CAUSTIC SODA INDUSTRY IN INDIA: PROSPECTS FOR FUTURE GROWTH

Abstract

Caustic soda is one of the important chemicals which have contributed sig nificantly to the growth of chemical and other allied industries. An ever increasing de mand pattern for this important chemical in India is primarily due to its increasing use in major industries such as the textile, pulp& paper, aluminum, polyvinyl chloride (PVC), pharmaceutical, dye stuffs, soap and detergents, and fertilizers etc. to name a few. The most common method of its production in India is by the electrolysis of common salt. Duringthis process, chlorine and hydrogenare produced as by-products. Withthe production of one MT of caustic soda, 0.89 MT of chlorine and 25 kg of hydrogen gases are produced. Chlorine is used for the production of importantchemicalssuch as DDT, BHC, PVC,bleach ing powder, paper and paper board, dyes, rayon tyre cord, aluminum, pharmaceutical, petro chemicals, fertilizers and is also used in water treatment. Further, it is also converted into hydrochloric acid for the manufacture of ammonium chloride, ossein, phosphoric acid and for pickling. Hydrogen is used "in house" as fuel to the furnaces or is consumed in the pro duction of hydrochloric acid and hydrogenated oils sold as vegetable fats (vanaspati) for cooking purposes. Production of caustic soda started in India in the year 1941 with two 5 TPD (tonne per day) plants. The number ofplants grew to 44 in 1994 with a total installed capacity of 1312500 MT/year. During its growth, the industry faced a number of challenges suc cessfully including the dumping ofcaustic soda at unrealistic price by Saudi Arabia. The produc tion of this vital chemical is also constrained by severe power cuts, obsolescence of technology, provision ofsafety regulations, and overriding environmental considerations. In India, caustic soda is manufactured through four processes: (i) Chemical (ii) Membrane cell (iii) Mercury- Amalgam (iv) Diaphragm cell The amount of caustic soda produced through chemical, mercury cell, dia phragm cell, and membrane processes is 0.6%, 74.4%, 4.6% and 20.4% respectively of the total caustic soda produced in India. Out of these processes, the chemical process is the oldest while the membrane cell process is the most advanced, environment friendly and cost effective. With this background in mind the present study was undertaken to assess the current status of the industry and what future awaits it. Statement of the Problem Thecausticsoda i.e., Sodium hydroxide is a strong alkaline chemical compound. It is an important industrial reagent chemical used in the production of a large number of chemicals, and is manufactured by electrolysis ofcommon salt. The processes used for manufacturing caus tic soda, as mentioned above, are radically different in terms of production costs, power con sumption as well as in terms of the level of pollution. Caustic soda, being one of the most demanded alkalies, is also referred to as mother chemical and has, by implication, strong linkage with the production prospects of other chemicals. As has already been mentioned, while producing caustic soda, two important byproducts i.e., chlorine and hydrogen, having high utility, are also generated. The cost ofpro duction of chlorine is lowest when it is obtained as a by-product in the process of caustic soda production. Hence chlorine and caustic soda are strongly related to each other and the produc tion of both is of interdependent nature. Besides being used as an important ingredient in the production of PVC, chlorine is also a powerful disinfectant and germicide. Its use as a water treatment chemical to stop water borne diseases like typhoid, cholera are well known. Chlorine is also a major ingredient for the manufacturingofrefrigerants. These refrigerants are also used effectively in cosmetics and other products. Chlorine has a power to bleach colours and hence is used effectively in the manufacturing of paper. The above mentioned interdependence may prove to be advantageous if the demand for both the products rises at the same rate. In the absence of such a situation, higher demand and consequently the production of either of these would lead to accumulation of the inventories of the lesser demanded product. Such a phenomena may be problematic if such a situation persists for a longer time. It invariably leads to the conclusion that to witness a ii healthier growth ofcaustic soda industiy, the demand for caustic soda as well as that of chlorine should change roughly at the same rate and in the same direction. In case the caustic industry fails to maintain this balancing act under market pressure it has to resort to other strategies to maintain the balance. This could probably bedone either byexpanding the existing industries which use more of currently lesser demanded product or by exploring new av enues to absorb the excessive supply which might take place on account of greater demand and consequently greater production ofanother bye-product. Besides Chlorine, hydrogen is another bye-product which is generated during the production ofcaustic soda-an aspect al ready touched