Vedanta's Sterlite Copper shutdown hits chemicals units in Tamil Nadu

These units, which use sulphuric and phosphoric acids generated during copper making process, may now have to source these inputs at a much higher cost

The closure of Sterlite Copper, the smelting unit of Vedanta Group, is expected to impact the fertilisers and chemicals industry in Tamil Nadu, as it is a major supplier of phosphoric acid and sulphuric acid in the State. The two acids are by-products. The price of sulphuric acid has already risen more than three times due to short supply, said sources.

Sterlite is said to be the only domestic supplier of Phosphoric Acid with a capacity of 220,000 metric tonnes. The by-product is a key raw material in the manufacture fertilisers such as Diammonium Phosphate (DAP) and NPK, and is also used in fertigation, a method of injecting fertlisers and other water-soluble products into an irrigation system. It is also used in making animal feeds like Di-Calcium phosphate (DCP) and Mono Dibasic Calcium Phosphate (MDCP), the company claims.

The unit is also one of the largest suppliers of Sulphuric Acid, which is made using sulphur dioxide gases generated during copper smelting process. The by-product is used in detergent and other chemical industries. The stoppage of the smelter could adversely impact domestic fertilizer production, as companies would have to look for import sources.

"The prices of sulphuric acid has gone up from around Rs 4,000 per tonne to around Rs 14,000 in the past two to three months," said S Ilanahai, President, Chemical Industries Association. Since it was a by-product, Sterlite was able to offer it at a competitive price, forcing some of the smaller manufacturers out of business.

With Sterlite plant undergoing shutdown, chemical and detergent factories have begun relying on sulphuric acid and Linear Alkyl Benzene Sulphonic Acid (LABSA) from the western parts of the country, particularly Gujarat.

Manufacturers of the acid also reportedly hiked prices after the market saw a shortage. This, along with the freight costs has impacted the price of sulphuric acid to the current levels.

"This has affected the margin and profit of the chemical industry in the State," Ilanahai said. The industry follows a model of long-term contracts with the multi-national clients, and is unable to pass on the additional cost of input to the customer, he said.

Sterlite produces around 1.2 million tonne of sulphuric acid a year. Most of the sulphuric acid made is used by the in-house Phosphoric Acid Plant, while some 40,000-50,000 tonnes are sold within and outside the country, said sources.

Of this, 30,000-40,000 tonnes have been used by the Tamil Nadu chemical industry, while the rest either catered to neighbouring States or to export markets, they said.

Lack of infrastructure limits import of the material through ports in the southern region, while the north-west has adequate infrastructure for imports. Developing infrastructure in the south may be a long-term solution to the shortage, but it could take at least three to four months, which would reflect in the prices.

Fertiliser companies are also facing challenges, considering that they rely on the Sterlite Copper's supply for production. Large manufacturers such as Coromandel International and SPIC are major consumers of these by-products in Tamil Nadu, even though smaller players would be affected much more due to raw material shortages.

The rise in cost might easily eat up the margins these companies get from their sales. Small and medium chemical manufacturers in Tamil Nadu would contribute to around Rs 500 billion of business, said Ilanahai. He urged the State and Central governments to extend support to the industry by directing sulphuric acid makers to reduce prices and by creating infrastructure in the State to facilitate imports.