Reliance Industries Shuts Five Polyester Units

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Researched by Industrial Info Resources (Sugar Land, Texas)--Reliance Industries Limited (BSE:500325) (RIL) (Mumbai), India's largest private sector enterprise, has reportedly closed down five of its seven polyester and petrochemical units in Patalganga near Mumbai. This move comes in the wake of a slump in demand for polyester products worldwide.

Five units for manufacturing polyester staple fiber (PSF), polyester filament yarn (PFY), purified terephthalic acid (PTA), paraxylene and linear alkyl benzene (LAB) are believed to have been shut down. The remaining two units producing PSF and PFY have been partly operational over the last month. The Patalganga facility, spread over 200 acres of land, was built at an investment of $625 million. RIL is reported to have laid off about 800 nonsupervisory employees at this facility. Compensation from retrenchment includes $42,500 for employees with a minimum of three-five years of experience. The company has no immediate plans of shifting operations from Patalganga to Indian Petrochemical Corporation's plant in Nagothane, Maharashtra, as widely speculated.

RIL, however, has denied these allegations, saying that some plants are closed as part of routine maintenance and to augment capacities with plans to restart operations early next month. According to the company, the PTA and LAB units are functioning at full capacity. The petrochemical major intends to revamp most of its old polyester units to enhance operational efficiency, as rises in crude prices have led to a drop in profit margins. Crude oil is the main raw material for producing polyester. The global slowdown is likely to cause a steep decline in RIL's margins from the polyester and polymer business in fiscal year 2010-11. RIL has an installed polymer production capacity of 3.5 million tons per year that includes polypropylene, polyethylene and polyvinyl chloride.

RIL also recently shut down a polypropylene plant at the Jamnagar refinery complex for a month to increase propylene production capacity and to improve product quality.

Crude oil production in the first half of the 2008-09 fiscal year declined 0.8% to 360,000 barrels per day (BBL/d). This was because of decreased output from existing oil fields. The 19 refiners in the country consist of 17 public sector companies and two private companies. The private refiners saw a 14.2% decrease in crude production during this period compared with a 0.2% decrease by Oil & Natural Gas Corporation Limited (BSE:500312) (New Delhi). However, indigenous production of petroleum products registered a 4.5% growth in the first half of fiscal year 2008-09, with a total production of about 1.73 million BBL/d, despite a decrease in crude production. India's private refining companies showed a growth of 16.2%.

RIL has announced that it is delaying the commissioning of a new refinery at the Jamnagar complex to early 2009. The 580,000-BBL/d refinery was slated to begin operation in the second half of 2008. The delay is a strategic move by the petrochemical company to capitalize on tax benefits by commencing operations next year and to ease pressure on refining margins.

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