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The energy crisis in Europe amid lower gas supplies is hurting industries in the region. The cut in Russian gas supplies has resulted in a sharp jump in electricity costs for European countries. 

Energy-intensive industries such as steel, aluminium and other metals are already seeing production cuts due to the crisis. Chemical companies being energy intensive could also see an impact on production. 

Analysts at JM Financial Institutional Securities Ltd said that further cuts in Russian gas supplies could wreak havoc on European chemicals producers, which are highly dependent on natural gas. As a result, in Europe, the production of various energy-intensive chemicals such as ammonia, caprolactam, methanol, melamine, etc. has been slashed by more than 50% in some cases of the available capacity, as per industry reports, they added.

Europe accounts for about 20% of global ammonia production. Thus, a significant ammonia capacity shutdown could keep ammonia prices elevated. Analysts at JM Financials said that this should result in a jump in prices of ammonia-based chemicals and fertilisers, globally. The same may not be good news for global agrochemical and fertiliser makers. 

While on one hand the margins and earnings may see the impact, pass on of higher prices could mean higher costs for crop producers, leading to higher agri prices and thereby inflation. In India, ammonia is produced by Gujarat Narmada Valley Fertilisers Chemicals (GNFC), and Rashtriya Chemicals Fertilisers (RCF), amongst others. Deepak Fertilisers’ ammonia plant is scheduled for commissioning by August’24,

The market for other energy-intensive chemicals such as caustic soda, and soda ash could also remain in tight balance, feel analysts.

The caustic soda production as per analysts requires power consumption of 2,300-2,450 kWh/tonne (translating to a variable cost of Euro 1,000-1,100/tonne) say, analysts. We believe European caustic soda production (15-20% of global) could also face challenges, said JM Financials analysts. This is likely to keep the caustic soda market supplies tight. In India, Gujarat Alkali, Chemfab Alkali, Punjab Alkali, and Meghmani Finechem are some of the caustic soda producers

Even Grasim may be among the beneficiaries. Grasim is executing a 30% plus expansion in caustic (FY22-FY25), and doubling in epoxy which would provide fillip to its volume growth, said analysts at Jefferies India.

 

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