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Jason Soans, Lead Research Analyst, IDBI Capital Markets, says “earlier there was a lot of dumping and now this China dump has proved to be unsustainable and hence there is some support for soda ash prices. Also, capacities, utilisation and inventory levels have come under control. Hence, soda ash prices have found some support leading to an uptick in prices. Tata Chemicals and GHCL as the largest domestic producers of soda ash, have been benefiting from the uptick in prices.”

Let us discuss the pricing of various chemicals because that seemed to be on an uptick. Let us start with soda ash itself because we are seeing the likes of GHCL as well as Tata Chemicals doing quite well. What has been your reading of how the prices are moving?

Soda ash prices have risen from around $285 per tonne to around $373 per tonne, which is a good and a sharp up move. What is happening in soda ash is that earlier there was a lot of dumping and now this China dump has proved to be unsustainable up to a certain level and hence there is some support for soda ash prices.

Over and above that, capacities, the utilisation and inventory levels also have come under control. Hence, soda ash prices have found some support leading to an uptick in prices. Tata Chemicals and GHCL as the largest domestic producers of soda ash, have been benefiting from the uptick in prices.

Unlock Leadership Excellence with a Range of CXO CoursesOffering CollegeCourseWebsiteIndian School of BusinessISB Chief Digital OfficerVisitIIM LucknowIIML Chief Operations Officer ProgrammeVisitIndian School of BusinessISB Chief Technology OfficerVisitOf course, that benefit is coming after various months of decline. At least there is some recovery in prices. What about acetic acid prices? They also have seen a sharp increase. Which are the companies which are likely to benefit from this?

Basically, in terms of acetic acid, the benefit is for players such as Jubilant Ingrevia. There is Laxmi Organics and GNFC as well. With Jubilant Ingrevia and Laxmi Organics, acetic acid is a major raw material. And that has basically seen a sharp decline in prices.

Overall, the China theme that you were talking about, the kind of momentum that we are seeing, the kind of push that we are seeing locally there, what kind of impact can it have on the Indian chemical industry?

Yes, basically what has happened is in the last few months, China has been dumping stocks, especially chemicals. That has predominantly happened due to low demand in their home economy. And as is well known and is well covered, that there is a lot of slowdown in the Chinese economy. And basically, they are trying to fight that in terms of exporting more and more, especially at rock bottom prices or predatory pricing, which basically has impacted a lot of commodity players.

You see a lot of names on the street, whether in terms of caustic soda or soda ash, have been affected by China’s predatory pricing. Now, first of all, we are sanguine on Indian players. In the aftermath of Covid, we saw a lot of supply chain disruption etc. with China. So the companies are looking to derisk and persify the supply chain towards other countries such as Vietnam or India. Basically, they are looking at reliable suppliers. So at this point in time, there is a big benefit for Indian players. But again, here, we are more skewed towards specialty chemical players. We have names under coverages such as SRF, Navin Fluorine. These players are much higher up the value chain vis-à-vis a commodity play which is price led. We prefer players which are higher up the value chain.

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As far as this China thing goes, they have basically pushed the market to a brink. After this, we could see some recovery in prices going ahead, especially with stimulus measures coming in China where the government is looking at pushing stimulus measures wherein the home economy, the real estate sector etc. can benefit.

Basically, the demand has improved in the home economy. When this happens, the intensity of predatory pricing or dumping will recede and we expect it to happen in the coming months. This will benefit more and more Indian players such as Alkyl Amines, Deepak Fertilisers, Deepak Nitrite and other players as well.