soda-ash-synopsis

8/7/2019 Soda-Ash-synopsis

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Indian Soda Ash Industry: Recent Developments & Industry Outlook

Soda Ash (commercial name Sodium Carbonate) forms an important part of

Indian inorganic chemical industry. It accounts for 50-60% of chlor-alkali industry

by turnover. . It is a high volume, low value product and finds application mainlyin the production of detergents (42%), glass (23%), chemicals (17%), sodium

silicate, pulp & paper and water treatment.

Indias capacity which is fully synthetic was 2.75 mn mt as on 31.3.05 and was

equivalent to 6% of the world capacity. The per capita consumption of soda ash

in India (2.7 kg) is very low as compared to China (9.8 kg), USA (22 kg) and

other developed countries.

Indian Soda Ash Industry is presently experiencing positives factors like

consolidation coupled with planned capacity additions and increasing demand on

one hand and negatives like reduction in customs duty, abolition of anti-dumping

duty and increase in crude oil prices on the other hand.

Soda ash industry is characterised by high logistics costs, energy intensiveness,

high capital investments, cyclicality and is a commodity product. Hence, key

success lies in better integration and diversification, low gearing, export focus

and cost competitiveness.

During the last one and half years, three mergers/acquisitions have taken place.

Tata Chemicals Ltd. (TCL) took over UK-based Brunner Mond, GHCL Ltd.

(GHCL) acquired a Romanian Soda ash manufacturing facility (also planning to

acquire another) and Nirma Ltd. (Nirma) acquired Saurashtra Chemicals, an

erstwhile S. K. Birla group company.

Most of the major players like GHCL, TCL and DCW have also announced

increase in capacities to be commissioned in the next 2-3 years. The domestic

soda ash capacity is expected to increase by 27% to reach at 3.49 million MT


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over the next 2-3 years and global capacities of Indian players would reach to

about 2.80 million MT.

The threat of imports has increased in the recent past with the lowering of

customs duty (15% in FY06 to 12.5% in FY07) and abolishment of antidumping

duty (abolished in Jan05). As per the international agreements, custom duty is

required to be brought down to zero.

CARE has taken note of these developments and undertaken a detailed analysis

of their impact on the Indian Soda Ash Industry in the medium term.

Present Industry Dynamics: A quick look at the industry structure and

characteristics would help us to understand the real impact. There are five main

producers of soda ash in India viz. TCL, GHCL, DCW Limited, Nirma & Tuticorin

Alkalies(TAFCL) and competition is mainly on the basis of price. India has the

advantage of abundance of raw materials viz. limestone and salt,energy-efficient

technological plants and growing domestic demand. However, Indian players are

facing the problems of comparatively higher electricity costs, lack of port

infrastructure and higher local taxes.

Impact Analysis: With the overseas acquisitions, the presence of Indian players

in the international market would spread out into the European and African

markets. However, Indian players will continue to miss their presence in US

markets.

With capacity addition plans of domestic players, the new capacities to the extent

of almost 4.5 lakh MT (GHCL 3.5 lakh MT which includes 0.5 lakh MT by de-

bottlenecking and DCW 1 lakh MT) are likely to be commissioned over the next

2-3 years. Another 3 lakh MT (GHCL 1.5 lakh MT and TCL 1.5 lakh MT)

capacities would be added in 4-5 years, aggregating almost 7.5 lakh MT in next

five years.


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Indian share in global soda ash capacities is expected to increase from 6.7% to

almost 15% by 2008.

Due to the logistic intensive nature of the industry, the overseas capacities would

continue to be utilised for the respective overseas markets only and hence, no

major impact on Indian market is likely to be felt.

Historically, demand growth rate for soda ash in the developed countries has

been a quarter ahead of GDP growth (means 25% more than the GDP growth),

whereas Indian soda ash demand has registered growth of a quarter lesser than

the GDP growth. The reasons were lower growth in automobile segment and

lower glazing requirements in construction and architecture. However, with the

increasing per capita income, the standard of living is expected to rise leading to

increased use of compact detergents and glass (in construction and

automobiles). Therefore, the Indian soda ash industry may mirror the growth

pattern of the developed countries.

Moreover, increasing demand in South East Asian and Middle East countries

provide another opportunity to increase exports for Indian players. Indian Sodaash industry, which previously depended on imports, has started exploring

overseas markets also. Indian exports of soda ash increased from 2.5% of

production in FY00 to 14.9% of production in FY05 making the trade balance

positive (Trade Balance = Export Import) with reasonable margin.

Based on initial estimates, the Indian economy is expected to grow @ 8% p.a in

the XIth five year plan period (2007-2012). CARE has made demand-supply

forcasts for Soda Ash over the next three years with demand growth in the range

of 6% to 10% (i.e. 25% on either side of the expected GDP growth).

CARE estimates the demand in the range of about 4.3 MT (most conservative

scenario) to 7.5 MT (average probable scenario) would be generated over next


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three years. Hence, CARE feels that the enhanced capacity would be absorbed

by the increase in demand even in a most conservative scenario. The capacity

utilisation levels of the industry are likely to increase in the medium term.

Till FY10, total additional demand for about 7.7 lakh MT (most conservative) to

12.0 lakh MT (average probable scenario) is likely to be generated. Comparing

this with the capacity additions announced as on date, the industry is certainly

going to witness narrowing of the demand-supply gap. On the import-exports

front, CARE believes that a positive trade balance in soda ash will continue in

near future.

Price Outlook: The key price determinants are the input costs and demand

supply scenario. Input prices are expected to be stable over the medium term.

Any temporary change in input costs viz. coal may not affect the industry

significantly as almost all the players have developed alternate technology to

absorb such input cost shocks. Demand-supply gap is expected to narrow in the

medium term. This would lead to increase in the capacity utilisations by the

players. However, CARE estimates the domestic price outlook of Soda Ash to

remain stable in the medium term.

End-use mix: The global end-use mix (70:30) is in favour of Dense Soda Ash

(DSA) as compared to Light Soda Ash (LSA). The situation is reverse in India,

where the end use is 30:70. However, with the increase in glass usage in

construction sector, automobile growth and export focus (where DSA

requirement is higher), the end-use mix is likely to increase in the DSA segment.

World Soda Ash Industry Outlook: CARE expects the world demand for soda ash

would grow @ 2.5 - 3% at least over medium term. Hence, on 40 Million MT

global demand at present, the demand is likely to increase by almost 1 million

MT every year. Of this additional demand, around 60% would come from India,

China and Middle East countries. Demand-supply situation in China, American


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Natural Soda Ash Corporation (ANSAC), demand from glass & detergent

industry and crude oil prices are the major determinants of international soda ash

prices. CAREs outlook for world soda ash prices is stable. However, crude oil

price is a matter of concern. Increase in crude oil prices would further increase

the cost of transportation and cost push price rise might be seen.

For in-dept analysis of the Indian Soda Ash Industry refer to an exhaustive report

on the sector by CARE Research

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