Page 131 - CW E-Magazine (21-11-2023)

Point of View

Indian chlor-alkali: Change may be coming …. And

not a day too soon

The Alkali Manufacturers Association of India (AMAI) recently released its Annual Industry Review for 2022-23. This is an excellent
documentation of the recent performance of the industry, spanning not just caustic soda, chlorine, soda ash and polyvinyl chloride (PVC),
but also some of the related products including hydrogen and hydrochloric acid, as well as raw materials and inputs (mainly industrial salt
and electricity). The association deserves credit for this meticulous publication, which is not common in the chemical industry. This is partly
aided by the fact that chlor-alkali is, by and large, a very homogenous industry, entirely comprising large units, but that should not take away
from the good effort made to document a vital industry.
Chlorine, caustic soda and soda ash – the three main products – have widespread use, spanning several sectors of the economy and
demand for these basic chemicals is expected to grow at a CAGR of about 4-5%.

A few facts stand out in the report. For one, the problems facing the industry have not changed in several years, including the high
cost of power; the poor value addition to chlorine; and the efforts to keep imports at bay. What has changed is that despite challenges, the
industry is in expansion mode, largely to meet domestic demand, but is also making a dent in export markets. Also evident are investments
in projects for value-adding to chlorine.

While the report has extensive coverage of the PVC industry, the irony here is that the chlor-alkali industry in India – unlike its counterparts
in much of the world – is largely divorced from the all-important vinyl chain. While this aspect has not changed for several years, there are
prospects of a few integrated vinyl projects coming up in India in the next few years, besides some incremental expansions.

Caustic soda
Installed capacity for caustic soda in India (as on March 31, 2023) was 55.65-ltpa (lakh tonnes per annum), approximately 5.5% share
of global capacity. A few new projects and expansions contributed to the 10.4% rise in installed capacity in the year – much above the 6.8%
trendline growth in capacity in the last five years, and the largest build-up seen in the recent past.

Nearly all (94%) of the incremental capacity in the year was in Western India – for long the major centre of production and consumption.
More than half of the industry’s capacity today is in Gujarat, but this is not surprising considering this is where a big chunk of India’s chemical
industry is located. Sadly, Maharashtra’s share of capacity has come to near-zero – reflective of the decline of chemical manufacturing in the State.

Production of caustic soda in FY23 touched 44.73-lt – an increase of 8.3% over the previous year – but capacity utilisation in the industry
fell to 80.3%, largely because much of the new capacity was not available through the year. Production during the past year also represented
one of the largest increases seen, aside some aberrations in the wake of the pandemic.
The improved production allowed for a greater share of domestic demand (46.46-lt) to be met by local output and to a decline in imports
(to 1.36-lt). Overall domestic consumption grew 4.2% in FY23, in line with the 10-year trend – to reach 41.38-lt.

The share of imports in domestic demand fell below 5% for the first time in a decade. This is a significant achievement considering in
FY16 imports accounted for 15% of domestic demand. For several years, Japan has been the number one source of caustic soda to India,
and in FY23 accounted for 64% 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 this, Japan’s share was hardly 5%. It has been the chemical industry’s constant lament that it
is not consulted when FTAs are put in place, and while that has changed now, it is important that the industry stays vigilant and pro-active
when similar pacts are being negotiated.

A significant improvement was seen in caustic soda exports in FY23 – rising from 3.43-lt in FY22 to 4.58-lt. This is the third year
running that exports have exceeded imports, making India a small, but net exporter. For several years the differential between installed
capacity and domestic demand has been rising – reaching a record 14.26-mt in FY23. Even allowing for an operating rate of 85%, there
is excess capacity of the order of 6%. Exports are a useful flywheel to keep operating rates up, and now account for about 10% of output.
South Africa and Saudi Arabia were the top-2 destinations for Indian caustic soda exports last fiscal.

Chemical Weekly November 21, 2023 131

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