Rajiv Banerjee
MUMBAI: Reliance Industries Ltd is expected to face pressure on margins across key products like polymer and polyester. This pressure comes due to wRIL's first crude from KG basin
eakening global cycle as the world braces for a slowdown in growth.
RIL, India's largest private sector company, recently shut down five of its polyester and polyester intermediate plants in Patalganga, Maharashtra.
RIL shares slumped 12 per cent to Rs 1,269.45 on the news, dragging the BSE Sensex down over 500 points.
Analysts tracking the company believe that on the polymer side, the global cycle will deteriorate from second half of 2009. They believe that margins over FY10-11 for RIL will decline to mid cycle levels.
A report by ABN Amro on RIL indicates that the polymer margins year to date have been strong, but have been countered by steep decline in polyester and polyester intermediaries.
“The higher oil price provides some upside for RIL's gas-based cracker during 1HFY09, but this advantage will likely erode with weakening in oil prices, in our view,” the report states.
“Our assumptions on regional polymer margins for FY10/11 are well above previous lows of FY02-04,” the report adds.
The margins across key products are likely to witness a decline. For PP, the margins have declined from $678 /tonne in 2007 to $611 /tonne in 2008. While the margin is expected to $648 /tonne in 2009, for 2010 and 2011, it is expected to decline to $550 /tonne and $450 /tonne respectively, the ABN Amro report states.
Similarly, for PSF from $590 /tonne in 2008, margins are expected to dip to $428 /tonne in 2009 and touch $400 /tonne in 2010, recovering slightly to $412 /tonne in 2011. In PE less naphtha, in 2010 and 2011, margins are expected to touch $540 /tonne and $430 /tonne respectively from $671 /tonne in 2008.
Analysts state that the cut in margins largely reflects a dimmer outlook for the global GDP growth, which has been very strong in the past few years and resulted in rising margins for all commodities.
“Given our expectation of global capacity additions coinciding with a slowdown in demand growth, we assume that margins over FY10-11 will decline to 'mid-cycle' levels (40% lower than FY08, but still 50% higher than the lows of FY02-04),” the report states.
Shares of oil and gas companies were battered badly Wednesday. The sector went down by more than 650 points. RIL led the losses after report that the company had shut five of its seven polyester and petrochemical plants near Mumbai
At close, RIL lost 13.49 per cent at Rs 1,259, GAIL lost 15.15 per cent at Rs 201.00 and were among the top losers from the Sensex pack. All the 11 companies in the oil & gas sector closed in red. The oil and gas sector lost 9.44 per cent in the day.
“The five units which have closed down doesn't significantly contribute to RIL's sales but considering the current market situation any news affect the investors sentiment badly,” an analyst tracking the company said
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment