INDUSTRIAL CHEMICALS MANUFACTURING FACING HARD TIMES
Years of neglect despite rising demand for chemicals
ENGR HUSSAIN AHMAD SIDDIQUI
June 11 - 17, 2007
The industrial chemicals industry in Pakistan is currently passing through difficult times. According to recent reports, at least six chemicals production units have closed down, while the remaining are facing hardships of various kinds to survive.
Ironically, this happens at a time when the Japan International Cooperation Agency (JICA), based on a recent study, has recommended to the government to strengthen the chemicals industry and to promote more investment in the sector. The study suggests that the chemicals sector should be allowed tax benefits, low-interest loans, good infrastructure and investment-friendly incentives, which have been so far been denied.
The poor performance of the industry is reflected in the fact that not only has the sector remained stagnant during recent years, but has also suffered regression (negative growth). There was an outflow of foreign direct investment (FDI) from the sector recorded to the mark of (-) US$ 39 million, during July 2005-April 2006 alone, whereas the country attracted a net overall inflow of US$ 2,225 million FDI during the same period. Nonetheless, the situation has not alarmed the policymakers as the investment policy continues to place chemicals sector at lowest priority of investment, if any, in spite of the sector offering substantial opportunities for expansion and investment.
Unfortunately, both foreign and domestic investment is invited by the government in the industrial sector extending fiscal and financial incentives covering only traditional textile, automobiles and light engineering areas, as re-asserted and highlighted in the Pakistan Investor's Guide 2007 released by the Board of Investment this month.
SIGNIFICANCE OF THE CHEMICALS INDUSTRY
Globally, the chemicals industry is recognized as the "mother of industries" since it is vitally important for industrial development and self-reliance as a major contributor of raw materials. Many of the chemicals are part of our daily life, whereas others are the main constituents of practically all the manufacturing processes. Industrial chemicals, in solid, liquid and gas form, are commonly used in pharmaceuticals, rubber, soap & detergent, cosmetic & toiletry, food & beverages, cement, ceramics, glass, sugar, pulp & paper, iron & steel, oil & gas, leather & tanneries, coatings & inks, polishes & cleaners, adhesives & glue, textile and engineering industries, to name only a few.
Almost seventy percent of the overall industrial chemicals-- basic, formulated and intermediates-- are consumed by the manufacturing sector. For this reason growth of industrial chemicals sector worldwide is considered directly proportional to the growth of overall manufacturing sector. But somehow it is not so in Pakistan. During July 2005-March 2006 the overall manufacturing sector, which is the second largest sector of national economy, registered a growth of 8.6%. In comparison, there was negative growth of industrial chemicals sector.
The broad and varied ranges of chemicals are classified and sub-classified as agricultural chemicals (such as fertilisers and pesticides), petrochemicals (like lubricants, oils, grease), explosives, paints and allied industries, industrial gases, absorbents, acids, adsorbents, alcohol, ammonium compounds, hydroxides, catalysts, organic chemicals, inorganic chemicals, oxide compounds, adhesives and sealant, cosmetic chemicals, metallurgical chemicals, general chemicals, specialty & fine chemicals and numerous solvents, stearates, resins, plastics/polymers, etc.
The organic chemicals are organic acids, carbon tetrachloride, chemical colour, dyes, organic pigment, ethylene glycol, phenol, styrene, vinyl chloride, etc. On the other hand, inorganic chemicals include inorganic acids, aluminum hydroxide, calcium chloride, inorganic chemical colour, chloride of lime, chlorine, fluoride, fluorine salt, hydrochloric acid, hydrogen peroxide, nitric acid, nitrite, phosphoric acid, inorganic pigment, sodium bicarbonate, sodium carbonate, sodium hydroxide, sulphuric acid, zinc oxide, zinc peroxide and sodium.
STATUS OF CHEMICALS INDUSTRY IN PAKISTAN
In Pakistan, the chemicals industry is narrow-based and concentrated in a few segments only. At present, there are about 20 companies listed on the Karachi Stock Exchange. BOC (Pakistan) Ltd and Bawany Air Products Ltd are the producers of industrial and medical gases such as acetylene, oxygen and nitrogen, whereas product range of Sitara Chemicals Industries includes chlorine. Paints and varnishes companies include Berger Paints Ltd, Buxly Paints Ltd, ICI Pakistan Ltd and Kausar Paints Ltd. Likewise, Wah Nobel Explosives Ltd. and Biafo Industries Ltd produce explosives and detonators.
While some segments of chemical industry have received due attention, others remain neglected and in spite of increased demand over years no attention has been paid by the government to improve policy structures and environments for their growth. The industrial chemicals manufacturing group is one of those neglected. It is represented by Dynea Pakistan Ltd, ICI Pakistan Ltd, Ittehad Chemicals Ltd, Leiner Pakistan Gelatine Ltd, Nimir Chemicals Pakistan Ltd, Nimir Industrial Chemicals Ltd, Nimir Resins Ltd, Pakistan Gum & Chemicals Ltd, Pakistan PTA Ltd, Sardar Chemical Industries Ltd, Shafi Chemical Industries Ltd, Sitara Chemicals Industries Ltd and Wah Nobel Chemicals Ltd.
The industry's highlights are the sole multi-national company namely ICI Pakistan, which has major share of the domestic market, and two joint ventures with the European firms; Dynea Pakistan and Wah Nobel Chemicals. There are a number of units producing industrial chemicals in the SME and non-formal sector, however these are, generally, devoid of latest technology and modern skills.
