Ecological and economic profile of the caustic-chlorine industry | Centre for Science and Environment


Ecological and economic profile of the caustic-chlorine industry

There are broadly two categories of industries. Explained simply, one makes the final product the way we see them on the shelves and one supplies the raw material or intermediate product to make the final products. The manufacturing industry depends on the intermediary industry. The manufacturing industry is at the forefront, normally facing the brunt for any environmental pollution while the intermediary industry remains obscure from the public gaze.

That is exactly why the third rating of the Green Rating Project (GRP) is significant. This time, GRP focuses on the caustic-chlorine industry of India — a key contributor to the country’s economy as well as pollution. What makes it worse is the fact that the caustic-chlorine industry has no control over the end use of the products it manufactures.

Prior to rating the caustic and chlorine sector, GRP had rated the pulp and paper sector where pollution peaked during production while for the automobile sector, pollution was maximum during the stage of product usage. The rating of the caustic-chlorine sector is unique because the issues of concern here relate to:

The output at the end of the production process – chlorine and caustic soda – that are used extensively by industries to make products like pesticides and organo-chlorine that are highly detrimental to the environment.

The utilisation, storage and transportation of the products. For example, storage of large amount of chlorine is similar to a time bomb, which if explodes, will kill all living organism within its sphere of influence.

Products of the caustic-chlorine industry

 

 
Chlorine Sodium & calcium hypo
Caustic soda Sodium bicarbonate
Hydrochloric acid Potassium hydroxide
Hydrogen Potassium carbonate

Deadly mercury pollution and contamination arising due to emissions of mercury into air, water and land. The fact that an industrial disaster that occurred 50 years ago continues to haunt the sector and has laid the basis for a totally new environmental framework indicates the potential environmental danger associated with the sector. We are referring to the infamous Minamata tragedy where mercury was dumped into the sea by a Japanese chemical company leading to its toxic contamination (see box: Liquid death).

Another issue that has considerably impacted the environmental trends of the Indian caustic-chlorine industry has been the influence of the global market on the Indian market. A situation has been created for the Indian industry, where on one hand, it has to deal with chlorine, that is neither storage nor disposal friendly and on the other hand, it has to face a glut of caustic soda in the market, because of dumping of caustic soda by China and the countries of the Gulf region.

 

Liquid death

 

Death this time travelled through the waters and found its way into homes of innocent fishing folk in a seaside town of Japan, killing children in wombs and affecting a number of people. Statistics cannot put an estimate to the suffering that spanned three decades.

 

The Chisso Corporation, one of the main employers of Minamata, was making petro-chemicals and plastics. From 1932 to 1968, Chisso Corporation dumped an estimated 27 tonnes of mercury compounds into Minamata Bay. The destruction of large scale fishing areas following the dumping simply saw the exchange of money to buy people off. The logic of the company was to pay people in exchange for polluting.

 

It was not till mid 1950s that people began to notice a strange phenomenon in animals and humans. People began to experience numbness in their limbs and lips. Their speech slurred and their vision constricted. Some people had serious brain damage. Birds started to drop dead from the skies.

 

The valiant effort of a doctor from Chisso Corporation itself, Dr Hosokawa, brought the reasons for the disease to light. He faced resistance to his theory that linked the disease with the dumping of mercury compounds from the company into the sea. Chisso Corporation initially succeeded in buying the silence of people but soon the incident came into national and international limelight. Though the victims testified at the United Nations Environmental Conference in Sweden, the UN did not intervene. Till a decade ago, the Japanese courts were still resolving suitable compensation for the victims. It was Minamata which ultimately forced the Japanese government to ban mercury in all processes and products. It also heralded a new technology for the caustic-chlorine industry - the membrane cell technology which gave it a new life.

 

 

2.1 Industrial relevance of the caustic-chlorine industry

The chemical industry in India is possibly the best example to study the process of industrialisation. The basic inorganic and organic chemicals produced in the chemical industry provide the building blocks for several downstream industries.

Caustic soda and chlorine - one of the most important inorganic chemicals - are used by almost all industries for one thing or the other. The importance of the sector can be gauged by the fact that caustic-chlorine industry is among the twenty largest chemical industries in the world. Products made from caustic soda and chlorine are used everyday by people and they have become an integral part of our lifestyle (see table 2.1).

In India, caustic soda is the principal product of the industry and chlorine is treated as a by product of the industry, though the global caustic-chlorine industry is driven by chlorine. For an Indian caustic-chlorine industry to be financially viable, caustic soda has to realise more than 65 per cent of the cost, as chlorine prices are low. But, in the past few years, chlorine has started getting importance as a principal intermediate material in the manufacture of PVC.

In India, caustic soda is primarily used in the manufacture of pulp and paper, detergents, viscose, aluminium, petroleum refining, metal cleaning etc. Paper and pulp sector followed by humanmade viscose fibres and alumina accounts for the major chunk of caustic consumption (see graph 2.1).

