The withdrawal of tax incentives to exporters of dyes and intermediates in China coupled with a ban on production of hazardous chemicals in and around Beijing in the wake of Olympic games have prompted dyes and dyestuff manufacturing companies in Gujarat to expand their production capacity.

Leading dyes manufacturers have already started increasing production capacity. Kiri Dyes and Chemicals Ltd (KDCL), Bodal Chemicals Ltd and Jay Chemical Industries Ltd have already embarked on an expansion drive.

Ahmedabad-based leading reactive dyes manufacturer KDCL with its Chinese joint venture partner Zhejlang Longsheng Group Company Ltd (Lonsen) has intiated the process of setting up world's second largest quality dyes manufacturing plant at Padra near Vadodara.

The plant to be opertational by the year 2009 will have production capacity of 60,000 tonnes per annum. The company is pumping in around Rs. 400 crore in a phased manner for this joint venture partner.

Chemical industry players believe that many more players in the industry will take the expansion route as demand of dyes and dyestuff is on the rise, while there supply side is facing a shortage.

Bodal Chemicals, which manufactures dye intermediates and dyestuffs, is also in the process of increasing its dyestuff manufacturing capacity by 12,000 metric tonnes per annum at its plant in Padra.

Currently, the company produces 7,000 metric tonnes per year. Another dyestuff manufacturer Jay Chemical Industries is looking at expanding its capacity, said Mayur Padhya, General Manager (Finance), Bodal Chemicals.

"Around 10 to 15 companies, both small and big, are expanding their capacity to benefit from the rising demand," said Greevin Kharawala, head of Jay Chemical Industries Ltd. China enjoys a leadership position in dyes and intermediates production.

"However, Chinese government withdrew tax incentives given dyes and intermediate exporters a couple of months back. Chinese exporters used to get refund of 17 per cent value added tax (VAT) on the exports of dyes from China. The government in dragonland has cancelled the incentive, which has made exports of Chinese dyes costlier by around 15 to 17 per cent. As a result, exports of dyes and dyestuffs have started declining," said KDCL managing director Manish Kiri, who is also a president of Gujarat Dyestuff Manufacturers Association (GDMA).

There is a supply shortage of dyes and intermediates due to decline in exports from China, while its demand is increasing by the day. The demand-supply gap has led to sharp rise in the prices of dyes, which shot up by around 25 to 30 per cent in month.

All these factors have brightened the prospects for Indian dyestuff manufacturers in both domestic and export market.

"We have already started expanding our capacity to leverage from the current scenario. India is likely to see more and more capacity building in near future as the many more players are likely to jump on expansion bandwagon," Kiri added.