India’s withdrawal of the anti-dumping duty on purified terephthalic acid (PTA) would further improve the affordability of manmade textiles. In addition, the removal of duty would lead to higher imports, thereby reducing supplier concentration and improving the bargaining power of downstream producers. Consequently, there would be an improvement in the profitability and credit metrics of sector companies.
PTA, along with mono ethylene glycol (MEG), accounts for almost 80 per cent of the total raw material cost involved in the manufacturing of chips and granules in the manmade fiber sector. In fiscal 2018-19, India had a PTA production capacity of around seven million tons. During February 2020, PTA prices fell by ten per cent on account of a fall in crude prices, resulting from a decline in demand for the same. Prices are likely to fall further in fiscal 2020-21.
Removal of duty is expected to exert pressure on the realisations of domestic PTA manufacturers and lead to increased imports from countries like China. However, the coronavirus outbreak in China would remain a key factor, as that has led to uncertainties regarding supply in the short term. China has a PTA production capacity of 45 million tons, of which 35 million tons are consumed locally, and the remaining is exported.