Grim demand outlook for chemicals on account of weak Indian manufacturing index – 2 Apr 2014

Data gathered from a leading national publication reveals that manufacturing activity has been weak in the last month within India, as indicated by the HSBC Purchasing Manufacturing Index for the country. This downward trend in index performance for the month of March was observed after revivals in the index's performance in the previous month. In this market review, the website relates the sluggish market sentiment for chemicals across the nation with concrete manufacturing statistics for the country.

The HSBC Purchasing Managers Index (PMI) for manufacturing sector declined to 51.3 in March from a 12-month high of 52.5 in February and January due to slowdown in order flows, based on data gathered by the Economic Times. (Note: This index is based on the survey of 500 large manufacturing units)

According to the publication, the decline in index was due to slower inflows of new order.

"The sub index of PMI , which measures new orders dropped by 52.7 in March from 54.9 in the previous month despite foreign order inflows rising to their strongest since April " according to the ET report.

These statistics clearly indicate that the slowdown in manufacturing sector was primarily driven by the domestic markets.

On account of this bearish sentiment, traders dealing in major industrial chemicals cited that the decline in demand has deeply moved the market dynamics, favoring a fall in prices for major chemicals across the country.

In this light its interesting to add that RIL, which is a major petrochemical domestic player, did a downwards price correction for Toluene, Benzene, Mix Xylene by Rs. 5 per kg, Rs. 7 per kg, Rs. 1.5 per kg, respectively on 1st April, 2014.

"Majority of the traders are selling the chemicals at reduced profit margins, even negative margins for some chemical like Methanol. Traders are taking the fall at present in order to clear the current inventory built-up as they expect the prices to dwindle in the coming time", a trader told the website.

Another trader added that, appreciating rupee is further declining the price of imports, and due to import price parity for chemical in the country, the market prices are being adversely affected.

As such the overall market outlook amongst traders is grim at the moment. However, in this light, Mr. Leif Eskensen, chief economist of HSBC for India and Asean noted, "Growth is likely going to remain moderate in the coming months as fiscal tightening, relatively high corporate leverage and rising bank NPA's pose headwinds to growth. While economic traction is expected after the upcoming elections, the recovery in growth is likely to prove protracted ". Ultimately, its a wait and watch game for most traders in the market until the upcoming elections.