India's ministry of chemicals and fertilizers has ordered the implementation of Bureau of Indian Standards (BIS) quality controls on polypropylene (PP) and polyvinyl chloride (PVC) imports into India, effective from 25 August this year.
The ministry made the announcement through the national gazette, but it did not come as a surprise to most market participants, as India's Department of Chemicals and Petrochemicals proposed the imposition of BIS quality requirements back in August 2023, according to documents from the World Trade Organization (WTO).
India enforced the implementation of BIS quality controls on polyethylene (PE) last month, with some exemptions for certain grades.
Major PVC producers in South Korea and Taiwan, which also produce PE, expected the new imposition ahead of the announcement, prompting them to apply for BIS certification for PVC while simultaneously receiving BIS certification for PE last year.
PP producers from Saudi Arabia, South Korea and Russia also applied for BIS licences for PP simultaneously with PE. A Vietnamese PP producer applied for a BIS licence ahead of the announcement. But it does not produce PE.
Will China-origin PP, PVC imports continue?
Major expansions in Chinese PP and PVC production capacities has prompted the country to become a net exporter of both PP and PVC. China also became a net PVC exporter in 2021 and attained a PP self-sufficiency of 92pc in 2023.
Exports have been key in absorbing additional production in China and re-balancing the market, with India being a major destination for Chinese PP and PVC supplies.
India was China's top suspension PVC (s-PVC) export destination during January-November 2023, with 1.01mn t leaving China's shores to head to India, according to latest GTT data. This accounts for almost half of China's total s-PVC exports of around 2.1mn t during January-November 2023.
China was also India's top import-origin for s-PVC cargoes, making up 34pc of India's total imports of 2.27mn t over January-November 2023. This has mostly continued into 2024, given that Chinese supplies are more cost-competitive compared with those of other northeast Asian and southeast Asian origins.
But this strength was not replicated in Chinese-origin PP imports into India. Indian imports of Chinese-origin PP cargoes ranked 7th by quantity, accounting for just 4pc of the 1.63mn t of PP imported during January-November 2023.
It is likely that Chinese PP and PVC producers will apply for BIS certification to continue exporting to India, but Indian buyers are concerned that their licences will not be granted. Two major Chinese PE producers have applied for BIS certification but have not yet received their licences, unlike other foreign producers. Similar trends were observed in other commodity markets, with Chinese producers unable to obtain BIS licences despite applying, according to Indian market participants.
Some market participants feel that the impact will be harsher on PVC as China has been the top import origin for Indian buyers. India's ministry of commerce last May recommended quota restrictions on PVC imports for cargoes with residual vinyl chloride monomer content exceeding 2 parts per million (ppm), possibly to clamp down on Chinese carbide-based PVC imports into India. The ministry's recommendation has yet to be implemented, with some market participants expecting such measures to potentially tie in with BIS quality controls on PVC.
Such measures would of course be detrimental to Chinese PVC supplies to India, potentially delaying further investment in production capacities as global demand remains lacklustre.
US-origin imports could take a hit
Most major PE producers globally are eager to obtain BIS licences to capitalise on a sharp rise in Indian demand because of major infrastructural growth. A major exception is North American producers.
Part of the BIS certification process requires Indian officials to conduct an on-site plant inspection to ascertain that the production process is on par with BIS' requirements. Many North American PE producers are against this because of concerns that it could compromise the intellectual properties associated with their proprietary production processes. Similar concerns have emerged for PP and PVC.
India was the US' top export destination for PVC in November and December 2023, which helped to balance a dip in global PVC demand. India's imports of US-origin cargoes were almost double that of Canada's last December.
The US also plays a major role in India's PP and PVC import markets. US-origin s-PVC cargoes ranked 5th by quantity across January-November 2023, making up 10pc of the 2.27mn t imported. In PP, the US was ranked 7th during the same period, making up 2pc of the 1.63mn t India imported.
If US producers do not get BIS certification for PP and PVC, they could lose market share in India and potentially search for new contingencies for export allocations when global demand softens.
