Surging crude oil prices in the global market will push up the raw material cost of the agro-chemical sector as most of them are petrochemical derivatives, a senior Tata Chemicals official has said.

“Farmers will be forced to spend more, thereby severely impacting their earnings. On an overall basis, the energy price increase will have an inflationary effect,” said Zarir Langrana, Executive Director and President (Global Chemicals Business), Tata Chemicals Limited.

In August this year, India imported 17.4 million tonnes of crude oil, valued at $9.1 billion, “which amounts to 86 per cent of our annual requirement”, he said. “This in itself shows how the surge in crude oil prices will increase the nation’s overall expenditure, thus adversely affecting fiscal deficit.”

His views are significant given that Brent crude oil is currently ruling around $80 a barrel and WTI crude oil near $77. Brent crude has gained 52 per cent this year, while overall crude oil is up 58 per cent year-to-date.

Crude oil inventory is seven per cent below the five-year average. Rates are firm despite fears of an economic slowdown due to the spread of the Omicron variant of coronavirus.

Revival in soda ash demand

Tata Chemicals, among the top five global producers of soda ash, expects the chemical’s price to rise next year, too. Global economic recovery this year, since the Covid-19 pandemic outbreak, has continued to drive demand across regions and sectors, Langrana said.

“Soda ash plants across the world, on the back of this strong demand-pull, have been operating at capacity; and with no significant new capacity coming up in the short- to medium-term, the market has been snug to short — a dynamic, we believe, will play into 2022 as well,” he said.

Soda ash — used in solar glass, lithium processing for lithium-ion batteries, power utilities and automobiles — is one of the commodities whose prices have doubled year-to-date.

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“The growth in demand has been especially strong in the new sustainability-focused sunrise applications… while the more traditional applications in container glass, chemical processing, and detergents are back to normal levels,” the Tata Chemicals global business president said.

Expansion

Asked about the company’s plans for expanding soda ash capacity, Langrana said expansions were on for soda ash and other products at the firm’s Mithapur plant in Gujarat. A strong growth in domestic demand, opportunities for import substitution and potential for exports provide more room for growth, he said.

As for sodium bicarbonate, commonly known as baking soda, which the company manufactures at its UK and Indian units, plans for “growing the product” were intact “with the potential for even more aggressive ambitions”.

“Our animal feed-grade ‘Alkakarb’ and food-grade ‘Sodakarb’ registered double-digit volume growth due to our focus on market development. Our newest product — the speciality pharma-grade ‘Medikarb’ — which is India’s first branded pharma-grade sodium bicarbonate — also showed encouraging double-digit growth and holds considerable promise,” he said.

Tata Chemicals sees a similar opportunity to increase production at its UK plant. “…the first critical step towards this has been the commissioning of our carbon capture and utilisation plant, which makes us self-sufficient for a key raw material,” Langrana said.

Bicarbonate growth

Sodium bicarbonate, a crucial downstream product from soda ash, has seen a resilient demand throughout the pandemic and this is expected to sustain, he said.

The product finds newer uses every few years, ranging from animal feed to emission control to food and pharma sectors.

“The fastest growth is being witnessed in haemodialysis. With a demographic change in many regions of the world and an ageing population, this sector is rapidly growing…” Langrana said, adding that India’s low per capita consumption of bicarbonate also provided ample room for growth.

Farm laws repeal ‘detrimental’

On the recent repeal of farm laws, he said it was detrimental not only to companies but farmers too. The reforms would have benefited the agriculture sector in the long run, he said.

“India’s processed foods market, worth over ₹2.6 lakh crore, was looking forward to sourcing produce directly from farmers and scaling down inputs costs considerably,” he said.

However, the Centre’s other initiatives such as encouraging the formation of farmer producer organisations, cooperatives and other technology interventions, largely led by the start-up ecosystem, are the need of the hour. They would make the agriculture sector more organised and help in faster adoption of emerging technologies for farm productivity and incomes, he said.

In 2022, the company will continue to grow on the pillars of sustainability, digitisation and innovation. “Our commitments to support the communities we impact, in and around our areas of operation, with development models that are sustainable, replicable, and scalable, would see no dilution as this remains core to our purpose,” Langrana said.

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