Soda ash firms take a hit as input costs rise

Soda ash players find high input costs continue to make a dent in their margins. Soda ash is a raw material for making caustic soda.

For Indian soda ash players, there are raw material constraints in terms of supply of the basic raw materials, including limestone and salt. Fuel cost is also playing a major role in determining the cost of production.

“The rupee depreciation and inflation have affected margins. Import-related inputs like coal, coke and other chemicals have become costly. Similarly, petroleum prices have gone up due to crude price fluctuations. This affects the alkali industry, as it is highly dependent on logistics,” said R S Jalan, vice-president, Gujarat Heavy Chemicals Ltd (GHCL).

 

For standalone players in soda ash, it is a testing time, with high input cost and steady prices of finished products.

The country’s leading soda ash makers including Tata Chemicals Ltd (TCL), GHCL and several others, have witnessed sharp rise in raw material prices in the second quarter of this financial year.

For TCL, raw material cost jumped 21 per cent from Rs 588.6 crore in second quarter 2010-11 to Rs 716.6 crore in the September quarter. Similarly for GHCL, raw material costs jumped 51 per cent to Rs 206.7 crore in September 2011 from Rs 136 crore in the same period last year.

On the other hand, soda ash prices have remained stable in the last four months, which has put excessive margin pressure on companies.

Soda ash prices in Mumbai witnessed short-term jumps during the year. They touched Rs 1,350 in April, while in May prices fell to Rs 785 per 50 kg. For the September-December quarter, these touched a high of Rs 1,110 per 50 kg and are now Rs 940-965 per 50 kg.

“Demand is stable for alkali products. But there are price fluctuations in finished products, mainly due to factors such as fuel and other input cost. Coal prices are rising, which makes power costly. Limestone, coke and other fuel costs are rising, too. There is an overall weakness and no respite is visible for the next two quarters,” said Mudit Jain, president, Alkali Manufacturers Association of India.

Also, the share price movement of companies indicates a negative trend since the beginning of the current financial year.

On the Bombay Stock Exchange (BSE), GHCL stocks lost 7.5 per cent in the first half (April-September) and 18.71 per cent so far in the financial year. Similarly, TCL lost 6.7 per cent in the first half and fell 6.9 per cent since April 1 till January 13. The Sensex has reported a fall of 15 per cent from 19,135.96 points on April 1 to 16,154.62 points as on January 13.

Commenting about prospects in 2012, Zarir Langrana, chief operating officer, chemicals, India, TCL, hoped things would get normal.

“We expect market demand to remain firm in the new year, with occasional spells of slight turbulence as end-use sectors adapt to the new realities,” he said. Langrana added the cost of raw material and energy, as well as availability, were unlikely to significantly abate.

Industry players are also banking on the latest developments in the solar energy space, where solar PV cells would help soda ash players to reap benefits.