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| India Infoline Sector Reports | Wed, 18-Feb-2004 17:12:05 IST (GMT+5:30) | |
| Soda ash | ||
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Summary This is chemically known as sodium carbonate. It finds its usage in a wide range of applications including soaps, detergents, glass & silicates and in the manufacture of chemicals. This is a commodity product with very little price elasticity. Nearly 3-4 % of the production is exported. The total domestic capacity stood at 1.86mn tpa in FY98. Against this the production was around 1.63mn tpa indicating a capacity utilization of 87%. In value terms, the industry stands at Rs1.4bn. While existing soda ash capacities are sufficient to cater to the domestic requirements of soda ash, new capacities are coming up, either by way of expansion or in the form of new units. This is posing a threat to the margins of existing players in future, as a glut in the market will bring down prices considerably in the face of rising cost of power. This, coupled with cheaper imports will add to the woes of the domestic players. The Domestic soda ash sector consists of six major players. Tata Chemicals is the largest among them followed by Gujarart Heavy Chemicals. Large capacities are located on the west coast, mainly Saurashtra region of Gujarat, due to easy availability of salt and limestone - the key inputs for production of soda ash. This region accounts for more than 90% of the total capacity. Due to the concentration of industry on the west coast, transportation problems are galore. For eg users in the coastal regions of Calcutta and Chennai find it cheaper to import the commodity, especially after reduction in the customs duty. Easy availability of key inputs (power, limestone and salt) at low cost, becomes critical to sustain margins. Power accounts for 30% of the total cost of input. Such a high cost acts as a deterrent in the competitiveness of the domestic players. At the moment the industry is amidst recession besides decline in volumes and cheap imports. Detergents and glass industries consume more than 55% of the total domestic production of soda ash. The demand grows at the rate at which the user industries grow. In FY98, the demand increased at the rate of 3.5% yoy, due to slowdown in demand from user industries. The consumer industries, like the detergents and the glass industries, are registering very low or virtually no growth rate at, all. This has led to falling margins due stiff pricing competition therefore resulting in over supply.
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