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Indian Rayon bullish on carbon black demand - Views on News from Equitymaster
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  • Nov 24, 1999

    Indian Rayon bullish on carbon black demand

    Indian Rayon plans to expand its carbon black manufacturing capacity by 50,000 tonnes. The proposed hike in capacity will entail an investment of Rs 400 m by the company.

    Indian Rayon, an Aditya Birla group company, has diverse interests in the fields of rayon, textiles, insulators, argon gas and carbon black. It has the 2nd largest carbon black capacity (95,000 tonnes), behind RPG group's Phillips Carbon Black (110,000 tonnes). Indian Rayon's textile division manufactures polyester-cotton blended yarn, fire fighting hosepipes and worsted yarn. The company divested its cement business to Grasim, another Aditya Birla group company.

    The capacity increase is likely to take place at the company's new plant in Chennai, South India, with an eye on the proximity to several tyre plants in the region. If Indian Rayon does go through with the proposed expansion, it will become the No.1 player in the segment with a total capacity of 145,000 tonnes, overtaking Philips Carbon Black.

    The move has been prompted by a resurgent tyre industry, the main consumer of carbon black. This is a complete reversal of fortunes for the industry, which faced a number of problems not so long ago. There was lower offtake from tyre manufacturing companies because of the economic downturn especially in the auto sector. It was also hit by cheaper imports from Egypt and South East Asian countries.

    Indian Rayon's expansion plans aim to capitalise on the upswing in the automobile sector and other user industries. With demand for the product picking up at a brisk pace, the company would benefit from better realisations. With the automobile sector witnessing a significant build up of capacity, domestic demand for tyres, and hence carbon black, can be expected to grow significantly over the coming years. This will ensure a larger market for the product in the future. However, the threat of cheaper imports and a slower than anticipated growth in the economy may upset the plans.

    The current market leader Phillips Carbon Black, may have similar expansion plans on the anvil, and may not give up its market leader status so easily. If it does so, the segment will witness increased competition, putting pressure on margins.



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