In the quaint area in Silvassa, lined with factories on either sides of the road, stands this 7 year old plastic processing plant. Once a busy unit, now has almost sixty percent of its machines lying idle and its manager is not sure if the plant will open the next day.

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On a good day, all 10 machines at this plant would be busy at work with a majority of them churning out high-margin food packaging for clients such as the Indian Railways, Bikaner Sweets and Karachi Bakery. But it has now been reduced to making plastic glasses due to limited supply of its key raw material - Polypropylene. For months now, supplies haven't been steady and anything that does come in is getting costlier by the day, forcing the manager to keep only four machines running.

“My situation is currently hand-to-mouth. Whatever comes today, gets over today. For tomorrow, if I get, the plant will run, otherwise, we'll have to shut it. The way things are going, if we don't get raw material & price keeps increasing like this, our customers will not take our products,” the manager did not wish to be named.

Plastic processors in the Daman-Silvasa region, especially MSMEs, are a worried lot.

Next door to this plant is another plastic processor facing a similar situation and its proprietor Anand says that the plant is running at just about 35-40% capacity with raw material inventory of less than a week.​

“Investments have gone up heavily. While I needed to invest about Rs 80,000 for a tonne of PP, that has now gone up to about Rs 1.2-1.3 lakh a tonne. And while we used to keep inventory of over a month, it’s reduced to hardly 6-7 days now. So we have to curtail production. We can't run an industry like this because there's a lot of planning required to schedule production and commit to our customers,” Anand said.

These processors are not alone. While there are hundreds of small and medium plastic processors in the Daman-Vapi-Silvassa belt who are in the same boat, there are over 50,000 plastics processing units across India, which together employ more than 50 lakh people.

Polymers such as Polypropylene (PP) and polyethylene (PE) are raw materials that go into manufacturing all kinds of plastic items. However, in the past 4-5 months, there has been an acute shortage of these polymers, which has led to prices nearly doubling.

The price of PP, which was around Rs 72-75 a kilogram around December 2020, has increased to around Rs 125-135. The prices are higher in the grey market prevailing anywhere between Rs 150-175 per kg, according to plastic processors. Meanwhile, price of PE has also increased from around Rs 78 in December 2020 to around Rs 115 a kg. These prices have been increasing every week.

There has been a global supply squeeze, but processors in India allege that the shortage is artificial, created by petrochemical companies who have increased prices by over 150% in the last 8-10 months. They also allege that these large manufacturers are preferring to prioritising exports to American and European markets for better prices, which is further intensifying the domestic shortage.

The shortage and hiked polymer prices are forcing processors to hike the price at which they supply to customers, which are usually companies that sell the finished packaged good, thus hiking packaging costs for these companies as well. Some FMCG companies, for example, claim that packaging costs have gone up by around 10 percent. However, only some companies are able to absorb these costs.

The shortage is hitting smaller plastic processors harder. A shortage of supply is forcing them to procure from the grey market, where the prices are even higher, and this would mean hiking their prices as well. However, since they mostly supply to smaller companies in the unorganised sector, they risk losing customers as these customers are not ready to buy from them at a higher price.

“Prices have gone up 50-60% percent. Our customers in the unorganised sector are not ready to hike costs for us and as a result of this, customers associated with us for 4-5 years are switching to lower grades of the products, because of which the quality of products is also degrading,” a small plastic processor in Silvassa said.

Another plastic processor, Chemco Plast in Daman alleges that orders they place with petrochemical companies are stuck under ‘processing’ for several days and most often it either gets cancelled, or they receive lesser than what they order.

“We place an order for 10-15 tonne of raw materials, but barely get 4-5 tonne. Rest of the order gets cancelled. It is very difficult to survive because we cannot cater to our customers due to the non-availability of raw materials. After paying hiked prices, we are not getting the material on time. So inventory level is almost nil. It is very difficult to survive because we cannot cater to our customers in such a situation. On one hand, orders are getting delayed or cancelled because customers are not ready to give hiked prices and on the other hand, due to lack of visibility, we have stopped taking bulk orders from our end as well,” Jitendra Bhat, account manager of Chemco Plast said.

Despite curtailing operations and an increase in working capital requirement, costs of running the processing units haven’t changed. “My production is only 30% of what it used to be, but my costs are still the same. Power consumption is same despite lesser machines running and whether I transport 100 cartons or 50 cartons of my products, the transportation costs are the same and that is also increasing because of rising fuel prices increases,” the manager said.

Plastic processors are of the opinion that the onus is now on petrochemical companies to streamline supply of raw materials, which will then ease prices of the raw materials. All India Plastics Manufacturers Association (AIPMA) has urged the government to intervene and has asked petrochemical companies streamline the supply of raw materials. They say that if the current situation persists any longer, it will lead to the shutdown of many processors, especially in the MSME sector.

(Edited by : Anshul)

First Published:Mar 17, 2021 4:00 PM IST