Material Insights · Understanding the Material World

Chlorine and Energy-intensive industry

Chlorine is made by electrolysis of brine, which puts chlor-alkali among the energy-intensive industries: electricity was about 60% of its manufacturing cost in India in 2021, so power prices set where chlorine can be made.

Chlorine (chemical) and Energy-intensive industry (energy): 4 relationships.

How they are linked

1. Part of the sector

Physical flow · Strong · Chlorine is one of the sector's bulk products

Chlorine is made by passing electricity through salt brine, so chlor-alkali plants count among the energy-intensive industries, and chlorine is one of the sector's own products as well as an input that its other plants buy.

Chlorine is sold mainly through derivatives, though in India vinyls take only about 8% of chlorine against 38% worldwide. Because the plants run on electricity rather than fuel, their economics rest on power prices more than on oil or gas directly.

Sources: CARE Ratings; CHEManager (Sean Milmo)

2. Electricity per tonne

Physical flow · Strong · Electricity into chlor-alkali

Splitting brine is electrolysis, so electricity use per tonne is fixed by cell technology and cannot be cut by cheaper fuel.

  • 2,300 to 2,450 kWh per tonne of caustic soda, membrane cells, India
  • 3,150 to 3,300 kWh per tonne under older mercury cells

Almost all Indian plants now use membrane cells, which cut power use by about 25% from mercury cells. Further savings come from newer electrodes and cell designs, but the electricity need remains large.

Sources: CARE Ratings

3. Power is the main cost

Cost and price · Strong · Power price sets chlorine's cost floor

With electricity making up about half or more of cash cost, the local power price largely decides which regions can make chlorine competitively.

  • about 60% power share of caustic soda manufacturing cost, India, 2021
  • 45 to 60% electricity share of full cash cost per electrochemical unit, Europe, 2014
  • about $200 lower average margin per electrochemical unit in Europe than North America, years to 2014

The US shale gas boom opened a wide energy cost gap with Europe, and European plants had thinner margins as a result. Producers cut runs when power is expensive, which tightens chlorine and caustic soda supply together.

Sources: CARE Ratings; CHEManager (Sean Milmo)

4. Price link: energy cost

Cost and price · Medium · Both ways

Since electricity is the largest cost of making chlorine, power price moves tend to show up in chlorine prices over time.

  • 0.14 monthly change correlation
  • 0.46 12-month change correlation
  • 0.93 fitted elasticity

The proxy is US industrial power, so the link is loose month to month at 0.14 and clearer over a year at 0.46. Chlorine is rarely traded and is priced through derivatives such as PVC and through caustic soda, which blurs the signal.

Sources: Material Insights (World Bank, FRED, IMF data)

For investors

Key learnings

  1. Chlor-alkali is an electricity business: power was about 60% of manufacturing cost in India in 2021 and 45 to 60% of cash cost in Europe in 2014.
  2. Regional power prices decide who wins: European margins per electrochemical unit ran about $200 below North America in the years to 2014, after US shale gas cut energy costs.
  3. Chlorine prices follow power over a year, at 0.46 correlation, but derivative demand and caustic soda prices blur the monthly link.

What to track

  • Industrial power tariffs and captive power costs: Higher tariffs squeeze chlor-alkali margins and can cut runs (Monthly · state electricity regulators, IEX)
  • Caustic soda prices: Producers need both products to sell; weak caustic can force chlorine cuts (Weekly · trade press)
  • Chlor-alkali operating rates: Show whether power costs are forcing curtailment (Quarterly · company results, AMAI)

For policymakers

Key learnings

  1. Electricity tariffs for industry are the main policy lever on chlor-alkali competitiveness in India.
  2. Membrane cells have already cut power use to 2,300 to 2,450 kWh per tonne of caustic soda, so further gains must come mainly from cheaper or cleaner power.
  3. In India vinyls take only about 8% of chlorine, against 38% worldwide, and since chlorine and caustic soda are made together, finding outlets for chlorine limits how far caustic soda output can grow.

What to track

  • Industrial electricity tariffs and cross-subsidy surcharges: Shape cost competitiveness against imports (Annually · state electricity regulatory commissions)
  • Caustic soda imports: Rising imports signal that domestic power costs are uncompetitive (Monthly · Ministry of Commerce trade data)

India

Almost all Indian chlor-alkali plants use membrane cells at 2,300 to 2,450 kWh per tonne of caustic soda, and power made up about 60% of manufacturing cost in 2021.

Sources

  1. Caustic-Chlorine industry in India: Preparing for a sustainable rebound, CARE Ratings (2021)
  2. Chlor-Alkali Strives to Stay Competitive, CHEManager (Sean Milmo) (2014)
  3. Price correlation, Material Insights, Material Insights (World Bank, FRED, IMF data)