INDIAN PINE CHEMICALS INDUSTRY

BY SAMIR AGARWAL [email protected] IMEXCO INTERNATIONAL PVT LTD, INDIA 18 SEPT, 2018 TABLE OF CONTENTS

I. IMEXCO INTERNATIONAL – A BRIEF II. India – An overview III. Oleo Pine Resin TAPPING METHODS, PRODUCTION & SALE METHODS , Future Prospects IV.Gum Rosin PRODUCTION OVERVIEW & ISSUES, APPLICATIONS, Supply Gap – IMPORT DATA, Developments & Future Prospects V. Gum Turpentine Oil PRODUCTION OVERVIEW & ISSUES, APPLICATIONS, Supply Gap – IMPORT DATA, Developments & Future Prospects VI.CONCLUSIONS Imexco International Pvt Ltd

• Established in 2006, Imexco is a leading Supply- Chain-Manager and provider of Pine Chemicals, Aroma Chemicals & Natural Essential Oils, Incense & Industrial Raw Materials • Multi-Industry business spread across Asia, Europe & South America with 60 products, delivered to more than 100 customers in India, Pakistan, Nepal, Thailand, Vietnam, China, Turkey and Europe. Our USP

• Key Competitive Strengths - understanding customer requirements • Endeavour to achieve high Customer & Supplier Satisfaction • Deliver on commitments • Develop Positive & Long term relationships OUR PORTFOLIO • Pine Chemicals • OPR, Gum Rosin, Gum Turpentine Oil & derivatives • Essential Oils • Sandalwood Oil, Olibanum Oil , Vetiver Oil, Carrot Seed Oil, Patchouli Oil etc • Incense & Aroma • Raw Incense Sticks, Bamboo Sticks, Joss Powder, Wood Powder, Gum Rosin, Gum Damar • Polymer Additives & Intermediates • Antioxidants, Nucleating Agents, Flame Retardants, UV Absorbers, Hals Light Stabilisers, PMHP PINE CHEMICALS DIVISION

• Specializes in supply of OPR, Gum Rosin, Gum Turpentine & their derivatives, with business affiliates in Indonesia, China, Brazil, Vietnam & India. • Delivered > 10000 Mt Products, Valued at USD 23 Mn (July 2017-June 2018) OUR PARTNERS

• Petrofer AG, Switzerland, Guangzhou Flying Dragon Chemicals, Resiminas Agroflorestal Ltda, Brazil, Pt Alam Jaya Loka & Pt Nasco, Indonesia, Tuan Minh Trading & Production, JH Interco, Vietnam • They provide • Quality products, Technical capability, Technological advancements, Customised Solutions, Warehousing & Logistics support, Financial products. INDIA – AN OVERVIEW

➢ Population : 1.27 Bn - 2nd largest in the world ▪ With 465 Mn youth ; i.e. 36% of the population (15 – 34 years) ➢ GDP (2017 - 18) : USD 2.85 Tn – 6th in the world ➢ Per Capita Income (2017 - 18) : USD 2134 ➢ Growth rate : ▪ 2016-17 - 7.1% ▪ 2017-18 – 6.65% (estimated) ➢ Exports : USD 302 (Bn) (2017-18) ➢ Imports : USD 460 Bn (2017-18) Source : Tradingeconomics.com Ministry of Statistics & Program Implementation, Government of India OLEO PINE RESIN • Pine forests – 76,200 Sq. Km. • 3000 Kms of Himalayan Range • North & East India, • Nepal, Bhutan, Myanmar • Types of Pine Trees * P. Roxburghi - Chir Pine * P. Wallichiana – Blue Pine, P. Kesiya – Khasi Pine, P. Gerardiana – Chilgoza Pine, P. Merkussi OPR – TAPPING IN INDIA

• Tapping Season: 15 March - 15 Nov / 1 April - 31 Oct (in colder areas) • Forests primarily government owned & managed. • Tapping by Authorized Contractors • Output – officially 3 Kgs, Unofficial 4 – 7 Kgs. Managed by tapper syndicates • Sale of OPR by open auction • Limited own / leased forests – independent tapping permitted TAPPING METHODS

