Banks in South Asia have not declared any official credit curbs but they were being quite selective when allowing customers to utilise their full credit allocation, market sources said.
Those who enjoy good relationships with their banks are able to use up their full cash credit allocation. However, those who do not have such long-standing relations are being left in the lurch, said a Karachi-based polymer trader.
Banks in the region have become more cautious in extending credit on account of both their own liquidity concerns as well as the possibility of default by polymer buyers, a New Delhi-based trader said.
The cash credit limit extended by Indian banks has been unofficially cut by up to 20%, compounding the woes of converters, said a Mumbai-based polymer converter.
Some banks were reducing the cash credit limit by as much as 50%, said a polymer supplier who exports to India. We have heard of cases where the buyer had only exhausted only half its credit limit, but the bank rebuffed the buyer s request to utilise the rest.
This was driving processors to further cut operating rates at their plants, converters said. Most polypropylene (PP) converters are running their plants at a mere 60% operating rate, partly because of worries over credit and partly due to the stagnant demand, a second Mumbai-based converter said.
A Middle East polymer supplier said its exports to India and Pakistan had dwindled due to problems faced by buyers in obtaining longer credit terms.
The market is virtually dead in these two countries. Buyers are in a state of panic, pressured on the one hand by weak demand, and on the other, by lack of liquidity due to credit curbs, the supplier said.
Liquidity concerns in Indian banks have escalated, with the rupee depreciating to a six-year low as some foreign institutional investors fled from the Bombay stock exchange in the wake of the US financial meltdown.
The losses incurred by polymer converters in the past few weeks due to weak demand and high-priced raw material purchases have further exacerbated the problem, market players said.
I have suffered a loss of $150,000 on just one polymer consignment which is due to land at the port next week, as I am unable to pass on the high costs of the resin which I purchased over a month ago, said a second Mumbai-based processor.
In Pakistan, the credit squeeze has been a fall-out of the country s low US dollar reserves, unleashing concerns about its ability to repay a $2.65bn debt, mainly in US dollar-denominated bonds.
With prices falling every week, we would rather not risk exporting to Pakistan until financial stability is restored, said a second Middle East polymer supplier.
But Karachi-based polymer traders were relatively confident that the country s beleaguered economy would recover soon.
Although our economy is facing challenges due to the war on terror, I don t expect any default-like situation, as the Pakistani banking regulations and central bank controls are far better than those in many developed countries, said Zubair Tufail, acting president of the Federation of Pakistan Chambers of Commerce and Industry, and a leading polymer trader.
Pakistan has no local production of polyethylene (PE) and PP and imports its entire requirement of the polyolefins. In India, major PE and PP producers include Reliance Industries, Haldia Petrochemicals Ltd and Gail India Ltd.
