Caustic soda producers have reason to cheer. With prices of the industrial chemical at all-time highs, they see better days returning after last year’s spell of weakness. Experts see the margins of major companies such as Gujarat Alkalies & Chemicals, the Aditya Birla Group, DCM Shriram Consolidated and Meghmani Finechem, among others, improving for the remaining part of this fiscal.
Domestic industrial consumption of caustic soda flake has increased, coupled with more export, in recent weeks. According to trade sources, flake prices rose Rs 2,000 a tonne in the past fortnight and are now around Rs 39,300 a tonne in the Mumbai market.
“Prices are currently at all-time high levels, a result of a sharp decline in the price of chlorine, owing to reduced demand for it. Caustic soda demand remains robust,” said Mudit Jain, president, Alkali Manufacturers’ Association of India. Chlorine is a by-product of caustic soda production; so, to cut its supply, companies are likely to produce less of the latter. A Capitoline report says chlorine demand growth is less than that of caustic soda. The mismatch is likely to impact production of the latter in the coming months, pushing prices.
| UPTREND IN CAUSTIC SODA FLAKE Prices at Mumbai market | |
| Date | Price (Rs per 50kg) |
| 3-Jan-11 | 1,185 |
| 1-Apr-11 | 1,290 |
| 31-Oct-11 | 1,495 |
| 2-Jan-12 | 1,665 |
| 2-Apr-12 | 1,765 |
| 31-Oct-12 | 1,965 |
| Source: Bloomberg Compiled by: BS Research Bureau | |
According to insiders, the situation has helped caustic soda makers pass on their cost burden to consumers. This would help companies improve their margins this year.
“Chlorine demand is weak as there is strong opposition to PVC products across the world, on environment concerns. About 50-60 per cent of the country’s chlorine production goes for making PVC products. Also, demand from the infrastructure sector is low due to overall economic weakness. Therefore, the demand for plastic pipes is also low,” said Ashish Soparkar, managing director, Meghmani Organics. Major chlorine consuming sectors are vinyl, chlorinated paraffin wax, pulp & paper and chemicals; these form 80 per cent of the demand. Also, depreciation of the rupee has increased the landed cost of imports, helping companies raise domestic soda prices. There is already an anti-dumping duty on caustic soda, to make imports costlier.
“There is a rise in domestic demand for caustic soda flake, while exports are also increasing. Prices are ruling at peak levels and might go up further, by around Rs 1,000 a tonne after the Diwali festivities,” said a trader based here.
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“There is some relief due to the rise in soda prices, as companies are now able to pass on a part of the cost burden to consumers. Also, we expect caustic soda consumption to grow by four to five per cent this year, giving some support to the industry,” said Jain, also director at DCW, a leading maker and exporter of industrial chemicals.
Caustic soda prices began strengthening since the second quarter. On a year-on-year basis, soda flake prices have seen a sharp increase of about Rs 10,000 a tonne or 31 per cent. In October 2011, these were Rs 29,900 a tonne; this had risen to Rs 39,300 a tonne last month.
“The overall alkali industry continues to grow at a sluggish pace. Even as caustic soda is doing well, we see the overall growth for this fiscal to be around 2.5 per cent. Also, we do not see any more capacity being added this fiscal,” said R S Jalan, managing director, Gujarat Heavy Chemicals.
India’s caustic soda making capacity is 3.25 million tonnes per annum (tpa). With a little more than 500,000 tpa, the Aditya Birla Group is the largest, followed by GACL with 429,000 tpa, DCM Shriram at 274,670 tpa and Raliance Industries at 168,150 tpa. Alumina, paper and textiles constitute about 60 per cent of total caustic soda demand