Rising crude oil prices are not only worrying for the Indian rupee, but also industries like polyester films that are dependent on crude oil derivatives, said one of the leading manufacturers of value-added polyester films.
“The rise in crude oil prices had a negative impact on the company’s margins last quarter,” said CJ Pathak, director, Garware Polyester Ltd.
The benchmark crude oil prices of the Brent variety have risen by around 42 percent since the beginning of the year. On Friday it was trading at $ 73.47 a barrel.
Basic raw materials
Pathak said polyester film sales prices vary as prices of purified terephthalic acid (PTA) and monoethylene glycol (MEG), the basic raw materials used to make polyester chips from crude oil, go up or down.
Crude oil prices and (currency) exchange rates play a big role in the prices of PTA and MEG. The Indian rupee has been volatile this year. It is currently almost two percent lower against the dollar at 74.44 since the beginning of the year.
For the future, the Garware boss sees the behavior of crude oil prices as unpredictable. “The price of crude oil depends on several factors, such as currency fluctuations,” he said.
Consumers of polyester films seem to accept the fluctuating price development. Every price movement – up or down – is immediately passed on to the customer in goods. In the case of special products such as value-added polyester films, however, the hike or cut is passed on with a time delay, depending on the contracts, says Pathak.
Since these costs are passed on to the end user with some delay, this has no impact on medium to long-term manufacturers. “Unfortunately, however, this results in unstable finished goods prices for consumers, making end users uncomfortable as the increase in raw material costs is offset by end customers,” he said.
The Indian polyester film industry is facing other problems, mainly due to the closings of the Covid pandemic. “The lockdowns presented a challenge in terms of staffing and logistics, which put pressure on sales and prices. In export, sea freight doubled last year with rare timetables and delayed deliveries to customers, ”said the Garware official.
Increasing sea freight
Countries around the world are concerned about ocean freight charges, container unavailability and delayed ship departures. The Freightos Baltic Index has almost doubled this year from 3,448 on January 1st to 6,505.
The Covid pandemic has also resulted in irregular schedules and delayed deliveries to customers, Pathak said, adding that GHFL, on the other hand, has been at full capacity since the curbs were loosened.
“We have seen a surge in demand (since) as global economies opened up,” he said.
GHFL housed most of its staff with all the amenities that took advantage of the space, said the director of Garware.
As a supermarket and packaged food sectors gain a foothold, the polyester film industry is expected to grow 9-12 percent in major Asian economies like India and China over the next few years, the director of Garware said.
“In India, many companies continue to add thin film capacity, with the supermarket and packaged food sectors growing,” said Pathak.
Garware, which produces high quality polyester films through Garware Hi-tech Films Ltd (GHFL), added a new line of paint protection films last December.
While most companies in India focus on thin films up to 50 microns, Garware focuses on value-adding lines that produce thick films up to 350 microns.
“Thick films are the value added films that are used for various applications such as insulation in hermetically sealed compressors, sustainable packaging, sun protection films and lamination,” said Pathak.
GHFL, the pioneer in the manufacture of specialty films and the largest exporter, has focused on value-added lines to overcome such global problems. The company added a new line for paint protection films in December last year and at the same time expanded the capacities of its laminating film line and is seeing good demand in the world market.
GHFL produces 76 percent of the value-added films exported to over 80 countries and is the only manufacturer of sun protection films and paint protection films in India. It is one of the three leading suppliers of sun protection films worldwide and holds a 90 percent market share in the manufacture of shrink films for label application.