Carborundum Universal (CUMI), the adhesives, electrominerals and ceramics manufacturing firm of Murugappa Group, has started the first shipment of standard electrominerals to the US. This comes as the opportunities open up with the deteriorating trade relations between China and the US.
The US has imposed a 10 per cent duty on fused minerals from China, and is looking at alternatives. It is expected that it would increase the duty to 25 per cent, which would open up major opportunities for the company, said the company management.
Currently, most of the products have a 10 per cent duty. But more than the cost benefit, customers there are looking at alternatives.
The opportunity in the US could be $1.5-2 billion.
"We have started making our first shipment of standard electrominerals to the US. If this 10 per cent duty goes up to 25 per cent, then there will be a greater demand for shipments going to the US," he told analysts in a recent earnings call.
While the company has shipped a few odd tonnes to begin with, more shipments are expected during the current quarter. Further, if the duties go up to 25 per cent, a significant quantity of supply would be shifted out of China.
While the opportunity is huge, there won't be too much capacity to export considering that domestic sales are also good. Electrominerals are manufactured by the company in Kochi and Kerala, while silicon carbides are produced out of its Volzhsky plant in Russia and Zirconia products from the Foskor plant in South Africa. The domestic market is also offering a major opportunity.
The demand for almost all minerals across the world is growing because of two reasons -- supply from China has become restricted to an extent on account of environmental tightening up and buyers are also trying to look for alternatives. A combination of both these factors is helping CUMI enter new markets.
While European companies with plants across the world are its competitors in this sector, they tend to be far more restrictive in pricing and other areas. However, the company is currently enjoying a contextual advantage and in order to sustain it, it will require either cheap raw materials or cheap energy, which are not there at present.
The segment revenue of electrominerals for the company for the quarter ended September 30, 2018, grew to Rs 2.45 billion, as against Rs 2.17 billion during the same quarter last year.
The company is also expecting around 15 per cent of its revenue to come from new products. It considers anything that it develops new for the first three years of the product's life. At present, such products account for around 8-12 per cent of its revenue.
The company has reported an overall revenue from operations of Rs 16.33 billion during the year ended March 31, 2018. It is expecting the revenue to reach over Rs 27 billion during the current financial year and to grow to around Rs 32 billion during FY20. It is currently developing plans for the next phase of growth.