Date:11/08/2004 URL: http://www.thehindubusinessline.com/2004/08/11/stories/2004081103110300.htm

Back IOC set to commission alkyl benzene facility

Vinod Mathew

Ahmedabad , Aug. 10

THE stage may all be set for what could become another price war in the detergents segment as the Indian Oil Corporation (IOC) is ready to commission its 1,20,000 tpa linear alkyl benzene (LAB) plant by August 15. The LAB prices which had firmed up from Rs 54,000 per tonne to Rs 58,000 per tonne over the past couple of months could well witness a downslide once IOC's plant gets commissioned, resulting in a surplus of almost 1.5 lakh tpa in the domestic market.

Talking to Business Line, Mr B.N. Bankapur, Executive Director, Gujarat Refinery, said, "This is the biggest diversification of IOC till date and its maiden foray into the petrochemicals sector. This LAB plant would also carry the tag as the one that was executed in the shortest time of 22 months. The project has been completed at a cost of Rs 1,428 crore and would soon be commissioned barring last minute hitches."

However, market watchers feel this may be a stiff price to set up such a facility as even fixed cost alone may not be covered, given the price of raw materials such as n-paraffin and benzene. After factoring in the debt cost and depreciation component, the IOC plant will need to find strong marketing allies, such as Hindustan Lever with which the IOC has been in dialogue for a while. This, even as the present set of LAB majors - Reliance Industries, Tamil Nadu Petro Products, Nirma and Indian Petrochemicals Corporation Ltd - hold considerable advantage on lower capital expenditure.

While marketing tie-ups and equations between the LAB producers and users are understood to being redrawn with the imminent commissioning of the IOC facility, market watchers feel it need not lead to a price war as a LAB cartel could be in the making.

With quite a few international buyers also beginning to look at India to source this commodity, such a scenario cannot be ruled out, they say.

"A price war is something that the domestic LAB producers can do without as they are already functioning on wafer-thin margins.

"One does not have to look at many parameters to realise this but at the price of n-paraffin, a major raw material of LAB.

"As one tonne of LAB requires some 0.84 tonnes of n-paraffin, at current prices of $880 per tonne, this single component alone costs over Rs 33,000 for each tonne of LAB," an industry analyst pointed out.

This may be true, but the fact also remains that the Gujarat Refinery is one of the more profitable units of IOC, having accounted for Rs 2,300 crore out of the PSU's net profit of some Rs 9,000 crore in the last fiscal.

To that extent, the entry into LAB manufacturing, costly or not, may be something the company needs to do, given its compulsions to integrate forward.