Let me share my notes on the Chlor Alkali segment of the chemicals industry and hopefully others will add on to it and/or critique my claims/hypothesis.
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Production Process. Production of caustic soda (aka sodium hydroxide (NaOH)) from saltwater via electrolysis is a very energy-intensive process. For producing every 80 tonnes of caustic soda, 71 tonnes of chlorine and 2 tonnes of hydrogen are co-produced (2.25 tonnes of 50% caustic soda with each tonne of chlorine). Each tonne of caustic soda requires around 2200 kWh (9000mj/t) of electricity and 1.55 tonnes of salt. Electricity comprises 30%-45% of the cost of making the product.
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Uses. The three main products of a Chlor-Alakli plant are Chlorine (Cl_2), Caustic Soda (NaOH) and Hydrogen (H_2). Closely related products are soda ash (Na2CO3) and hydrochloric acis. Sodium Bicarbonate, Potassium hydroxide and Potassium carbonate are sometimes produced in relatively smaller quantities. The main usage of chlorine is to make hard plastics like PVC, water treatment, as a bleaching agent in the production of paper and cloth and in cleaning products, pesticides, polymers, synthetic rubbers, and refrigerants. Caustic soda is used in aluminium production, paper and pulp, food industries, soap & detergent, metal industry, textile, pharmaceutical and rubber industries. Soda ash (Sodium carbonate/bicarbonate) is used mainly in the production of glass and soaps and detergent and various metallurgical processes. Because of the different uses of sodium (caustic soda and/or soda ash) and chlorine (raw chlorine and/or HCl), the prices of the two outputs are independent and these two prices determine the margins/profitability of the chlor-alkali industry.
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Some economic characteristics of the industry. Both the major products of the process are commodities and like all commodities their price fluctuates significantly depending on the current equilibrium between demand and supply. Economics of the chlor-alkali industry. Supply side. The primary raw material is electricity so the cost of production is mostly determined by the cost of electricity. Demand side. Individually – caustic soda, soda ash, chlorine are all commodities whose supply levels are all highly correlated but their demands are not. Chlorine (at least in its raw and reactive forms) is a very hazardous substance and cannot be traded internationally. Globally, during the FYe20-FYe22 period, the profitability of the industry was determined chiefly by chlorine and caustic soda/soda ash were considered more as byproducts of the industry. However the consumption of chlorine is less in India and in fact, its disposal was a problem lading to a negative yield on chlorine for the industry at times. This might change significantly as India lessens import of PVC and instead manufactures it domestically. Hence, the challenge and costs associated with disposal of chlorine are expected to gradually subside going forward. From past three years, the realizations of chlorine have turned positive for domestic players and the trend is expected to continue even going forward which should support the ECU realization of the sector. This also seems to imply that there are places/plants in the world where the electrolytic process is carried out mainly for the sake of obtaining chlorine and such manufacturers are happy to dump the caustic soda at very low prices. As of Jan23, India was considering the imposition of anti-dumping duty on caustic soda but although the finding supported this, GoI finally decided not to impose any anti-dumping duty.
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Value-addition. Many chlor-alkali factories have forward integration and produce various value-products from the three main outputs of the electrolysis process. The sodium-based value added products include sodium carbonate and sodium bicarbonate. The chlorine-based value added products include dichloromethane (or methyl dichloride), chloroform and carbon tetrachloride. The hydrogen-based value-added product is hydrogen peroxide.
Thus the long-term investment of this segment of the chemical industry crucially depends on two things (among other things):
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Increase in chlorine demand/offtake in India. This would crucially depend on whether their announced PVC production facilities in India actually materialize or not. Given that chlorine is relatively cheap in India it might make economic sense for the downstream folks to manufacture their chlorine-based products such as PVC in India itself rather than importing it.
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Reducing operational expenses by switching to renewable energy. The industry cost structure is majorly determined by the cost of electricity and so companies which have cash or access to low cost capital and are in locations suitable for solar/wind can potentially reduce their (raw material) costs significantly by running their factories on such cheap renewable energy.
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