IOC happy with LAB sales a year after market entry

Vol 9, PW 6 (30 Jun 05) Midstream & Downstream

Less than a year after it entered the domestic petrochemicals business, Indias largest refiner Indian Oil is satisfied with its achievements.

In September 2004, IOC began producing 90,000 t/y of Linear Alkyl Benzene (LAB) a raw material derived from kerosene and used to make washing soaps and detergents at a new factory in Gujarat that cost Rs1300cr ($270m). Capacity has now been increased to the full 120,000 t/y and existing producers have lost significant market share to IOC.

Today, IOC says its market share is more than 35%. Back in 2004, sceptics questioned the wisdom of entering a market controlled by three producers: Reliance Industries plus IPCL (144,000 t/y), Nirma (100,000 t/y) and Tamil Nadu Petro Products (100,000 t/y).

The market was neatly divided up by a cartel of the existing producers, says an IOC source. Nirma was using most of its LAB production in-house and was exporting the rest.

The domestic market was neatly divided up by Reliance and Tamil Nadu Petro. IOC says it has, stormed the cartel, displaced Reliance and TN Petro and found our niche in the market.

Adds IOC: We are supplying to all the top detergent manufacturers in India. IOC maintains that it successfully entered the market without launching a destructive price war with either Reliance or TN Petro Products.

There was no price war at all, he adds. Our unique selling proposition was superior quality.

It turns out that LAB sold earlier in the market had to be bleached before being used by detergent manufacturers. Our LAB was colourless.

Initially customers thought something was wrong with our product and we had to explain to them that this is how LAB should be. Customers, said IOC, saw the point and came back for more, because they were saving on the bleaching powder they had to use earlier.

IOC says its LAB was colourless because, being an integrated producer weve got a check on the quality of raw material that goes in, unlike our competitors. Domestic consumption of LAB is growing at between 3% and 4% per annum and IOC says it can further increase production capacity to 150,000 t/y.

For the moment weve no plans to increase capacity to 150,000 t/y. Weve achieved our entry level strategy in less than a year.