Detergent makers saved higher LAB prices

The international price of linear alkyl benzene (LAB), a key raw material for soap and detergent manufacturing, has increased by 14.5 per cent from $865 per tonne (c.i.f. Mumbai) in mid-November 2003 to $990 per tonne in mid-June 2004.

This has been attributed to the increase in the prices of the key raw material, benzene, and firm prices of n-paraffin.

However, the landed cost of imports in the country has increased only 4 per cent during this period.

This is because the cut in customs duty in January 2004 from 30 per cent to 20 per cent offset the rise to a large extent. Higher LAB prices means higher raw material costs for manufacturers of soaps and detergents.

A CRIS-Infac study attributed the slow rise in domestic LAB prices to competition in the detergent market, and the bargaining power that large detergent manufacturers such as Hindustan Lever, Nirma, Procter & Gamble, and SPIC have with LAB producers such as Reliance Industries, IPCL, Tamil Nadu Petroproducts and Nirma.

Further, there is overcapacity in the domestic LAB industry, and utilisation levels are estimated at around 85 per cent in 2003-04.

Five Indian LAB manufacturers have a total installed annual capacity of 4,38,500 tonne. These companies produced 3,73,000 tonne of LAB in 2003-04. The domestic demand for LAB in 2003-04 was 2,85,822 tonne while 76,000 tonne was exported.

The industry sees demand at around 3,00,111 tonne in 2004-05 and exports at 95,000 tonne, whereas production is expected to be around 4,20,000 tonne. Tamil Nadu Petroproducts is one of the main player in the LAB segment.

TN Petro scrip is currently trading below Rs 19, reflecting a price-earnings of 7.23 and has a book value of Rs 49.66. The stock moved up to Rs 35 levels in January.

The company's capacity expansion project of LAB unit is going as per schedule and is likely to go on stream in January 2005. After completion of the project, its LAB capacity will increase from the current 95,000 tpa to 1,20,000 tpa. TPL has a 38 per cent market share in India and wants to capture 10 per cent of the global LAB market.

TPL is also acquiring a controlling stake in a LAB facility in Vietnam at a cost of $35 million. The plant has a capacity of 80,000 tpa. It also has a downstream unit that makes 60,000 tonne per annum of LAB Sulphonate (LAS), using LAB as a feedstock.

The proposed 525 mw coal-fired plant in Tamil Nadu, being set up by SPIC Electric Power Corporation Pvt Ltd, in a JV with PowerGen, is expected to commence operations in 2004.

Reliance Industries, the largest domestic producer of LAB has a capacity of 1,15,000 tpa. The company produced 1,16,815 tonne LAB in 2003-04 against 1,15,492 tonne in 2002-03.

The company expects that LAB sales in the coming year will go up on account of increased demand from the domestic detergent industry. Reliance exports almost 27 per cent of its LAB production to countries in South East Asia, Middle East and Europe. The feedstock requirement of the LAB plant is fully met from its captive normal paraffin plant.

IPCL, a Reliance group company, has a LAB capacity of 43,500 tpa. The company produced 54,000 tonne of LAB in 2004-05. Nirma produced 98,000 tonne of LAB while Indian Oil's LAB capacity of 120,000 tonne will go on stream this year.