Import Substitution: The Way to Go

Sanjaya Bhatnagar,
The 120 KTPA Greenfi eld capacity of Indian Synthetic Rubber Ltd (ISRL) to produce E-SBR will significantly substitute the key raw material imports by the tyre manufacturers. ISRL has recently been conferred with the CHEMTECH CEW Leadership & Excellence Award 2015 - Chemicals & Petrochemicals for setting up this path-breaking venture of national importance. In an exclusive interaction, Sanjaya Bhatnagar, CEO, ISRL, speaks to Mittravinda Ranjan about the challenges of the business and future plans of the company.

ISRL is the first to commission the E-SBR manufacturing facility in India to substitute imports to a significant extent. Tell us about how the joint venture partners are leveraging on their strengths?
Indian market is witnessing a strong surge in demand of E-SBR, primarily driven by the tyre manufacturing industry, which has gained robust momentum from the growing automobile sector. So far, Indian tyre manufacturers were compelled to source the entire supplies of E-SBR through imports. There was a huge gap and so was the opportunity for someone to enter in this space.

Indian Oil Corporation Ltd (IOCL), TSRC, Taiwan and Marubeni formed the joint venture company, Indian Synthetic Rubber Ltd (ISRL), which created a winwin situation for all the three companies, which has allowed themselves to leverage on their strengths to enter the Indian market.

ISRL has set up 120 KTPA Greenfield capacity to produce E-SBR in Panipat. The capital cost of the project is estimated at Rs 9,500 million and we have secured the most competitive financing available globally from reputed overseas banks. The flagship project is spread over an area of 57 acres. It also has an advanced effluent treatment system, including a Reverse Osmosis (RO) plant with zero-liquid effluent discharge.

IOCL has its own expertise in project execution and we leveraged that to complete our project in record time of 21 months and the plant has been commissioned to run at 100 per cent capacity. The facility is close to IOCL’s naphtha cracker and utilises butadiene production from the cracker as the key feedstock for producing E-SBR.

IOCL supplies the Butadiene feedstock from its Naphtha Cracker Plant at Panipat. The strategic location of ISRL’s plant also enables it to source utilities, such as power, steam, raw water, etc from IOCL’s plant.

ISRL is backed by the R&D expertise of TSRC, which has many patents and innovations specific to synthetic rubber and thermoplastic elastomers. There are many experienced experts and an accomplished technical service team to serve the tyre customers and ascertain the quality of E-SBR. The company enjoys an exclusive license from TSRC (Taiwan), to manufacture widely known TAIPOL brand of SBR 1500, 1502, 1712 and 1723 grades.

Marubeni is one of the largest trading corporations in Japan with access to Japanese banks and has helped us to secure finance from Japanese banks. Being in the business of trading, they are also facilitating sourcing of styrene, another key feedstock, for the manufacturing of E-SBR.

How do you see the markets playing up for ISRL in future?
Present consumption of E-SBR in Indian market stands at around 250 KTPA with approximately 80 per cent being consumed by the tyre manufacturers. We have seen a robust growth in SBR demand in the past and anticipate a strong positive growth over the next five years at 9-10 per cent CAGR, which is likely to touch 400 KTPA by 2019-20.

In addition to capacity enhancement already announced by the existing tyre manufacturers, several global tyre manufacturers are also setting up their new facilities in India as a part of their global expansion strategies to cater to the foreseeable demand. Yokohama, a Japanese major, has already commissioned their plant near Panipat. Michellin, another international giant, is setting up the production facility in Chennai to cater to the Indian automotive market. Recently, Cheng Shin Rubber (Maxxis), another major tyre producer, has also announced to set up a plant in Gujarat.

We have seen, Indian tyre manufacturers are taking a pragmatic approach and augmenting their existing capacities to cater to the foreseeable demand from the automotive sector. Another area that is gaining momentum across tyre manufacturers in India is a shift to radialisation to produce tyres that are best in class in the world, especially for the commercial vehicle segment. Once this segment picks up, this too will add up for substantial demand for SBR.

Tyre replacement is another huge market in India, which is growing significantly each year with the increasing number of vehicles on the road. Also, there is a good demand emerging from retreading of tyres, which is largely dominated by unorganised sector.

While the demand for large volumes will come from the tyre sector driven by the strong positive growth momentum of automotive segment, demand for smaller volumes will continue to come from the increasing requirement from other industries such as automotive components, conveyor belts, footwear, etc.

How is the response you are getting from Indian market for supplying E-SBR locally? What are the challenges in dealing with the imports?
Being a domestic producer, ISRL has several inherent advantages, such as lower lead time, providing an opportunity for customers for optimising their inventory and immunity, in terms of foreign exchange fluctuations, and prompt technical support and customer service as compared with the imported products.

As we grow, we have plans to ramp up the capacity and aim at taking level of production to 200 KTPA for E-SBR. There are already two players in the market, however, the Indian market is growing at a fast pace and in my view it can easily accommodate the Indian players as well the imports. But at the same time, we hope that the Indian Government will take some steps to address the anomalies and will provide a level playing field to Indian and international players.

What about the end user?
Indian customers, especially tyre manufacturers, are highly quality conscious. We have already started supplies to major tyre manufacturers and will see a gradual increase in the product movement in the next few months.

What is your take on the fall in SBR prices globally?
I see this as a very positive development for the SBR producers as we expect to see lot of latent demand of SBR likely to emerge in the near future. Typically up to 10 per cent of natural rubber can be substituted with SBR and given the constrains to increase the availability of natural rubber, there is scope of creating further 100 KTPA of SBR demand in domestic market itself, which is close to the ISRL’s current capacity.

As long as SBR prices stay low, there is going to be a healthy demand of SBR in the country.

What are your thoughts on the Green Tyre concept that is gaining momentum worldwide and the major players are gearing up for the future by ramping up the capacities of S-SBR to cater to the future markets?
As a concept, Green Tyre is a strong environment friendly step by the tyre industry in the EU market and other developed nations which requires S-SBR as the feedstock to produce the high performance tyres that provide low rolling resistance and thus provide an opportunity to reduce carbon footprint with lower fuel consumption.

If you compare volumes of global consumption of S- SBR, it is less than 5 per cent as compared to E-SBR volume. As of now, the S-SBR surplus capacity is coming up everywhere in the South East Asia – but people are struggling to keep the plants up and running at a lower operation rate due to lesser demand.

Getting full advantage of S-SBR in India would require the complete revamp of infrastructure that can support the green tyre. It will take lot of time and even after that, given the challenges of S-SBR production; it will still take a long time for any substantial conversion. And in India, I do not see this happening in the next decade at least!!

So far, we do not have any facility in India to produce S-SBR, but given the current thrust that the government is providing to the infrastructure spend; I believe we should have a good case of S-SBR two years from now.

Current demand of S-SBR is 5 KT in India. We are evaluating the market for this product and can have a case for this product if demand increases to around 15 KTPA. We can probably think of having 40 KTPA plant in two year time for which, we are already in talks with our technology partner, TSRC to set up production of Solution SBR.