FRENCH CUP & LIP METHOD RILL METHOD (OLD : UPTO 1984) ( NEW : 1984 - PRESENT) Cuts : 42 cm x 10 cm x 1.25 cm Cuts : 35 cm x 0.6 cm x 1.25 cm Tree diameter Min. 40 cm Tree diameter Min. 30 cm Channels: 11 cm apart Channels: 0.5 cm apart Weekly freshening Weekly freshening Output : 3 Kg/tree/year Output : 4 – 7 Kg/tree/year Disadvantages • Uncontrolled tapping depth. • Poorly tapped trees - Loss of Timber, broken trees CUP AND LIP METHOD OF TAPPING RILL METHOD OF TAPPING OPR STATEWISE PRODUCTION

Region/Year 2015 (MT) 2016 (MT) 2017 (MT) Uttarakhand 14800 17000 13700 Himachal Pradesh 6000 6000 6000 Jammu 3800 Nil Nil Total 24600 23000 19700 30000 25000 20000 15000 10000 5000 0 2015 2016 2017 UTTARAKHAND HIMACHAL PRADESH JAMMU OPR PRODUCTION YEARWISE

3800, 2015 2016 16% Uttarakha Uttarakha nd 26% nd 6000, 14800 Himachal Himachal 24% , 60% 74%

2017

Uttarakha 30% nd 70% Himachal OPR DECLINING TREND

OPR PRODUCTION 100000 We TREND don’t 75000 1. Natural forests – end of care!! lives of trees 50000 2. No new areas to plant 30000 pine trees 24600 23000 19700 3. Overall OPR @ USD 20 Mn insignificant for 0 government 1975 1990 2015 2016 2017

NEGATIVE ATTRIBUTES OF PINE TREES 1. Needles / Leaves highly inflammable 2. Not suitable for Cattle Fodder 3. Slow natural decomposition rate of Needles 4. Does not allow regeneration of Associate Species beneath OPR AUCTIONS (Jan – April 2018) USD 812 - 842/MT, 15%

USD 871 - USD 931 - 897/MT, 956/MT, 65% 20%

** Many auctions cancelled by the government 2017 TAPPING 2016 TAPPING NEPAL OLEO PINE RESIN

• Government control – forests leased to Rosin manufacturers • Similar situation as India 16000 15000 Oleo Pine Resin (MT) 14000 12000 12000 10000 10000 8000 Nepal’s self 6000 consumption of 4000 2000 Rosin is estimated 0 at 2500 MT/ Year 2015 2016 2017 (Estimate) GUM ROSIN PRODUCTION IN INDIA - OVERVIEW

STEAM • Average Capacity – 3600 Mt/Year PROCESS • 5 factories

TRADITIONAL • Average Capacity – 1000 Mt/Year PROCESS • 40 factories (bhatti) GUM ROSIN PRODUCTION ISSUES

• Major players exited Rosin manufacturing (Year 1995-2018): • Difficulties in sourcing OPR • Bureaucratic handling • Poor quality of OPR • Risks of operating in Jammu & Kashmir • Inconsistent & inadequate supply • Imports from Vietnam, Brazil, Indonesia almost stopped GUM ROSIN APPLICATIONS

Resins & Rosin Esters for • Adhesives • Paints • Printing Inks • Paper Sizing • Rubber • Soaps • Food applications • Others – Foundry, Incense, Electronics – Solder, Flux, Pharma GUM ROSIN PRODUCTION & IMPORT

GUM ROSIN PRODUCTION 54000 MT CAPACITY

GUM ROSIN CONSUMPTION 2015 2016 2017 MT % MT % MT % PRODUCTION 17220 31.0 16100 30.4 13790 28.3 IMPORTS 38240 69.0 3880 69.5 34900 71.7 TOTAL CONSUMPTION 55460 100 52980 100 48690 100 GROWTH RATE% -4.5 -8.1 GUM ROSIN CONSUMPTION - GRAPHS

2016 2015 2017

17220, 16100, 13790, 31% 30% 28% 38240, 34900, 69% 36880, 72% 70%

PRODUCTION IN INDIA IMPORTS PRODUCTION IN INDIA GUM ROSIN IMPORTS

2015 2016 2017 Country of Supply MT % MT % MT % China 2,739 7.1 1,854 5.0 1738 4.9 Indonesia 13,464 35.2 15,529 42.1 14978 42.9 Brazil 9,093 23.7 10,574 28.7 11632 33.3 Nepal 8000 21 5900 16.0 4500 12.9 Vietnam 4,784 12.5 2,907 7.8 1152 3.3 Others 160 0.5 116 0.4 900 2.7 Total Imports 38,240 100 36,880 100 34,900 100 Growth Rate% -3.6 -5.4 GUM ROSIN IMPORT - GRAPHS

