MANUFACTURER OF THE MONTH- Once a month, Inside Industry looks at a manufacturer — whether locally bred or an international player with a manufacturing base here in Egypt. The monthly feature covers manufacturers in different industries to look at their success stories, the challenges they have faced as local manufacturers, and the path forward as Egypt looks to build a more robust local industry. Speaking to us this month is PS Jayaraman, chairman of TCI Sanmar, one of the biggest chemical producers in the region.

TCI Sanmar Chemicals is a public limited company operating out of Port Said. It’s a constituent of the Sanmar Group from the southern part of India, which has been operating for the past five decades in the fields of commodity chemicals, light metal engineering, metals, and shipping. In Egypt, we’re in the business of chemicals — mainly PVC, caustic soda, and calcium chloride granules. In 2007, Sanmar Group fully acquired the Egyptian Trust Chemical Industries, which was at the time a simple plastics manufacturer with a small capacity. Our idea was to expand its capacity and investment to make it a PVC manufacturer as well. Polyvinyl Chloride, commonly known as PVC, is a raw material used in the manufacture of many products. In India and Egypt around 45-50% of PVC supply goes to pipe manufacturers. PVC is also used for producing floor coverings, vanity bags, and sofa covers.

The company currently has an annual production capacity of 400k tons of PVC, 275k tons of caustic soda — a chemical mainly used in cleaning products and detergents — and 130k tons of calcium chloride granules — used for deicing or dust control. These are the largest production capacities not only in Egypt but in the entire region. The company’s Port Said plant also produces an annual 60k tons of ethylene from sugar-based ethanol, which helps us reduce the dependency on fossil fuels and become greener. Ultimately the ethylene that comes out of this plant is bio-ethylene, which helps with PVC production.

We have invested USD 1.5 bn in Egypt, which is the country’s largest FDI coming from India in the chemical and petrochemical space.

Around 55-60% of the company’s manufacturing components and raw materials are imported but at the same time we create substantial added value by exporting almost 70% of our PVC production and 85% of our caustic soda and calcium chloride production. The company saw USD 600 mn in turnover during its last fiscal year, 50-55% of which was revenue from exports.

We used to mostly focus on the domestic market, with only 30% of production going towards exports — until the FX issue crept up. When USD availability became an issue in the Egyptian market we had to increase our exports because we needed USD to meet our import payments. So we cut down on domestic sales and increased our exports. If the FX situation changes, we will come back to focusing on the domestic market.

Commodity prices all over the world move in tandem, but what changes the positioning of a market is freight costs and duties. Our PVC exports mainly target Turkey, southern Europe, and some African countries, while calcium chloride exports mainly go to the Middle East, Europe, and the West. At the end of the day, it’s all about who is offering the best price. When the FX situation hit Egypt, we were immediately able to increase exports because of our experience and our customer base in Turkey, Italy, and some African countries. We are not dependent on any one jurisdiction — we always look for the best market from a price point of view; it’s not just about selling a product.

Two out of the three TCI Sanmar products mainly rely on local components: Caustic soda uses 85% locally-sourced raw materials, which are power and salt. The power we source from the grid and for the salt we buy from local manufacturers and source from Port Said. It is entirely domestic raw materials that get converted into the end product with substantial add value getting created. Calcium chloride granules also use mostly local components; we convert local waste to make our granules and we locally source our limestones. As for PVC, it is mainly ethanol-based, which we manufacture through our Port Said plant, but the raw material — vinyl chloride — we import, which makes up almost 50% of our total PVC production cost. We also import some of the chemicals that we need in our day-to-day activities as well as some of the components for plant maintenance.

We always try to promote local industries and try to locally source our materials. We hope to find success leaning more on local products in the medium term but for now we still have to rely on imports. This need for USD has pushed us to look for local vendors that meet our quality requirements. In Egypt, we don’t have the kind of developed industry to cater to our requirements, but that could change over time.

Given the chance, we would like to sell 90% of our products in the domestic market but that will be dictated by our ability to get USD.

We stay put in the Egyptian market, because this is our 16th year of operations. We have managed to get a better understanding of local rules and regulations. We are aligned to the changes that are being made both when it comes to import and export procedures. We have a good team that takes care of all the formalities. But issues creep up from time to time in terms of custom clearances and delays in terms of rules and regulations.

Growing populations like Egypt and India are very good for chemical commodity manufacturers because what we make touches human life everyday. Without PVC we cannot make PVC pipes, without PVC pipes we cannot transport water or have infrastructure. The more there are investments in infrastructure, the more demand for PVC will increase.

Your top industrial development stories for the week:

  • Nestle Egypt to ramp up production with 4 new lines: The company aims to launch four new production lines, three in the food sector and one for dairy production by the end of the year, Al Borsa quotes CEO and Managing Director Tarek Kamel as saying.
  • GSK eyes expanding operations: Pharma company GlaxoSmithKline (GSK) submitted a request for land in the New Suez City to establish another plant in the coming period, Al Mal reported.
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