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Salt
is one of the oldest and most popular condiments. What is relatively unknown,
however, is that salt is also the raw material for one of the most potentially
profitable chemical industries in the country – chlor alkali. This is possibly
one of the few industries where supply far exceeds demand, making it a
promising candidate for export. So it seems almost surreal that the chlor
alkali industry faces a threat from the imported product.
The
chlor alkali industry in India is around 60 years old. It began with a
modest capacity of a few thousand tonnes per annum and has since grown
into a 2.24 million tonnes per annum capacity industry.
Jurassic
technology
In
all, there are 41 production units: 32 per cent of the country’s chlor
alkali production is from 21 units that use the obsolete mercury cell technology
and 68 per cent is from 19 units that use the latest membrane cell technology.
There is even one unit that uses the archaic diaphragm technology, which
accounts for 0.3 percent of production.
With
an installed capacity of 2.24 million tonnes per annum and demand of 1.4
million tonnes, it looks as though export of chlor alkali should be profitable.
But countries that are in a similar situation of supply exceeding demand
are dumping the product here, creating a glut here.
Attractive
prospects
In
the beginning of last decade, the country’s production capacity was 1.2
million tonnes per annum, and by the middle of the decade, a capacity of
1 million TPA was added. It is unfortunate that there was no corresponding
rise in demand. The attractive prices prevailing then and the lack of imports
encouraged SMEs to begin production at that point.
But
as sellers dictated prices, many consumers found it cheaper to set up their
own plants, while others closed down, leading to a further fall in demand.
Domestic prices collapsed and even world prices slid. This led to a downtrend
in the chlor alkali industry. Yes, downtrends are common in all sectors,
but they usually last between one and four years. This particular slide
has lasted eight years, and there’s no sign of the industry looking up.
Eclectic
market
In
the process of manufacturing chlor alkali, some by-products are assured:
For each tonne of caustic soda, 860 kg of chlorine and 25 kg of hydrogen
will be produced. Some amount of the chlorine produced is combined with
hydrogen to make hydrochloric acid. Caustic soda, chlorine and hydrochloric
acid are basic chemicals and are used by almost all industries.
Major consumers
Chlorine,
hydrochloric acid and hydrogen cannot be hauled long distances. Manufacturing
units abroad produce and use these products; that is, their plant economics
is based on captive consumption. But caustic soda needs to be disposed
of and can be transported. As India needs some amount of this product,
it is dumped here. Caustic soda is imported from Iran, Saudi Arabia, the
US, France and Japan. Now, Qatar is building a plant and intends to sell
caustic soda to India. This will lead to a further imbalance in the domestic
industry, which already over-produces.
What
can be done
The
only way the country can overcome these problems is to produce and sell
at a lower price. This is just not possible. Consider this. Power, the
major input (> 75 percent of production cost) costs US$236 per tonne, while
the C&F price of caustic soda touched US$180 per tonne.
What
needs to be done is to scrap the outdated and expensive processes and switch
to the newer and more efficient membrane cell technology. This will bring
power costs down dramatically.
From
cutting costs to cutting prices is a small step – but one the industry
seems unwilling to take. This reluctance could prove self-defeating, as
customers are likely to use the cheaper imports rather than local material.
This will again prove more expensive to the SMEs, as they may not have
the wherewithal to withstand price cuts unless the government steps in
with some relief measures.
To
help the industry arrive at a more equitable cost structure, the Alkali
Manufacturers Association has asked the government to impose preliminary
duty to lead the industry to recovery. It is now up to the authorities
to see that the output is used and not dumped in favour of cheaper foreign
imports.
Acknowledgement:
Scope Marketing and Information Solutions Pvt. Ltd
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