2015 116, 0% 2017 900, 4784, 2016 3% 2739, 1152, 3% 13% 160, 2907, 1854, 1738, 5% 0% 7% 5% 4500, 13% 59008% , 8000, 16% 13464, 21% 15529, 35% 42% 11632, 14978, 33% 43% 9093, 10574, 24% 29% Others China Indonesia Brazil Nepal Vietnam Others Others China Indonesia China Brazil Nepal Vietnam APPLICATION INDUSTRY DATA (in‘000 MT)

INDUSTRY YEAR GROWTH RATE (%) SEGMENT 2015 2016 ADHESIVES 279 297 6.5 PRINTING INKS 230 248 7.8 SOAPS 805 831 3.2 PAINTS 4250 5260 23.8 PAPER & PULP 12000 12400 3.3

15000 10000 5000 0

2015 2016 INDIAN INDUSTRY OF INTEREST TO US

Auto Industry : Production : 25 Affordable Roads : USD 106 Mn Nos (Year Housing for all – Bn project - 84000 2017) USD 46 Bn project Km Roads (Year CAGR - 5.6% (Year 2015 – 2022) 2017 – 2022) (Year 2012-17)

India Chemical Industry – Fragrance Industry USD 139 Bn (Year 2016) – USD 41 Bn (Year 2017) Exports – USD 22 Bn CAGR - 11% Imports – USD 35 Bn (Year 2010-15) DEVELOPMENTS & FUTURE PROSPECTS

✓OPR output falling. Little organized effort to revive the same ✓Private players are leasing Pine forest areas – although costs are high ✓Steam Process Rosin plants will come up based on quality OPR supply ✓Demand for Rosin should grow at 2 – 3% due to construction of roads, houses & growth of packaging industry ✓Adequate capacity for derivatives manufacture – Ester Gums, Alkyd Resins. ✓Derivatives import is insignificant. Further capacity being established for downstream products eg DPR & Hydrogenated Rosin GUM ROSIN PRODUCTION IN INDIA - OVERVIEW

STEAM • Average Capacity – 3600 Mt/Year PROCESS • 5 factories

TRADITIONAL • Average Capacity – 1000 Mt/Year PROCESS • 40 factories (bhatti) GUM TURPENTINE PRODUCTION IN INDIA - OVERVIEW STEAM • Average Capacity – 700 Mt/Year PROCESS • 5 factories

TRADITIONAL • Average Capacity – 200 Mt/Year PROCESS • 40 factories (bhatti) GTO PRODUCTION ISSUES

• Major players exited Rosin manufacturing (Year 1995-2018): • Difficulties in sourcing OPR • Bureaucratic handling • Poor quality of OPR • Risks of operating in Jammu & Kashmir • Inconsistent & inadequate supply • Imports from Vietnam, Brazil, Indonesia almost stopped SPECIFICATIONS OF INDIAN & NEPAL GUM TURPENTINE OIL HIMACHA UTTARAKHAN L D NEPAL ❑Unstable specifications ALPHA PINENE % 30-35 18-24 10-16 ❑Limited Utility BETA PINENE % 2-3 2-3 3-4 DELTA-3-CARENE ❑Low price % 55-60 60-65 65-70 ❑Indian/Nepalese GTO LONGIFOLENE % 2-3 3-4 5-8 low in Alpha Pinene & NEPAL - GTO TREND rich in Delta-3-Carene 2015 2016 2017 ❑Unlike Rosin, Nepal GUM TURPENTINE OIL PRODUCTION 2250 1800 1500 contributes negligible % CHANGE OVER PREVIOUS YEAR -20 -17 GTO to India’s consumption. GUM TURPENTINE OIL PRODUCTION CAPACITY IN INDIA 9500 MT GUM TURPENTINE OIL APPLICATIONS

ALPHA & DIHYDROM BETA TERPINOLENE YRCENOL DIPENTENE PINENE

TERPINYL DELTA 3 – 2. TURPENTINE 1. CAMPHOR ACETATE CARENE DERIVATIVES

PINE OIL CAMPHENE TERPINEOL LONGIFOLENE ALPA PINENE, CST, GTO CONSUMPTION

2015 2016 2017

MT % MT % MT % PRODUCTION IN 3,690 6.8 3,450 5.8 2,955 4.5 INDIA IMPORTS - AP, CST, 50,560 93.2 55,940 94.2 63,310 95.5 GTO TOTAL 54,250 100 59,390 100 66,265 100 CONSUMPTION GROWTH 9.5 11.6

