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Highlights Polymers Polypropylene Plastic woven sack market (RAFFIA) Plastic woven sack Vs Jute sacks End user consumption of Raffia SWOT Analysis of Raffia market Conclusion & Recommendations


Overall annual consumption of woven sacks 2008-09

Cement Sector: 430 Cr Fertilizers Sector: 74 Cr Food Grain Sector:

Cement contributes about 37% of total Raffia demand of 674 KT (2008-09)

Bulk Packaging: Sector wise demand – 674 KT


PP consumption might get affected due to increase usage of RMC in cement sector in near future. While PE has shown a demand in Fertilizers and food grain sector Raffia manufacturers earn ample profit from unorganized sector. Export will show growth in future. Foreign manufacturers are targeting Indian market.

   

Raffia diversified applications: potential of 163k.tons (2008-09)growing at 9%

Polymer Capacities -2008 India Vs World
(in KT) India World India's share

Building Blocks





Propylene Polymers PE PP PVC PS ABS




1975 1990 1002 423 91

73596 44668 37606 15525 8616

2.4% 4.4% 2.6% 2.4% 0.9%

Polypropylene market : applications (2008-09)

Cement FIBC Sack Exp Foodgrain Lamination Others

38 19 9 6 2 26

Expected polypropylene market trend

A) Growth trend in India
1000 900 800 700 600 500 400 300 200 100 0 2004-05 2006-07 2006-07 2007-08 2008-09 PP PE Total

Some of the reasons for this shift are as follows:
   

Change in market preference. PP has low density among all synthetic polymers. PP has direct softening point and thus a direct support for its use in cement and where there is hot filling of certain products. PP has a higher coefficient of friction and hence higher stack ability during storage.

B) Raffia capacity additions 2008-09
50 45 40 35 30 25 20 15 10 5 0 43.7 37.7 38.3 36.9

22 9.8 3.2 1.8
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8.9 1.9
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205 KTA capacities added in North-East, West & South.



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C) Customer satisfaction level
The main factors guiding the source of raw material are: • Quality • Availability • Cost

Factors influencing prices
• Fluctuations in the crude oil and natural gas prices • Economic growth of the major polypropylene consuming countries like USA and China • Domestic industrial growth and development • Demand for consumption in the international market • Government policies and regulation

Sr. No Description 1Mass of bag 2Moisture regain 3Max oil content on dry de-oiled material basis 4Basic price per bag (excluding sales tax) 5Cost of packing 1mil.Mt of wheat/rice Jute Bags 665gms 22%
3 per cent max by wt.

PP Bags 135gms Nil

Rs.17.05 (Average of last 5 Rs.10.44(incl. of 16% excise months & incl. of excise duty) duty & freight) Rs.37.50crs @ Rs.18.75 per Rs.20.88crs @ Rs.10.44 per bag (ie.Rs17.05+ Rs.1.70) bag Rs.417.60cr

6Packing cost of 20mil.Mts Rs.750.00cr of wheat by FCI 7Packing cost of 20mil.Mts Rs.750.00cr of rice by FCI 8Aeration Good


9 Problem/Quality complains
Supplies are generally not strictly Good, no mould, cake formation, as per delivery schedule and have condensation or musty smell on been carried over to next months rice, wheat Raw material available in the past in spite of prein plenty. No disturbance in supply inspection by Quality Assurance schedule. The quality checks may Wing of DGS&D complaints about be easier to enforce on PP bags poor texture of bags leading to and the possibilities of bags spillage of grains and variations in getting damage by water/ rain length /width of bags are there. during transit will be lesser. Besides complaints about damage by water/ rains during transit are also very frequent.


Other advantages/ disadvantages

1. Not resistant to water, seepage and contamination

1. Resistant to water, seepage and contamination is very high

2. Contamination of food grains by jute batching oils. 2. No J.B.O. Present and therefore no such possibility of 3. Cost of transportation is much contamination of grains with higher than of PP bags which JBO are almost 1/5th in weight of jute bags 3. Cost of transportation are much lesser than the jute bags 4.Rough handling may result in burst/tear of bags 4. During trails no burst/tear of bags so far noticed on rough handling of bags.

• • • •

Cement industry

No. of player – 54 Capacity-215 MMT Large cement plants-136 Mini cement plant-382

Top 6 players constitute about 45% of the production capacity.

Demand-supply scenario in cement industry projecting comparison between total pp consumed Vs RIL pp consumption

700 627 600 505 600 500 400 300 200

200 513 462 150 380 326 100 271 380 469

cement capacity(mn tonnes) cement consumption(mn tonnes) pp consumption( kt) Ril pp consumtion(kt)


100 0 2004-05 2005-06 2006-07 2007-08 2008-09


Threats to Polypropylene Consumption
• Increase in unpacked cement consumption by 11% compared to previous year • RMC has already eaten into 2% market share of polypropylene consumption • Increase in Freight costs by 5% • Increased use of paper / AD star bags and Bulk Jumbo Bags • Environmental challenges / Change in law / Emission norms. • Lesser availability of Raw Materials for production of polymer bags. • Expected fall in cement prices (15-20Rs. per bag) might effect polypropylene consumption.

