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DYESTUFF

 

The Indian dyestuff industry has been facing difficult times. Low profitability and demand growth combined with increasing importance for environmental protection have resulted in the exit of many small producers. However these factors have seen the consolidation of major players in the industry. Currently there is an over capacity situation in the domestic market that has forced the industry to look at exports for growth. With the closure of many manufacturing bases in the US and Europe, MNCs are shifting to Asian countries like India and China. The share of the MNCs in the domestic production of these two countries has been going up steadily over the last few years.

Industry Structure

The Indian dyestuff industry is only about 40 years old though a few MNCs set up dyestuff units in the pre independence era. Like the rest of the chemical industry, the dyestuff industry is also highly fragmented. The industry is characterised by the co-existence of a small number of players in the organised sector (around 50 units) and a large number of small manufacturers (around 1,000 units) in the unorganised sector. The distribution of these units is skewed towards with western region (Maharashtra and Gujarat) accounting for 90%. In fact, nearly 80% of the total capacity is in the state of Gujarat, where there are nearly 750 units.

There has been a strong growth in the dyestuff industry during the last decade. This has been made possible because of the Government’s concessions (excise and tax concessions) to small-scale units and export opportunities created by the closure of several units in countries like the USA and Europe (because of the enforcement of strict pollution control norms). The duty concessions offered to small-scale manufacturers had resulted in the large ones becoming uncompetitive to some extent. Price competition was intense in the lower segments of the market. Liberalisation of the economy and large-scale reduction of duties resulted in the reduction of margins for smaller manufacturers. Closure of several small-scale units in Gujarat on environmental reasons also helped the organised sector players.

Over six hundred types of dyes and organic pigments are now being manufactured in the country (both by the organised and the unorganised sector). But the per-capita consumption of dyestuffs is lower than the world average. Dyes are soluble and essentially used in textile products. Pigments, on the otherhand, are insoluble and are important inputs to products such as paints.

During the past two years, the dyestuff industry was overtaken by a series of fast changing events in the international arena. Indian companies failed to keep pace with the changing trends. The biggest market for dyestuffs has been the textile industry. The dominance of polyester and cotton in the global markets has decisively shaped the demand for certain types of dyestuffs. On the other hand, the demand for polyamides, acrylics, cellulose and wool was more or less stagnant. Differences in the regional growth rates of textile products too affect demand. The Asian region saw the biggest growth in textile production, followed by North America, Latin America and Western Europe. This suggests the shift in the global textile industry towards Asia. As a result, Asia leads in dyestuff production both in terms of volumes and value, with a 42 % share of the global production; the US is next with 24 % and Europe has around 22 %. Due to a greater use of polyester and cotton-based fabrics, there has been a shift towards reactive dyes, used in cotton-based fabrics, and disperse dyes, used in polyester. These two dyes have been dominant in all the three regional global market, especially Asia. Adding to the shift in textile usage pattern and regional developments, is the extent of over capacity in the global dyestuff industry. Capacity is estimated to be around 1.2 mn tonnes, with consumption at 0.8 mn tonnes, leaving a clear gap of 0.4 mn tonnes.

Within India, the major players in the pigments industry are Colur Chem and Sudarshan Chemicals while in the dyestuff industry companies such as are Atul, Clariant India, Dystar, Ciba Specialities and IDI are important players in terms of market share. The Indian companies together account for around 6 % of the world production.

Nearly 80 % of the dyestuffs is commodities. This means there is not much product differentiation between the goods manufactured by most producers. Since not much technology is involved, duplication of products is also easy compared to specialties. However, in the recent past, there have been attempts by global manufacturers to move to the specialty end of the product profile, with some success. Vat dyes have always functioned as specialty products, with technology playing an important role. Now, companies are concentrating on the higher end of the reactive dyes segment. The trend is now shifting from supplying mere products to colour package solutions. The emphasis is more on innovation, production range, quality and environmental friendly products. Producers are collaborating with equipment manufacturers to provide integrated solutions rather than products.

Fiscal policies and changes in the usage pattern of the global dyestuff industry have changed the market shares of Indian companies. Excise concessions for the small-scale sector in the mid and the late 1980s spawned numerous units in Maharashtra and Gujarat. At one stage, there were in the unorganised sector around 1,000 units, with most of them located in Gujarat and Maharashtra. This also led to large-scale evasion of duties.