Global consumption pattern of caustic soda differs from that of India. Globally, chemicals account for 40 per cent of the total consumption followed by paper and pulp with 18 per cent, alumina with 8 per cent, soap and detergents with 7 per cent and humanmade fibres with 7 per cent. The rest 20 per cent is distributed among other uses (see graph 2.2).

In the US, the largest user of caustic soda is the organic chemical industry (30 per cent), and the inorganic chemical industry (20 per cent). The pulp and paper industry uses about 20 per cent of the US caustic soda production for pulping wood chips, and other process. In Europe, the chemical industry is the major consumer of caustic soda followed by the paper industry. Other users are aluminium industry.

Similar to caustic soda consumption pattern, pulp and paper sector is one of the major consumer of chlorine in India. However, it is in HCl production that maximum amount of chlorine is consumed in India (see graph: 2.3). In recent times, the use of chlorine in PVC manufacturing has also increased and currently about 11 per cent of the chlorine is consumed by PVC sector. In recent years India has also started to export substantial quantity of chlorine based products.

 

Table 2.1 CHLORINE & CAUSTIC SODA — INDISPENSABLE LIFE-LINE OF THE INDUSTRY

 

SPHERE OF USE/INDUSTRY PRODUCTS OR APPLICATIONS OF USE
Production of metals and resource materials Alumina, propylene oxide, polycarbonate resin, epoxies, synthetic fibres, soaps, detergents, rayon and cellophone
Pulp and paper industry Caustic soda is used for pulping wood chips. Chlorine and its compounds are used to bleach wood pulp in the paper production process
Petroleum and natural gas extraction industry Caustic soda is used as a drilling fluid
Manufacture of organic chemicals Chlorine is used for making ethylene dichloride, glycerine, glycols, chlorinated solvents and chlorinated methanes
Plastic industry Used for making plastics, most notably polyvinyl chloride (PVC), which is being used extensively in building and construction, packaging, and many other items
Pesticides 96 per cent of all pesticides are produced using chlorine
Industrial solvents A variety of chlorinated compounds are used as industrial solvents, including the main ingredient used in dry cleaning.
Water treatment Chlorine is used in 98 per cent of the water treatment plants in the world
Pharmaceuticals 85 per cent of all pharmaceuticals use chlorine at some point in the production process
Other relevant applications Domestic bleaches, flame-retardaXts, food additives, refrigerants, insulation, computeX chip manufacturing and hospital disinfeXtants among others

 

Globally, the majority of chlorine production is used in the manufacturing of organic chemicals including vinyl chloride monomer, ethylene dichloride, glycerine, glycols, chlorinated solvents, and chlorinated methanes. Vinyl chloride, which is used in the production of polyvinyl chloride (PVC) and many other organic chemicals, accounts for one-third of the total chlorine production (see graph 2.4). The other major consumers are pulp and paper industry, other inorganic chemicals, disinfection treatment of water and the production of hypochlorites. Globally, more than two-thirds of all chlorine is consumed in the same manufacturing plant in the production of other chemical intermediates, though in India two-thirds of all chlorine is sold.

 

Graph 2.1 INDIAN DEMAND PATTERN OF CAUSTIC SODA (in percentage)

 

Graph 2.2 GLOBAL CONSUMPTION PATTERN OF CAUSTIC  SODA (in percentage)

 

Source: CMIE Report, 2000-2001. Source: Indianfoline, reports, Chlor-alkali industry.

 

Globally, the caustic-chlorine industry is driven by the demand-supply of chlorine and not caustic soda. Across the world, demand for chlorine is higher than that of caustic soda, which is considered a by-product.

The world production of caustic soda is estimated to be around 45 million tonnes per year. The global production of chlorine is in tune of 40 million tonnes. The global installed capacity of caustic soda in 2001 was about 54.4 million tonnes while for chlorine, it was about 48 million tonnes.

It is estimated that 65 per cent of the world’s caustic-chlorine industry is concentrated in three regions; North America, Western Europe and Japan. Out of this, the share of US is about 30 per cent, the EU accounts for about 25 per cent and Japan’s share is about 10 per cent.

The US is the largest consumer and is also a net importer of caustic soda, whereas China and Saudi Arabia are the net exporters. The forecast for the global demand for both chlorine and caustic predicts an increase although this would mainly be in Latin America and Asia. Between 1997-2002, the global capacity of the caustic-chlorine industry is likely to increase by around 6.6 million tonnes per year, largely driven by strong growth projections of PVC in developing countries.

Globally, the economic impact of chlorine is very large. It affects nearly every industry in one way or the other. For instance, PVC is used in automobile interiors, construction and nearly every business uses chlorine-bleached paper. According to one estimate, globally the chlorine industry accounts for nearly $71 billion in sales. The chlorine sector provides a $2.9 billion trade surplus for US and affects an estimated 40 per cent of the total gross domestic product in US.
 

