Why surfactant manufacturers want removal of import duties on saturated fatty alcohol

High raw material prices is stoking high inflation in the home- and personal-care product segment. Many factors such as supply-chain disruptions and high commodity prices are already hitting domestic producers heavily below the belt. Surfactant producers, one of the key suppliers to the home and personal care segment, have also been hit hard by such disruptions.

Add to the existing tough market environment, the government is investigating Anti-dumping Duty(ADD) and Countervailing Duty(CVD) case on imports of Saturated Fatty Alcohol, a key raw material, from countries such as Malaysia, Indonesia and Thailand. Any imposition of duties will take a huge toll on the health of the sector. The cost situation is so dire that the higher cost of manufacturing for surfactant manufacturers will necessarily have to be passed on to home- and personal-care producers, who will, in turn, pass it on to end-consumers. Therefore, the entire duty structure will be counter-productive for industry and highly inflationary for consumers.

The situation can undermine the steps the government is taking to curb inflation, and these duties will worsen the situation and hugely affect the day-to-day consumption of home- and personal-care products. The only remedy to alleviate the stress and grant relief to the industry is to scrap the ongoing investigation of ADD and CVD on imports of saturated fatty alcohol.

A critical issue facing the domestic surfactant sector is that there is not enough domestic production of saturated fatty alcohols to cater to the entire surfactant sector’s requirements. The input material is critical in the production of surfactants widely used in home- and personal-care products.

Further, additional duties levied on saturated fatty alcohol will have a detrimental effect on the industry as a whole. The key after-effect is that the industry will import more downstream products such as SLES, SLS and alcohol ethoxylate from ASEAN countries and free-trade agreement markets at NIL import duty. In the current environment also, existing ADD on saturated fatty alcohol is promoting imports of value added products. For example, substantial increase in imports of Fatty Alcohol Ethoxylate (Made out of Fatty Alcohol) are observed though India is having more than sufficient capacities to service domestic demand. Sulfonation capacities are coming up in Malaysia and Indonesia, which can result in more imports of downstream products. This will be detrimental to the domestic industry, both domestic saturated fatty alcohol producers and the domestic surfactant industry.

Indian manufacturers of saturated fatty alcohols have already enjoyed more than eight years of high protectionism, which has not made the domestic industry any more competitive. The domestic industry has also enjoyed 30 months of safeguard duty between 2014 and 2017 and sixty months of additional duty. Under the guise of protecting the domestic industry, the policy is not at all making the very industry whose protection and well-being is so important globally competitive. To date, the main protection for the domestic saturated fatty alcohol industry with such duties has been squandered, and an exercise in futility. In fact, the domestic fatty alcohol industry continues to be un-competitive.

Besides, a key ingredient used in producing saturated fatty alcohol, crude palm kernel oil, is produced in Indonesia and Malaysia. These are the very same countries that have significant capacities and economies of scale in producing saturated fatty alcohol with both backward and forward integrations that help to be more competitive globally

The domestic saturated fatty alcohol industry has for long been in poor financial health.  High cost of raw materials, higher logistic costs and mismanagement are other factors that will continue to hamper the profitability of domestic saturated fatty alcohol producers.

Hence, the domestic saturated fatty alcohol industry will never come close to becoming competitive, let alone providing Indian surfactant manufacturers with quality products at globally competitive prices. On the other hand, the domestic saturated fatty alcohol industry has been running at decent operating margins. Losses are largely due to high financial leverage, which calls for promoters to pare debt and infuse more capital for growth rather than hide behind the curtain of protectionism, instead of becoming competitive and self-sufficient.

On the other side, Indian surfactants is a huge $2.5 billion industry. Indian surfactant producers are a key supply-chain partner of the $21 billion home- and personal-care industry, which plays a critical role in the Swachh Bharat Abhiyan initiated by Prime Minister Narendra Modi. Besides, the surfactant industry consists of more than 25 companies employing more than 9,000 people, compared to domestic saturated fatty alcohol companies which have negligible operations.

It is essential that the government’s policies on the current additional tariff structure be reviewed and withdrawn, supporting the Indian surfactant manufacturing industry, not making it harder for the domestic surfactant industry to be competitive in the wake of the changing global industry landscape. The domestic surfactant industry strongly urges the government,  Discontinue the ADD & CVD investigation initiated on imports of saturated fatty alcohol and support the surfactant industry and come to the aid our partners, the home and personal care industry, and Indian consumers at large.

The author is convener – Indian Surfactants Group. Views are personal.

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