High demand, import checks keep prices firm enough for cheery margins, despite rise in input cost.
High demand and firm prices are likely to enable caustic soda makers keep pleasing their investors.
Companies having caustic soda as their core business, such as Gujarat Alkalies and Chemicals Ltd (GACL), Aditya Birla Chemicals, DCM Shriram Consolidated and Sree Rayalaseema Alkalies & Allied Industries, among others, are likely to benefit.
From April, caustic soda flake prices have increased 51 per cent and caustic soda lye prices by 53 per cent.
Lye prices had declined by 11 per cent per kg in the same period of the previous year. According to industry statistics, caustic soda flake prices in Mumbai saw a jump from Rs 1,185 per 50 kg in April 2011 to Rs 1,675 per 50 kg in December (with a high of Rs 1,750 per 50 kg in July).
Key inputs like industrial salt have remained largely stable, while power costs have hampered companies’ performance in the last quarter. The price of salt has been in the Rs 600-700 per tonne range, while fuel cost fluctuations have restricted performance.
“We are positive about caustic soda companies, mainly GACL. The prices of electrochemical units (ecu, referring to the ratio of production of the co-products, caustic soda and chlorine) have remained strong this year. In December 2010, ecu prices hovered at Rs 18,000 a tonne; they were Rs 26,000-27,000 a tonne in December 2011,” said Viraj Mehta, research analyst at Equirus Securities.
Demand has remained strong from key consuming segments, including the dye and aluminium sectors, due to which manufacturers could pass on the increase in input costs by raising prices. This helped companies maintain their margins.
Also, an anti-dumping duty imposed on caustic soda imports led to domestic prices strengthening in the short term. The rupee’s sharp depreciation helped, by raising the landed cost of import, which enabled companies to raise domestic prices.
Caustic soda companies have outperformed the benchmark Sensex in the current financial year. While the latter index fell from 19,135.96 points on April 1, 2011, to 16,154.62 points as on on Friday, losing 15 per cent so far, the soda companies have reported gains.
Gas price fluctuations adversely affected GACL’s margins. However,it managed to maintain 22-25 per cent margins in the second quarter, experts said. GACL’s raw material costs rose 6.15 per cent from Rs 151.5 crore for September 2010 to Rs 161 crore in September 2011.
On the Bombay Stock Exchange, GACL shares gained 14 per cent during April-September; it has since moderated to show a 4.8 per cent gain in the year so far. GACL shares ended at Rs 132.50 on Friday.
DCM Shriram was up 15 per cent in the first half; as of on Friday, the stock rise since April has been 6.8 per cent. Sree Rayal-seema Alkalies ended at Rs 9.68 on Friday, a marginal growth of 0.2 per cent since April.
Another player in the sector, Grasim Industries Ltd, an Aditya Birla Group company, said the chemical business grew strong in the quarter ended September 2011.
“Production grew 21 per cent on the back of full capacity utilisation. Sales volume increased 30 per cent. Caustic soda prices continued to move upward, with higher international prices and lower imports,” it company had said in a statement.
“The cost of production may remain high due to high fuel cost but overall demand will remain strong and the prices are expected to remain firm in the near future,” said Mudit Jain, president, Alkali Manufacturers Association of India.
Caustic soda being a basic chemical, there has never been a demand problem in India. The commodity is used in industry segments such as aluminium, paper, textile, edible oil refineries, dyes and chemicals, drug intermediates and thermal power plant.
According to the Alkali Manufacturers’ Association of India, the total annual demand for caustic soda is around 2.5 million tonnes, of which a tenth is met through import.
