RIL seen offering sops to petrochem buyers

In a bid to bring down its inventory, Reliance Industries (RIL) is said to be offering significant discounts to customers. According to trade circles, customers who are willing to accept two months of supply at one go, are being offered around 5-10% discounts. This follows RIL’s price reduction for various petrochemical products like polypropylene (PP), polyethylene (PE) and polyvinyl chloride (PVC) early this month. It was the second successive price cut in the past couple of months. When asked, an RIL spokesperson said in an e-mailed reply to ET: “We would like to deny any move towards bulk discounts or pile-up of inventory in the petrochemical products. As is our corporate policy, we would not like to make any forward looking statements, and hence, would not be able to give specific replies to your other questions.” The other questions were related to the demand-supply situation in the petrochemical industry and rumours of the cancellation of a bulk order by a Chinese player. Sources said that RIL has been stockpiling petrochemical products after demand slowed down in key consumption markets. “There is a 66% dip in petrochemical prices across product categories. I have never seen such a slump in petrochem prices in the past 30 years of my trading career. Big players like RIL would be affected. They (RIL) are closing down their plants, cutting prices and offering discounts to reduce their inventory levels,” said Minesh Shah, president, All India Plastic Traders Association. While arguably RIL’s move is a pragmatic one, equity analysts believe the stock market would view it as a negative development. “When consumption is down, production is down, where is the sense in hoarding? Going forward, the fact that it may impact company’s margins will be viewed as a negative by the market,” said an investment strategist. RIL has shut its polypropylene plant at Jamnagar for a month. The company said this a “planned shutdown for maintenance and turnaround activities with the objective of improving product swing capability and increasing product yield. ”However, industry sources said the shutdown was also related to the slump in petrochemical demand in the Asian region. With demand slowing down in key markets, RIL — which exports 70% of its products amounting to over $20 billion in 108 countries — is likely to take production cuts across product segments, industry sources said. Analysts are also sceptical about capacity utilisation of its upcoming Jamnagar refinery on the backdrop of a slowdown in fuel demand in the US and Europe. ABN Amro has cut its target price of RIL to Rs 1,150 while maintaining its ‘sell’ rating. In a recent report, ABN Amro said it expected a grim scenario for the company’s refining business due to slowdown in global oil demand. This is likely to have a toll on its refining margins, including RIL’s yet-to-be commissioned refinery