Crop and Chemical Dashboard: August 2022

7 Sep 2022 , 10:45 AM

Phenol and TDI spreads rose over 25% MoM, while BOPET spreads continued to remain under pressure – owing to supply glut. Global news flow continued to center around Europe and its ongoing energy crisis and intense heat wave curtailing operations at chemical factories. Additionally, China is also encountering intense heat wave, which has prompted local governments to start rationing power in August. The chemical industry, therefore, continues to remain in the midst of volatile times. Analysts at IIFL Capital Services capture below some of the key highlights of August.

China’s Sichuan region rations power amid record heat wave

As per media articles, Southwest China’s Sichuan Province has rolled out a number of measures to optimize power rationing amid a power crunch caused by the worst heat wave in 60 years. Sichuan Province is known for petrochemicals, sulphur, phosphorus, titanium chemicals, and downstream products of chloralkali chemicals like PVC. The province is also rich in mineral resources like lithium and polysilicon. Some of the key chemical companies having large operations in Sichuan region are 1) Sichuan Lutianhua Co — having production capacity of 1,000 KTPA of ammonia, 1,580 KTPA of urea, 750 KTPA of methanol, 110 KTPA of DME, 50 KTPA of oleo chemical products, 100 KTPA of concentrated nitric acid, 180 KTPA of dilute nitric acid, 230 KTPA of ammonium nitrate. 2) Sichuan Jinlu — PVC cap of 300 KTPA. Any prolonged restrictions have potential to disrupt supplies.

Global agriculture update

US corn and rice prices rose 4-8% MoM in August 2022. However, wheat and soybean prices declined 3-8% MoM. Cotton prices rose ~13% MoM. Concerns of dry weather in China have increased export prospects for global producers. Cotton prices rallied in August on the back of lower global production estimates. International prices of DAP and Urea fell ~4-6% in the month.

Update on India monsoon and Kharif sowing

Rainfall during this monsoon was ~5% above normal, as on 5^th September 2022. Reservoir levels across all regions, but the East remains above 10-year averages and last year levels. Sowing too, has picked up week on week, and the overall acreages are now just 1% below those of last year. While cotton and coarse cereal sowing is higher YoY, rice sowing continues to be lower than last year; primarily driven by the drop in acreages in Bihar, Chhattisgarh, Jharkhand, Uttar Pradesh and Odisha – where rainfall has been ~27-44% below normal. While paddy, wheat and maize prices rose ~4-8% MoM, cotton prices rose ~22% (in line with global prices).

Chemical prices

While Soda Ash prices remained firm, prices of most other chemicals witnessed MoM decline in August 2022. However, spreads of phenol, caprolactam, ethyl acetate and TDI have improved over the last month.

Duties and taxes

Since IIFL Capital Services’ last note on the sector, The Ministry of Finance has rejected imposition of ADD on ammonium nitrate. The DGTR has recommended ADD imposition on ofloxacin and its intermediates.

Other highlights

1) Adani Enterprises has received environmental clearance for a proposed coal to PVC unit. The company has received approval to set up a capacity of ~2 million MT of PVC along with intermediate products such as VCM, caustic soda and a power plant.

2) Reliance AGM 2022 has spelt out certain details that, according to analysts at IIFL Capital Services, could have a bearing on the Indian chemicals companies. Investments of Rs750 billion to expand capacities in existing and new value chain in chemicals. The expansions that were highlighted a) Polyester value chain b) Vinyl Chain and c) Carbon Fiber. In addition, it also announced big plans for renewable energy, namely solar energy, photovoltaic panels, energy storage, green hydrogen, and fuel cell system and power electronics.

3) SRF’s management in its interaction with investors and analysts outlaid Rs150 billion capex over next 5 years, of which, Rs125-130 billion would be incurred in Chemicals.

4) Best Crop Science received 9(3) registration for indigenous manufacturing of Pyroxasulfone technical 98.2%. This is one of the key products of PI Industries (Awkira – wheat herbicide).