Graph: 2.4 GLOBAL CONSUMPTION OF CHLORINE (in percentage) Graph: 2.3 CHLORINE DEMAND IN INDIA – VARIOUS SEGMENTS
graph2.3.jpg (47050 bytes)
Source: Indiainfoline, sector reports, Chlor-alkali industry. Source: CMIE Report, 2000-2001.

 

The US is self sufficient in caustic production. Europe is approximately in balance in chlorine and has traditionally been the world’s second largest exporter of caustic soda; currently it is a net importer. Australia and South-East Asia are the main importing areas. New capacity in the Middle East and South-East Asia may upset these traditional trade patterns. While globally, the chlorine growth may average 2-3 per cent per year over the next 10 years, it is forecast to be less than 1 per cent per year in Europe and 3-4 per cent per year in India.

2.2 The Indian caustic-chlorine sector - the economic challenge
In the last few years, the Indian caustic soda companies have not done well financially. Over-capacity and cheaper imports have resulted in a glut of caustic soda in the domestic market. This can be seen from the fall in capacity utilisation over the years (see table 2.2). Things have improved since 2001 due to the revival of the paper industry. As is the case with most commodity-based industries, this industry too is cyclical in nature. In recent times the domestic industry is also facing an over-capacity problem. Five large-scale caustic soda units have come up since 1997 with companies like Reliance entering this sector. Gujarat Alkalies & Chemicals Ltd (GACL) is the biggest producer of the sector.

 

2.2.1 Influence of global politics on Indian industry
The favourable economics of production in the US and Gulf (cheap electricity, salt and ethylene) make it possible for the US to export ethylene dichloride (EDC), which is the basic raw material for making PVC, and the Gulf countries to export caustic soda at attractive prices. The US is the largest exporter of EDC followed by Europe. The main importing areas are Australia (alkali for the alumina industry) and South-East Asia (EDC and caustic).
 

Table 2.2 CAUSTIC SODA PRODUCTION TRENDS IN INDIA
YEAR INSTALLED CAPACITY
(000’MT)
PRODUCTION
(000’MT)
DEMAND
(000’MT)
SUPPLY (000’MT) CAPACITY UTILISATION
(in percentage)
1995-1996 1,673.0 1,308.7 1,346.0 1,448.6 78
1996-1997 1,914.0 1,320.0 1,331.5 1,460.1 69
1997-1998 2,028.5 1,416.8 1,506.5 1,561.9 70
1998-1999 2,272.1 1,492.2 1,558.2 1,640.5 66
1999-2000 2,251.4 1,514.0 1,548.2 1,576.8 67
Source: Alkali Manufacturers Association of India.

The market conditions are such that caustic soda is in demand in India while chlorine is not; while globally the industry requires more chlorine than caustic soda. Though Indian companies have excess chlorine, they cannot export it simply because of the major hazards associated with transportation of chlorine. Chlorine also finds a place in the list of toxic and hazardous substances banned for transnational transportation under the Basel Convention on hazardous wastes. As a result, India is faced with a double edged sword – on one hand, it has a growing chlorine stock that it cannot dispose off and on the other hand, the dumping of caustic soda is forcing the sector to compete with low international prices. This is unviable for the sector as its production costs are high.

As mentioned earlier, the Indian caustic-chlorine industry is highly influenced by the global manufacturing and market conditions. The reasons that make it difficult for the industry to break the existing shackles and face the onslaught of foreign dumping are the following:

Sector still dependent on imported technology
Though the sector is moving towards a cleaner technology (i.e. membrane cell technology), the country is not equipped to provide this technology indigenously. The sector is dependent on imports for even replacement of cell consumables, which is very expensive.

In addition, there is a high import duty on getting membranes. Though the import duty for new membrane cell plants was as high as 25 per cent in 1997-1998, it has been brought down to 15 per cent in 1999-2000. However, spares for repair including replacement of worn out membranes still attracts 30 per cent import duty.

These factors have made the conversion to membrane technology an unviable option and hence most of the companies who have converted to membrane are not doing well financially.

Differential power tariffs
The sector is affected by the difference in energy costs in India and abroad. Energy consumption is about 70 per cent of the cost of making chlorine and caustic soda in India. Compared to international power tariff levels of US 2 cents per kilowatt, current tariffs in India are close to 8-9 cents per kilowatt. In addition, the power supply is highly unreliable with frequent fluctuation resulting in lower operational efficiencies and higher input costs.

Lowering of custom duty on imports of caustic soda led to glut in Indian market
The industry is against the reduction in customs duty on imports of caustic soda. As of 1996-1997, the lower customs duty opened the floodgates for foreign imports as a result of which the e