However, since the early 1990s, there has been a gradual reduction in the excise duty rates applicable to the organised sector. From 25 % in 1993-94, the excise duty rates were reduced to 20 % in 1994-95 and further to 18 % in 1997-98.

The latest Union Budget further reduced these rates to 16 %. This gradual reduction in the duty rates blunted the competitive edge of the unorganised sector. The organised sector, with better product range, technology and marketing reach, was able to increase its market share. But more important changes have come through the German ban on certain dyestuffs, followed by the implementation of the local pollution control laws. While the organised sector has been able to phase out the production of dyes based on the 20 banned amines by the German legislation, many in the unorganised sector were forced to exit. This was compounded by the local pollution laws, which required setting up of effluent treatment plants, and pushed out companies in the unorganised sector.

Consumption Pattern

Dyestuff is a broad term which includes dyes and pigments. A dye is a coloured substance or an organic compound, which when applied in a solution to a fabric, imparts a colour resistant to washing. They are largely used by the textiles, paper and leather industry, with textiles accounting for over 80% in India. This links the dyestuff industry's fortunes to that of the textile industry. Dyes are classified according to various systems. The most commonly used one is the one used by the US International Trade Commission. According to this system, there are 12 types of dyes, as detailed in the following table:

Group

Application

Acid

Wool, silk, paper, synthetic fibers, leather

Azoic

Printing Inks and Pigments

Basic

Silk, wool, cotton

Direct

Cotton, cellulosic and blended fibers

Disperse dyes

Synthetic fibers

Reactive

Cellulosic fiber and fabric

Organic pigments

Cotton, cellulosic, blended fabric, paper

Sulphur

Cotton, cellulosic fiber

Vat dyes

Cotton, cellulosic and blended fiber

With the change in the product profile of the textile industry from the high-cost cotton textiles to the highly durable and versatile synthetic fibres, the consumption pattern of dyes has also been changing. Polyesters are projected to account for a large part of dye consumption in the country. Accordingly, disperse dyes, which find application in polyesters, are projected to grow faster.

In addition to textiles, dyestuffs are also used in industries like plastic, paints, printing inks, paper and leather. While these industries account for a very small part of domestic consumption, globally these account for a substantial part of total consumption.

Technology

The technology for dyestuff manufacturing varies widely from relatively simple (direct azo) to sophisticated (disperse and vat) dyes. Though technology is locally available, most of it is outdated. The problem is further compounded by the fact that the nature of the process changes from batch to batch and, therefore, controlling the process parameters becomes difficult. The Indian industry has made significant progress in terms of technology and production.

The dyestuff industry is one of the heavily polluting industries and this has resulted in the closure of units internationally and shifting of units to the emerging economies. Most of the international manufacturers have transferred the technology to developing nations like China, India, Indonesia, Korea, Taiwan and Thailand. This shift of manufacturing capacities is because the industry is perceived as a high-cost and low return one. The batch processing also makes it a labour- intensive industry. Thus, the competitiveness of developing economies increases. However, the judiciary has come down with a heavy hand on several manufacturing units, especially in Gujarat.

Restructuring

There has been severe a drain on the profitability of the industry. This is due to entry of many new players in the last few years resulting in severe competition and price wars. Restructuring of the Indian dyestuff industry, initiated a couple of years ago, is in progress. The trend was set last year by the market leader Colour-Chem Ltd, which decided to opt out of the dyestuffs business. It has entered into a toll manufacturing agreement with Dystar India Ltd. There have been other alignments, which would result in improving capacity utilisation at manufacturing facilities and also obtain better reach of export markets.

Ciba India and IDI have signed a pact to market polyester and cellulose dyes. IDI has also tied up with Ciba for the manufacture and marketing of dyes and pigments. Atul products has completed the acquisition of Zeneca’s 50% stake in Atic Industries Ltd and tied up with BASF, Germany to market 50% of its production of vat dyes.

The restructuring of Sandoz, consequent to the merger with Ciba, has led to the creation of Clariant AG. The dyestuffs manufacturing division of Khatau Group has been merged with its marketing company, Indokem Ltd.

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