The chemical industry primarily comprises of blending and formulation industries, mostly based on imports of basic and intermediate chemicals, whereas the production facilities for basic chemicals are in effect very limited in the formal sector. Sodium carbonate, commonly known as soda ash, which is among the top ten inorganic chemicals produced in the world, and sodium hydroxide, commercially termed as caustic soda, are the main outputs of the industry that are essential raw materials for various industries. There has been major expansion in this segment in last few years, meeting the total domestic demand.
DOMESTIC PRODUCTION OF CHEMICALS
During the last ten years (1996-97 to 2005-06), the production of soda ash increased from 247,000 tons to 297,300 tons. Its production also suffered negative growth for three years during this period. Likewise, caustic soda production increased from 118,200 tons in 1996-97 to 206,700 tons in 2004-05 and 161,200 tons in 2005-06 (July-March), but demonstrated negative growth for a year during this period.
The local industry produces a diversified range of chemicals such as polyol or poly oxytetramethylene glycol (used by downstream polyurethane industry), heat treatment chemicals, sodium bicarbonate (used in textile and leather industries), pure terephthalic acid or PTA (used in polyester industry), urea resin and melamine resin (used in particle-board, chip-board and lamination industry), moulding compounds like formaldehyde and amino-plast resins (used in electrical accessories and dinner set production), guar gum and guar meal, gelatin, sulphuric acid, hydrochloric acid, acetic acid, stearic acid, glycerin, dyeing chemicals, hydrated lime, paraffin wax, calcium chloride and others.
Other petrochemical intermediate products manufactured locally are PVC (polyvinyl chloride), synthetic fibers, aromatics (benzene, toluene and xylene), carbon black, phthalic anhydride, maliec anhydride, formic acid, acetic acid etc. Engro Asahi Polymer & Chemical (private) Ltd are the only PVC manufacturers in Pakistan.
Statistics about production and sales of various chemicals in the country are not available category-wise. It however has been observed that production of sulphuric acid, another major raw material for various industries, remained stagnant during last 15 years. Its production by the local industry was recorded 93,500 tons in 1990-91, 92,300 tons in 2004-05 and 72,000 tons during first 9 months of 2005-06, registering negative growth for six years. Production of chlorine gas in 2005-06 (July-March) was 14,100 tons compared to 9,400 tons recorded during the whole 1996-97 year. Production of alkaloid chemicals is almost negligible after the closure of Sind Alkalies Ltd.
IMPORT OF CHEMICALS INCREASED MANIFOLD
Logically, the domestic market for industrial chemicals is growing rapidly and Pakistan has no choice but to depend heavily on imports to meet demand. Import of chemicals in 1997-98 amounted to Rs 52 billion that tripled, in volume and value, in 2004-05, registering imports of Rs 160 billion or US$ 2.5 billion. During July 2005-March 2006 import of chemicals amounted to Rs 156 billion. Import of chemicals related products constitute 20 percent of total import bill.
The People's Republic of China is the major supplier of industrial chemicals to Pakistan at present. However among the Western sources, USA exported chemicals to Pakistan valuing US$ 98 million and Australia to the level of US$ 59 million (2004).
The huge imports of industrial chemicals show the importance and need for developing local industry. This sector lacks diversified production of basic chemicals, whereas a few can be produced in Pakistan using indigenous minerals. Currently, detergent active agents valuing two billion rupees are being imported and thus there is a potential for setting up a production facility for raw material for the detergent industry, like dodecyl benzene and tri-decyl benzene sulfonate. Likewise, methanol is being imported to the extent of 50,000 tons annually valuing over Rs 600 million. Methanol can be produced in Pakistan from natural gas.
POTENTIAL FOR ADDITIONAL INVESTMENT
The long list of chemicals required for various applications justifies additional investment in the sector in a big way. The list includes analytical chemicals, anodizing chemicals, aroma chemicals, aromatic chemicals, automotive chemicals, battery chemicals, boiler water treatment chemicals, brewers chemicals, brick-makers chemicals, ceramic chemicals, cleaning chemicals, coating chemicals, construction chemicals, cosmetics chemicals, dehydrating chemicals, disinfecting chemicals and dry-cleaning chemicals.
The other chemicals according to their applications are electronic chemicals, electroplating chemicals, environmental chemicals, fabric chemicals, fluxing chemicals, food processing chemicals, laboratory chemicals, laundry chemicals, leather chemicals, metal cleaning chemicals, mining chemicals, odour-control chemicals, photographic chemicals, plastic manufacturing chemicals, printing chemicals, radioactive chemicals, refrigeration chemicals, rust removing & preventing chemicals, sewage treatment chemicals, textile chemicals, waste treatment chemicals, wastewater treatment chemicals, water softening chemicals, water treatment chemicals, wood finishing chemicals and x-ray processing chemicals.
It is indeed imperative for the government to support the industrial chemicals industry through a policy and action plan to be implemented on priority. The various corrective measures adopted may include
* Creation of conducive environments for investment,
* Rationalisation of tariffs
* Duty reduction on import of plant machinery
* Extending low-interest loans and providing incentives for technology transfer in the field.
Thus the recommendations from the chemicals industry in this direction may be incorporated in the forthcoming 2007-08 federal budget/trade policy to save the crippling industry.
The writer is currently a Board Member of the National Engineering Services Pakistan (Pvt) Ltd (NESPAK) and Private Power and Infrastructure Board (PPIB).