Regional Market Outlook on Caustic Soda

India’s caustic soda installed capacity is expected to reach 4 MMT in 2018-2019 due to capacity expansions by players like Grasim Industries and DCM Shriram. The demand growth slowed down during 2016-2017 due to demonetization in India during November 2016. The demand is expected to grow by 4-5 percent in the forecast period.

  • Higher Operating Rates: To cater to the increasing domestic demand, Indian producers are expanding capacities and also operating existing capacities at higher rates of about 85-95 percent
  • Grasim Industries (part of Aditya Birla Group) has increased caustic soda capacity by 67 percent to 356,000 tons/year. The increased capacity is anticipated to be easily absorbed by the domestic market due to strong demand from downstream alumina and textile sectors

Insights

Multiple Sourcing :

  • Buyers can engage in multiple sourcing from domestic as well as international suppliers so as to lower the risk of price volatility and secure supplies
  • Japan is the biggest importer of caustic soda to India, so sourcing from Japan can be considered due to established trade routes. However, logistics cost and import duties have to be considered while engaging with multiple sources

Increasing capacities in India :

  • Grasim Industries (part of Aditya Birla Group) has increased caustic soda capacity by 67 percent to 356,000 tons/year
  • Nalco and GACL are also expected to bring 267,000 tons/year plant in Dahej by 2020 which will improve domestic supply

Demand growth in India

  • Growth of textile industry in India which is expected to reach $230 billion by 2020 will fuel demand growth of caustic soda in India
  • Growth in automobile industry/car sales in India will improve demand for aluminum and in turn support growth of caustic soda demand from alumina smelting

Market Segmentation

Caustic soda market can be segmented based on type of caustic soda and the end-use application

Based on Type: Caustic soda market can be segmented into lye and flakes. Caustic soda lye is a solution of caustic soda and water. The percentage of caustic soda in lye usually ranges between 32-50 percent based on application.
Caustic soda flakes are anhydrous caustic soda, with about 99-99.9 percent caustic soda.

Based on Application: During 2017, the textile industry was the biggest consumer of caustic soda followed by alumina smelting and pulp and paper

  • During 2017, caustic soda consumption from organic and inorganic chemical formulations formed about 21 percent of the overall demand
  • Other applications of caustic soda include, soaps and detergent industry, water treatment and dyes and inks among others

Growth Drivers and Constraints

Drivers

Growth from Applications:

  • Textile industry is the biggest consumer of caustic soda in India and makes up for about 20 percent of the domestic demand
  • Growth of textile industry in India which is expected to reach $230 billion by 2020 will fuel demand growth of caustic soda in India
  • Growth in automobile industry/car sales in India will improve demand for aluminum and in turn support growth of caustic soda demand from alumina smelting

Constraints

High cost of investment

  • Investment in membrane technology is as high as $100 million for a 100,000 DMT/year plant, which can have an ROI period of 8–10 years, and hence is a major entry barrier for new players
  • Indian manufacturers face fierce competition from imported caustic soda, which is cheaper compared to the domestic produce. This is due to high input and logistics costs within the country

Co–product dynamics  

  • The market growth for caustic soda is highly dependent on the chlorine market dynamics
  • In H1 2018, chlorine prices hovered around negative range in India, where producer had to pay the buyer for chlorine
  • Chlorine market is expected to grow with growth in vinyl segment with the demand for PVC in India