The devastating cyclone in Gujarat has wiped out nearly 70 per cent of the country's salt capacity of 120 lakh tonnes. Prices of salt as a result has increased from Rs 350 per tonne to Rs 1,200 per tonne. Even at the level of Rs 1,200 per tonne caustic soda manufacturers are unable to procure salt.

Caustic soda manufacturers fear that the government will come out with some sort of notification of allowing salt only for domestic consumption considering the severity of the problem. Gujarat accounts for 70 per cent of the country's production of salt.

Ashok Kadakia, Chairman and Managing Director of Ashok Organics fears that theindustry that was operating at 50 per cent will come down to around 25-30 per cent. Prices of caustic soda has flared up from levels of Rs 7000 to Rs 11,000. In the Mumbai market caustic soda has shot up from Rs 11 per kg to Rs 16 per kg. Kadakia feels that prices will stabalise at around Rs 14 per kg. Industry sources say that salt pans of some of the major manufacturers like Tata Chemicals, IPCL and Gujarat Alkalies has been severely affected which is likely lead to a supply side problem. Further repairs and new production can only start after four months which will further aggravate the situation. The destruction of the salt pan has been so severe that industry sources say it will take another year and a half to get production started in these pans.

The only remedy left is imports which is possible from Israel and Korea, the two main players in the international market. However, international price of salt is also likely to increase and imports will be more or less at parity with the domestic price. Themajor benefit however, will be that companies will have adequate supply of raw materials.

Manufacturers had earlier increased their prices as a result of hike in the import duty and depreciation of the rupee. The industry was affected by cheap imports which had kept caustic prices low for almost the entire 1997-98. Prices of caustic soda during 1997-98 had touched a ten year low of Rs 12 per kg, which had touched Rs 14 per kg before cyclone struck the state of Gujarat.

The chlor-alkali industry has been affected by a five time increase in cost of water and a 40 per cent hike in the cost of power. Industry sources say that hike in the price of raw material is likley to eliminate weaker companies. Currently thirty seven companies manufacture caustic soda and chlorine in India, accounting for nearly two million tpa out of the global 40 million tpa annually. The pathetic state of affairs had prevented new capacities from being set up as well as exixsting players expanding their capacities. Petrochemicalmajor Reliance Industries had deferred its of setting up plants at Surat, Motikhardi, Digvijagram and Jamnagar in Gujarat. The envisioned capacity was to the tune of 8.81 million tpa for caustic soda alone. Gujarat Alkalies & Chemicals has reportedly dropped plans to set up a 50,000 tpa caustic soda plant at Bharuch, while Prestige Fibres has also cancelled plans to set up a 33,000 tpa plant in Muzzafarnagar.

However, there is likely to be an improvement in the demand for caustic soda in the near future. Demand is expected from the recently commissioned plant of the Birla Copper and from the huge requirements of Reliance's Ethylene Dichloride plant.

Further, it is unlikely that the caustic soda industry will be able to avail of the benefit of the duty reduction in import of machinery required for conversion of mercury cell technology to membrane cell technology. Around 49 per cent of the total capacity of caustic soda at present is operating through the mercury cell method. This is anenergy intensive process, consuming 2300-3200 kwh per tonne. Apart from this, mercury is a pollutant and environmental hazard. However, the cost of setting up a new membrane cell method plant works out to Rs 150 to Rs 200 crore, for a 100 tpd plant, while the cost of conversion is Rs 75 crore. Industry sources feel that the low operating costs and higher efficiency make up for the large investment required and will also save the industry at least Rs 90 crore per annum.

Unavailibitly of salt will also lead to higher chlorine prices which in turn will affect the poly vinyl chloride (PVC) industry. Industry observers have not ruled out increase in cheap imports of the badly affected polymer industry.