Aggressive pricing by China to impact margins in Q4: Tata Chemicals

Company is trying to optimise fixed costs across its biz segments

Aggressive pricing by China and high fuel prices will impact Tata Chemicals margins in the fourth quarter of 2012-13 fiscal, a top company official has said.

Tata Chemicals, the world's second-largest producer of soda ash, is analysing its fixed costs and is implementing a project in India that will help it save Rs 30 crore, the company's Managing Director R Mukundan said in an interview to Tata Group's website.

"The input costs have actually softened and prices have held up, which is why some of our business margins have actually expanded.

"But this is a temporary phenomenon and our business is likely to be come under margin pressure again in the fourth quarter due to aggressive pricing by China. In addition, fuel and oil prices may well climb upward again," he said.

Tata Chemicals, which is a market leader in branded iodised salt in India, is trying to optimise the fixed costs across its business segments, he said.

"We are also looking at our fixed costs carefully across our businesses; the implementation of 'project energise' to optimise the fixed costs in shared services in India has concluded with recommendations that will help us save an expected minimum of Rs 30 crore (around $5.5 million) in fixed costs," Mukundan added.

The company in Kenya is running a programme, 'Magadi return to excellence', which addresses issues of variable and fixed costs, while the UK establishment is also embarking on a project to address cost structure and efficiency, he said.

However, the business in Europe is a matter of concern due to fall in consumer demand, he added.

"Among all our regions and businesses, Europe remains a concern. Kenya is a problem but it can be fixed. Europe is a contextual problem, not just a company-related one," he said.

The derived demand for soda ash in Europe is related to the sales of cars and consumer products such as detergents, and demand in the construction industry, he said.

"Now, consumer buying has slowed down systemically and we are affected; therefore, it remains a concern. The Tata Chemicals team in Europe is embarking on a plan to address this," Mukundan said.

Tata Chemicals operates soda ash manufacturing facilities in India, UK, Kenya and the US.

The company is also a leading manufacturer of urea and phosphatic fertilisers and through its subsidiary, Rallis, has a strong position in the crop protection business.