With this background, there is immense potential for capacity addition in the country.

Key Positives With IOC and ONGC setting up petrochemical plants in the next few years, high competition is likely to check prices of petrochemical products. Since domestic per capita consumption is very low as compared to global standards, there is enormous scope for new entrants to establish themselves. The polymers industry demand growth in the past has been at double digits and the prospect of the sector is positive in the foreseeable future with the prices just in the peak of their cyclical nature.		Key Negatives The recent increase in cost of crude to USD 45 per barrel (Indian mix) levels resulted in increased prices of feedstock (since naphtha is a refinery product). This has impacted margins of the industry to an extent. Any further reduction in the customs will result in further pressure on prices and consequently margins. Demand potential being so high, the domestic market is an attractive destination for global majors such as Exxon Mobil and Dow Chemicals. This shall be a major setback for the domestic players as they are smaller in size compared to these global majors. Rationalization of natural gas prices could result in higher raw material cost going forward.

This is part of Equitymaster's Budget 2005-06 series. Equitymaster.com is one of India's premier finance portals. The Web site offers a user-friendly portfolio tracker, a weekly buy/sell recommendation service and research reports on India's top companies.