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Hit by cheaper imports

Domestic soda ash prices may come under pressure on account of cheaper imports. The decision by the Government to reduce the import duty on soda ash is likely to have a negative impact on domestic prices in the near term.

The recent trends in prices indicates that soda ash has shown some signs of firming up in the recent past. However, prices dipped towards the end of May. For instance the average price of soda ash in the last week of May was around Rs 630 per 50 kg. The ruling prices in early May was higher by around Rs 90 per 50 kg at Rs 720. However, the current price represents 15 per cent improvement over the prices prevailing in mid December 2000.

It should be noted that price levels of soda ash had seen a drastic improvement since August 2000 when the Government decided to levy an anti-dumping duty on imports from China. For instance the price levels in August 2000 were around Rs 440 per 50 kg. I n comparison to August 2000, prices have risen by around 43 per cent. However, the big question is whether the prices will sustain.

Domestic soda ash manufacturers were in a fix when the Finance Minister in his Budget announced a reduction in the import duty on soda ash to 20 per cent from 35 per cent. Earlier the net duty on soda ash worked out to around 38.5 per cent (35 per cent p lus 10 per cent surcharge). The steep reduction in the duty rate may be the effect of the pressure applied by the US Government on behalf of ANSAC (American Natural Soda Ash Corporation). The US Government said that it would consider linking the benefits enjoyed by Indian exports through the generalised system of preferences (GSP) with export of soda ash by ANSAC.

At present Indian exports through the GSP scheme are worth around $400 million. This tactic seems to have been adopted to revoke the ban on import of soda ash through ANSAC. The duty cut coupled with the existing over supply situation in the domestic ind ustry is likely to have a negative impact on domestic prices. Demand is expected to grow at around eight per cent per annum, but if prices move southward realisations may not be very good.

The trends in production of soda ash has been on a downtrend over the last few months. For instance production was down from around 1.59 lakh tonnes in December 2000 to around 1.28 lakh tonnes in February 2001. On a year-on-year basis to February 2001, p roduction was down by around eight per cent.

Overall prices in the near term are expected to weaken. Given the cut in duty rates, imports are likely to be cheaper and this is likely to have a significant negative impact on domestic prices and the bottomlines of major producers. -- BL Research Burea u