• Growing Infrastructure • Government norms • Opportunities in rural market

B. Fertilizer industry
Installed capacity – 184.2lakhs MT/Annum Out of which 124.61lakhs MT is for nitrogen and 59.59lakhs MT is for phosphate. No. of fertilizer plants Large size: 57 Small and medium size: 78
Manufacturing units Sr. No. Sector Capacity (lakh MT) Nitrogen 1Public sector 2Cooperative sector 3Private sector Total 35.98 29.41 59.19 124.58 Percentage share Phosphate 7.74 16.02 76.25 100

Phosphate Nitrogen 4.21 10.3 45.09 59.6 28 23.58 48.42 100

The factors deciding the choice of the suitable packaging material:
• The hygroscopic nature of fertilizers • The condition of usage such as dampness etc • Prolonged storage of fertilizers due to seasonality • Subsidy borne by government of India due to relative cost (applies to Urea)

HDPE bags are used for packing as compared to PP bags
• PP bags have low shelf life • PP bags cannot be protected from harmful UV rays

Per bag cost analysis of PE/PP bags as on 1st June 2009.
cost analysis raw material cost/MT cash discount excise duty+ E Cess trade discount per kg cost Bag costing raw material filler Rs26/kg conversion cost cost/kg U.V. Stabilizer cost cost/kg weight of bag total cost/bag PE 69.4 0.6 68.8 0.082 74.4 2.0 72.4 72.4 0.88 63.7 0.12 3.1 13.0 79.8 0.0 79.8 128.0 10.2 PP 61.3 0.6 60.7 0.082 65.7 3.0 62.7 62.7 0.88 55.2 0.12 3.1 13.0 71.3 1.5 72.8 117.0 8.5

• To a processor QD & AQD along with MOU discounts are also paid. If we want to calculate exact cost of production then the same also need to be deducted from resin price afterwards. • Also we have not assumed price differential of LLD/LD or PP/L/LLD being used for lamination of between the 20-25g. This is virtually very low. • While quoting price customer will not pass on the cash discount & TD to processor hence his quote will increase by that amount too.

C. Fertilizer industry
• Current domestic food grain and pulses production is 470 million tones • Rice and wheat contributes 77% of total food grain production. • 30-40% food grains is procured and stored by Govt. agencies and rest by private operators. • Loss due to poor storage is as high as 5%.

Need for Storage of Food Grains:
• Storage is necessary for uniform supply • To preserve them for future use. • Storage starts immediately after procurements of food grains. • To provide a reserve for contingencies such as droughts, floods, and war. • To speculate on high prices either in domestic or in the export market.

Procurement and losses while Storage:
• About 30-40% of the grain produced in the country is stored by Government and private agencies. • 60-70% is retained by farmers for household use and consumption. • The loss of food grains stored by Govt. agencies is less than 1%. But at the farmers end it can be as high as 5% as a national average.

A shift in packaging pattern observed in private agencies Larger pack to the medium sized packing(10-25kg pack size)

(FCI) Maharashtra region storage capacity and monthly requirement

Factors that influence packaging in this industry are:
• Requirement to prevent contamination of packed material. • Packaging material must be moisture, rot resistant. • Good shelf life even under exposed and covered storage. • Better cost economics, Easy availability • Subsidy borne by government

Reasons for not using Plastic bags for packaging till date
• Fumigation of grains - compact nature of plastic bags • Availability of Aluminium Phosphide tablets (insecticides) • Sliding down and down gradation. • Storage stack 18-22bags reduced to 13-14 bags.

• Growing industrialization in India, leading to

• Training required for handling. • Reservation of jute packaging in food grains and other sectors which can be a rich market. • Manufactures lack commercially viable units. • Low resale value & resale only possible 2-3 times. • High capacity production required in order to earn profit.

more demand of sophisticated packaging by end customer. • The demand is directly related to demand of end product so till time a new better material does not come to replace the position is safe. • New big player entering the market.

• Exports provide a sound market. • Poor showing of jute industry. • Increasing production of cement, fertilizers etc. Food grain sector can be a huge market

•Poor quality of product might affect good export potential International fluctuation in petroleum products affects industry High dependency on labors

Suppliers •Reliance Industries Limited (76% of the market share) •Haldia Petrochemicals (15% of the market share) •Import (9% of the market share) Potential Entrants •Indian Oil Corp. Limited •Foreign player (raw material)

Polypropylene Industry Fluctuations in the crude oil and natural gas prices Economic growth of the major polypropylene consuming countries like USA and China

Substitutes •cement oReady mix cement oAD start bags •Food grains oMulti layered polyethylene bags •Fertilizer oPolypropylene bags

Buyer’s views •Availability, Cost, Quality of the raw material. •Low profit margins due to high over head charges .

• Foreign Raw material manufactures are targeting Indian market, so the share of import is expected to increase. • Domestic market is more price sensitive than quality sensitive. • Overall, for most of manufacturers, quality of the raw material does not play an important part. Main factors they consider while choosing raw material is cost and availability • Cement serves as an important market for polypropylene plastic woven bags. • Polyethylene demand is increasing as compared to Polypropylene in food grain and fertilizer sector. • Demand for raffia grade for plastic woven sack application is expected to grow at a CAGR of 9.2 percent to over 721.842 tones

• Domestic market also offers a lot of opportunity from unorganized sectors. • FIBC export has grown by 15 percent. • Exports can be of a much more importance than they have now, as it is labor centric industry, which provides an edge to India. • Multilayered polypropylene bags can be a good substitute of Polyprolyene bags in fertilizers and food grains sector because of • Low processing cost • High aesthetic values • Raffia industry should now formulate a strategy to capitalize on the opportunities and tap the potential in diversified markets both in sacking and non sacking applications

• The availability of raw material should be made faster. • Focus should now shift on bringing various applications of polypropylene raffia as Polyethylene is gaining strength in food grains and fertilizer sector • The quality of the raw material should be increased as exports are opening up • Indian raw material manufactures need to keep good check on their strategies as foreign raw material manufacturers are targeting Indian markets