upon.. The liberalisation wave which is sweeping through the world as well asthrough India and the consequent entry of many multinational and quasi-multinational firms in chemical indus tries in India is likely to change thedemand composition ofmany a chemicals, including that of the caustic soda, chlorine and hydrogen. This change in the over all scenario calls for a fresh assessment and the appraisal of the demand and supply conditions in the near as well as in the distant future so that necessary adjustments couldbe planned well in advance. It is with this view, the present study has been pursued. The Study Although the importance of the caustic soda industry has been widely recognized, no noticeable attempts seemed to have been made to ascertain the basic determinants ofthe growth ofcaustic sodaindustry and the impact of forward andbackward linkages onthedemand for this vital chemical especially under the changed scenario of liberalisation. Such an analysis will also help in maximizing the growth rate of this and related industries by making precise de mand forecasts. In addition, the existing gap between the installed and the utilized capaci ties can also be avoidedby meticulous planningwell ahead of time. Objectives In the perspective ofthe problem outlined in the preceding section the following ob jectives have been formulated for the present study: in 1. To investigate the forward as well as backward linkages of caustic soda industry so as to assess implications for the growth of caustic soda industry. 2. To explore determinants for the growth ofcaustic soda industry. 3. To forecast demand ofcaustic soda for the period 1995-2005 . 4. To offersuggestions, having important policy implications. * In order to achieve the aforesaid objectives, the research methodology adopted is dis cussed below: Research Methodology A description of research methodology adoptedfor the chloro-alkali industry manu facturing caustic soda and chlorine is detailed below: Phase I. Study ofthe background infonnation related to the end use of caustic soda and bye-products in India. This survey is imperative to develop understanding ofthe over all picture. Phase II. Focus on the likely determinants which influence the growth of caustic soda and its bye-products. Phase III. Development of a regression model to short list the relevant determinants and to assess their significance. (i) The Data The study heavily draws upon secondary data obtained from various sources. Those worth mentioning are: Alkali manufacturers association of India, Bombay (AMAI), Chemi cal weekly, Chemical Engineering World, Indian data base, In house publications of differ ent chloro-alkali industries like, DCM (Delhi Cloth Mill) chemicals works, Delhi, Govern ment of India publications, such as infonnation made available by the council of scientific and industrial research, ministry of sciences and technology, etc. iv (ii) The Analytical Procedure Although simple tabular analysis has been used yet the multiple regression analy ses is the main plank of the present study. The regression equations were tested for specifi cation error, if any. The estimates of multiple regression analyses were also tested for multicollinearity, heteroscedasticity and autoconelation. Problems emanating from simultaneous relationship(s) and/or multicollinearity amongst the explanatory variables, were detected by the zero restriction method. Similarly, for detecting auto-conelation through the Durbine-Watson test, a frequent problem in time series data, Cochrane-Orcutt procedure has been used which proved helpful in removing the distortion from auto-conelation. Major Findings 1. The multiple regression model designed for the consumption ofcaustic soda highlightsthat four explanatory variables i.e. paper and paper board (PPB), soap and detergent (SOPDT), news print (NP), aluminum (ALU) are statistically significant and play a major role in determining the growth ofthis industiy. 2. The multiple regression model developed for the consumption of Chlorine brings to the fore the statistical significance ofpulp and paper (P&P), poly vinyl chloride (PVC), chemi cal inorganic (CHEI) and hydro chloric acid (HCL) industries in influencing the growth of the Chlorine industiy. 3. The projections regarding the demand for caustic soda for the coming 11 years i.e. 1995-2005 show that, other things remaining the same, the demand for this product is likely to grow, on an average, at the rate of 2.7% per annum. This suggests that unless new uses/markets for caustic soda are developed/ located, the potential for capacity ex pansion is minimal. Given the condition that a majority of the plants are still using out dated techniques, modernization at the moment seems to be the best alternative. 4. Projections pertaining to chlorine show that the growth of this chemical is likely to be around 3.14%per annum . This average is a little higher than the projected growth rate ofdemand for caustic soda Recommendations Consistent with the above findings and policy implications there of, recommendations havebeenmade for revampingand maximising the use ofcaustic soda and bye-product industries.