Page 129 - CW E-Magazine (10-12-2024)

Point of View

Will the chlorine utilisation problem in the Indian

chlor-alkali industry turn to a caustic soda one?

The Alkali Manufacturers Association of India (AMAI) is rather fortunate as it represents the interests of a homogenous industry
manufacturing chlor-alkali products (caustic soda, chlorine and soda ash in the main), unlike other industry associations that represents a wide
cross-section of the chemical industry. The challenges and the remedies are common across the membership of AMAI, and it is able to put
them across to the powers that be in a coordinated manner with little conflict across its member base. In some chemical industry segments –
agrochemicals and pharmaceuticals come immediately to mind – there are several lobby groups that claim to speak for subsets of the industry
and the messaging that comes across from them is often at cross-purposes, confusing policy makers.

To the credit of AMAI, it has also consistently been doing an excellent job of documenting the performance of the industry, and the latest
handbook released by the association, putting out the industry performance in FY24, follows on the tradition of several years. Some aspects
that stand out in the recent report is the increased capacity utilisation of the caustic soda manufacturing industry as a whole thanks to better
exports; better chlorine utilisation largely through captive utilisation; and a drop in capacity utilisation in the soda ash industry – the other
segment of the alkali industry – thanks to stiff competition from imports.

Caustic soda
The Indian chlor-alkali industry is still small in a global context, with an installed capacity of 58.85-ltpa (lakh tonnes per annum)for caustic
soda, representing just 5.5% share of global manufacturing capacity. The industry has seen a steady increase in capacity – rising by a CAGR
of 6.2% between FY20 and FY24, as several players expanded capacities. In FY24, production increased by 3.1% over the previous year to
46.13-lt. Capacity utilisation of the industry as a whole rose to 81.6%, compared to 80.3% in the previous year, thanks to increased exports
(more on this later) and increase in domestic demand. The industry has traditionally run at an operating rate in the low- to mid-80s, but this
plummeted in FY21 to 75.3% largely due to COVID-related impacts. But, like many other segments of the chemical industry, the caustic soda
industry staged a quick recovery and went back to trendline operating rates in the subsequent years.

Much of the industry is concentrated in Gujarat, which has a 57% share of total installed capacity, not surprising considering the region is
a major producer of salt (the principal raw material for both caustic soda and soda ash), and the products find ready use in the industrial units
in the region. The State also continues to see expansions and new projects by incumbents. South India (in particular Andhra Pradesh) has the
second biggest cluster of caustic soda manufacturing units and saw an 8.9% increase in capacity in FY24 to take its share of total installed
capacity in the country to about 20%.

Caustic soda is a globally traded commodity, particularly in the form of lye, and cheap imports have been a threat. The industry has historically
been a net importer, but that changed in FY21, when it turned a small net exporter – a status that has since been maintained. Imports have
fallen in recent years in part due the cumber some logistics involved in ferrying a low-priced commodity; the imposition of safeguard and
antidumping duties; and rising production. From accounting for about 18% of consumption in FY16, imports are now just a notch above 5%
(mostly lye), which can be well accommodated by raising domestic production within the capacity already existing.
For several years, Japan has been the number one source of caustic soda to India, and in FY24 accounted for 41% of all imports. That
such a high-cost country accounts for a large share in a commodity like caustic soda seems surprising, but the reason has to do with the
Indo-Japan Free Trade Agreement (FTA), under which, the Basic Customs Duty (BCD) on imports of caustic soda is ‘Zero’. Prior to the signing
of this accord, Japan’s share was next to nothing. Iran and Oman in the Middle East are two other significant suppliers to India. Their ability to
compete can be attributed to their geographical proximity and low energy costs, which makes for attractive process economics. Total value
of caustic soda imports in FY24 was about Rs. 775-crore.
At the same time, exports have grown, and in FY24 reached close to half a million tonnes – roughly about 10% of production. Industry
participants believe this momentum in exports can be built upon, provided the right policy support is forthcoming to address shortcomings in
the industry’s cost structure. Much of the exports are the solid form (not the commonly traded lye), which has a limited market but still has
sufficient headspace to permit growth. Much of the exports are to lesser developed markets; in FY24 the top destinations for Indian caustic
soda exports were South Africa, Indonesia, Kenya, Tanzania, Saudi Arabia and Nigeria, followed by several other African countries. Total value
of exports was about Rs. 1,600-crore.
The pattern of consumption of caustic soda in India has some similarities with the world as a whole, as well as some stark differences.

Chemical Weekly December 10, 2024 129

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