within this segment are Brazil,Indonesia, Mexico, Myanmar, Norway, andYemen. Huge internal demand results inimports of raw material and finished goods.Their production capacities are utilized to themaximum. These countries have a negativetrade balance in primary and processed forms

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1

1.41

1

0

0.5

1

1.5

Germany France USA

RCA of The Innovators in 2012

Suppliers Exporters

Consumer Processor

Positive Balance of Primary Form

Negative Balance of Primary Form

Po

sitive Balan

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f Pro

cessed

Form

Indian Institute of Foreign Trade 35

Trade Winds | Special Edition

trade balance in primary and processed formsof plastics. India should be looking at thesemarkets because of low competition fromdomestic players in these countries.Except South Africa, all African countries fallunder this category. Low level of developmentand manufacturing competitiveness is thereason for this trend. Niger, Sao Tome andPrincipe, Botswana, Burundi, Cape Verde,Namibia, Rwanda, Mauritius, Mauritania,South Africa, and Mozambique are some ofthe African countries that have less than 0.5value of RCA. This opens up an opportunity forIndia to export to these countries.

SuppliersThese countries have huge capacities forproduction of plastics in primary forms butlack processing capabilities. This results inlarge exports of primary forms of plastics andimport of processed plastics. The majorcountries are France, Japan, Kuwait, SaudiArabia, Singapore, and UAE. As we can seemost of these countries have access to crudeoil which makes production cheaper. But lackof processing capability makes them pay morefor processed products.

India’s Polypropylene ExportsAn interesting observation in this graph is thatdespite importing a major share of crude oil,we still manage to export polypropylene atthe lowest price as compared to other topexporters. This exemplifies our operationalexpertise.

The graph below shows that our exportmarket concentration index has been quitelow. But the rise needs to be kept undercheck.

As discussed earlier in this article, Indiaexports polypropylene. Conventional wisdomsays that more processed products fetch ahigher value and hence higher profit. Hencewe should focus on developing capacity forinnovative and micro targeted products thatwill boost our image in the global market.3D printing can be seen as the biggest threatto processed plastic products trade. With theproliferation of 3D printers and advancementof the technology, it might sound a death knellfor processed plastics exports. They lower thecost of producing these processed plasticgoods and are capable of mass production aswell. Hence, future developments in this areaof technology are going to be a major inhibitorin the global trade of processed plastics.Keeping this in view, expanding production ofprimary forms of plastics seems to ensure longterm sustainability. As this technology willbecome more widespread, the demand forplastics in primary forms is bound toincrease.●

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Unit Price of Polypropylene in USD per ton

0.0755

0.152

0.1167 0.1256

0.1795

0

0.05

0.1

0.15

0.2

2008 2009 2010 2011 2012

HH Market Concentration Index for Polypropylene

Indian Institute of Foreign Trade 36