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Demand destruction, low margins squeeze Reliance petchem profit

July 31/2020

MOSCOW (MRC) -- Reliance Industries says that its group net profit for the fiscal first quarter ended 30 June increased 30.6% compared with the same period of the prior year, to Rs132.48 billion Indian rupees (USD1.77 billion), said Chemweek.

The company recorded an exceptional gain of Rs49.66 billion from the divestment of shares in the Reliance BP Mobility Services Ltd. business. The company reports a 42% year-on-year (YOY) decline in sales, to Rs1.0 trillion. EBITDA decreased by 11.8% YOY to Rs215.85 billion because of a lower contribution from the oil-to-chemicals (O2C) business, which faced significant demand destruction and margin pressure across transportation fuels and the polyester chain, Reliance says.

The severe demand destruction due to global lockdowns impacted our hydrocarbons business but the flexibility in our operations enabled us to operate at near-normal levels and deliver industry-leading results, says Mukesh Ambani, chairman and managing director at Reliance.

Reliances petchem business saw a YOY decline in quarterly revenue of 33%, to Rs251.9 billion, primarily due to lower price realizations with disruptions in local and regional markets amid the COVID-19 outbreak. Quarterly EBITDA in the petchem sector plunged 49.7% YOY to Rs44.3 billion. Weak domestic demand and a higher share of exports weakened margins compared with regional benchmarks. This was partially offset by cost optimization and integration benefits, says Reliance.

Polyester-chain margins were weaker due to a decline in para-xylene (p-xylene) and purified terephthalic acid (PTA) margins with significant new supplies. Polyester-chain margins averaged USD540/metric ton compared with USD668/metric ton in the year-earlier quarter. With a sharp fall in feedstock prices, naphtha cracking economics improved vis-a-vis gas cracking, which aided polymer-chain margins, it adds. Polymer-chain margins averaged USD500/metric ton compared with USD471/metric ton in the year-earlier quarter.

The company says that it operated its plants on average at rates of more than 90% during Indias lockdown period. Reliance says that during the lockdown, it grew its petchem exports by more than 2.5 times in just two weeks.

Reliance earlier this month, during the company's annual shareholders' meeting, said that due to unforeseen circumstances in the energy market as well as COVID-19, its talks with Saudi Aramco to form a partnership for the O2C business had not progressed according to the original timeline. Reliance plans to approach the National Company Law Tribunal (Delhi, India) with a proposal to spin off its O2C business into a separate subsidiary to facilitate a partnership with Aramco.

Ambani said he expects the spin-off to be completed by early 2021 but did not provide a date for the partnership with Aramco, which was originally due to be completed in March 2020.

As MRC informed earlier, Reliance Industries says that due to unforeseen circumstances in the energy market as well as COVID-19, its talks with Saudi Aramco to form an oil-to-chemicals (O2C) partnership have not progressed according to the original timeline.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 595,170 tonnes in the first five month of 2020, up by 10% year on year. Deliveries of all ethylene polymers, except for linear low density polyethylene (LLDPE), rose partially because of an increase in capacity utilisation at ZapSibNeftekhim. At the same time, PP shipments to the Russian market was 457,930 tonnes in January-May 2020 (calculated by the formula production minus export plus import). Deliveris of exclusively PP random copolymer increased.

Reliance Industries is one of the world's largest producers of polymers. Thus, the company produces among others polypropylene, polyethylene and polyvinyl chloride.
Author:Anna Larionova
Tags:PVC, PP, PS, PE, Reliance Industries.
Category:General News
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