Page 124 - CW E-Magazine (1-10-2024)

Point of View

related to the quality of the PVC resin produced, but much of that has been ironed out, and the polymer produced this way is good enough
for nearly all applications.
Impact on caustic soda markets
While both projects are welcome from a PVC perspective, they will do little to alter the chlorine oversupply problem facing the Indian
chlor-alkali industry, as they will make all the chlorine needed, and not mop up the surpluses available from other producers. The problem that
lies ahead for the chlor-alkali industry is to deal with the flood of caustic soda that these plants will co-produce (about 0.9-tonnes of chlorine is
co-produced for every tonne of caustic soda). Caustic soda is a mature product – in India and elsewhere – and Indian demand is not expected
to grow any faster than the historical average of about 4-5%. There could be some upsurge from new projects in the alumina sector – an
important driver of demand currently accounting for about 15% of total Indian demand, but it is unlikely to be able to mop all the new supply.
According to estimates by the Alkali Manufacturers Association of India (AMAI), installed capacity for caustic soda in India is expected
to rise from about 6.4-mtpa in FY25 to 7.7-mtpa by FY28. This represents a CAGR of about 6.7% – way above the historical growth rate in
caustic soda demand seen over the last decade.

According to some estimates, Indian alumina manufacturing capacity is expected to rise from about 8-mtpa in 2023 to about 15-mtpa by
2028. All of this capacity is located in the eastern parts of the country, while the new chlor-alkali capacity is located on the western coast. If
the alumina capacity expansions are not matched by requisite caustic soda capacity in the region (and aside of the IOC project, there is none
in the offing), it will need lugging of the chemical (with two-third of water) long distances – hardly an efficient proposal. As a consequence,
there could well be a situation wherein Indian producers on the west coast (mainly in Gujarat, which accounts for about 60% of total installed
capacity for caustic soda) export surpluses even as alumina refineries on the eastern front import the same.

Can exports be the industry’s salvation?
An option to keep operating rates high is to ramp up exports significantly, and this is an opportunity the Indian chlor-alkali industry has
recently been pursuing. India was historically a net caustic importer, but it turned a next exporter in FY21, when exports reached about 275-kt,
compared to imports of 248-kt. In the subsequent three years, exports volumes rose further, touching 345-kt, 458-kt and 476-kt, giving a
net trade surplus of 140-kt, 323-kt and 229-kt respectively. Early estimates of the exports for FY25 (Apr-Aug) reveal that exports have risen
further to 240-kt, compared to 179-kt in the corresponding period of the previous fiscal – a healthy 34% rise.
In FY24, exports represented about 10% of total production, compared to a piffling 2% a decade ago. While this may seem small, it is a
remarkable turnaround for an industry widely criticised as globally uncompetitive.
Several factors have contributed to the change. First is that there was simply no alternative but to export (or to slash operating rates).
Secondly, the manufacturing units have mostly stopped being dependent on expensive grid electricity and instead resorted to captively
generated power using a variety of hydrocarbon feedstock (coal, lignite, natural gas), or from renewable sources (hydropower, solar, wind
and biomass such as bagasse). Over 80% of the caustic soda capacity is now based on captive power, and the cost of this has come down
significantly. In Gujarat, for instance, while grid power rates have risen from about Rs. 7.59 per kWh in 2013 to Rs. 9.02 per kWh in 2022,
the cost of solar power has fallen significantly.

Last, but not the least, most leading producers have reached reasonable size to benefit from economies of scale and operational efficiencies
thanks to investments in new plants with state-of-the-art power utilisation norms. They are also attempting to better hydrogen value realisations,
giving some leeway when it comes to loading all production costs on caustic soda.

Much of the exports are in the solid form, and to nearby or developing markets. In FY23, about 18% of all exports went to South Africa; while
Saudi Arabia was the second largest export destination, accounting for 12% of all exports. While there is scope to increase this it must be borne
in mind that much of the global trade in caustic soda is in the form of lye (liquid), and competing in this large-volume market is challenging.
The prospects of further ramping up exports will be determined not just by the manufacturing cost economics, but also by the cost of
logistics – sea-borne and land-borne. On both fronts there are reasons to be optimistic. Both new integrated chlor-alkali and vinyl projects
from RIL and Adani’s are expected to be based on renewable power and these power rates are finding new bottoms, benefitting from the
surfeit of capacity for solar panels, which have sent their prices plummeting. On the logistics front too, there have been steady improvements
that have raised the efficiencies of multi-modal logistics that should benefit all sorts of manufacturing.
India’s caustic soda industry is at a critical stage in its growth. Exports are a new dimension and a challenging one at that!
Ravi Raghavan

124 Chemical Weekly October 1, 2024

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