100000 63310 50560 55940 50000

0 2015 2016 2017

PRODUCTION IN INDIA IMPORTS - AP, CST, GTO ALPHA PINENE, CST, GTO IMPORTS (in MT) 2015 2016 2017

COUNTRY OF ALPHA PINENE CST GTO ALPHA PINENE CST GTO ALPHA PINENE CST GTO SUPPLY USA 3,465 1,640 0 4,697 1,770 5,297 2,241 CHILE 340 0 0 139 626 FRANCE 2,389 0 0 2,718 1,195 BRAZIL 539 274 6,076 60 418 5,368 460 410 9,612 CHINA 1,979 0 0 2,892 4,884 10,92 14,10 INDONESIA 3,487 0 2,202 323 14,289 0 3 RUSSIA 0 87 0 589 1,052 864 AUSTRIA 0 55 0 667 686 BULGARIA 0 27 0 447 769 CZECH REPUBLIC 0 116 0 569 838 FINLAND 0 7,352 0 5,970 4,948 POLAND 0 0 0 1,393 2,296 SWEDEN 0 973 0 986 1,708 ARGENTINA 0 0 2,000 1,820 2,023 VIETNAM 39 0 7,041 6,948 6,236 OTHERS 29 1,344 389 131 821 1,231 143 670 1,740 11,86 26,42 13,63 29,47 15,43 TOTAL 12,267 12,840 13,980 33,900 7 7 0 0 0 50,56 55,94 GRAND TOTAL 63,310 0 0 CHANGE OVER PREVIOUS YEAR 4.7 14.9 11.5 8.9 13.2 15 GROWTH RATE % 10.6 13.2 GTO IMPORTS

40000 6236 7041 6948 14289 20000 10920 14103 6076 5368 9612 0 2015 2016 2017

BRAZIL INDONESIA ARGENTINA VIETNAM OTHERS CST IMPORTS

In MT

100% 7352 5970 4948 50% 1640 1770 2241 0% 2015 2016 2017

USA BRAZIL RUSSIA AUSTRIA BULGARIA CZECH REPUBLIC FINLAND POLAND SWEDEN OTHERS ALPHA PINENE IMPORTS

In MT

100% 3487 2202 323 1979 2892 4884 2718 1195 50% 2389 3465 4697 5297 0% 2015 2016 2017

USA CHILE FRANCE BRAZIL CHINA INDONESIA RUSSIA OTHERS YEAR-WISE IMPORTS OF ALPHA PINENE, CST, GTO

40000 In MT 33900 35000 29470 30000 26427 25000 20000 13630 13980 15430 15000 12267 11867 12840 10000 5000 0 2015 2016 2017 ALPHA PINENE CST GTO COUNTRY-WISE TOTAL IMPORTS

In Mt 20000 16305 14407 14612 15000 10482 10000 6889 6467 7538 5105 5846 5000

0 2015 2016 2017 USA FRANCE BRAZIL CHINA INDONESIA FINLAND VIETNAM DEVELOPMENTS & FUTURE PROSPECTS

✓OPR tapping will continue to fall unless there is government effort to revive the industry ✓Private players are leasing Pine forest areas – although costs are high ✓Steam Process Rosin plants will come up based on assured domestic OPR supply ✓Demand for GTO will continue to grow at 9 – 10% ✓Faced with inadequate GTO supplies all users considering using CST ✓Adequate domestic capacity for derivatives manufacture & export CONCLUSIONS

✓Any increase in International Gum Rosin price will result in 10 – 15% shift to local Gum Rosin ✓With better management of OPR tapping Indian Gum Rosin production can increase by 5000 – 7000 Mt/Year ✓Indian Rosin manufacturers are likely to tap export market too ✓Annual incremental demand for Gum Rosin 2 - 3 % ie 1000 – 1500 Mt ✓Annual incremental demand for GTO 9 – 11% ie 5000 – 6000 Mt which has to be sourced globally SOURCES OF DATA

✓OPR data – based on auctions of Forest department in Uttarakhand and buyer information ✓Indian Rosin & GTO production data - obtained from industry discussions and assumption of production in the un-organized sector ✓Import data – based on Customs information ✓Indian Economy Data – Indian Government websites