Lyocell Capacity Expansion: Grasim’s Phase II 110K TPA Project in Karnataka Reshapes Global Cellulosic Fiber Landscape

The global cellulosic fiber market is entering a new phase of capacity race. Grasim Industries, flagship of the Aditya Birla Group, announced a ₹3,094 crore (approx. $324 million) investment for Phase II Lyocell capacity of 110,000 tons per annum at its Harihar plant in Karnataka. The project consists of two 55K TPA lines, each with a daily output of 150 tons. Once operational, Grasim’s total lyocell capacity will more than double, structurally reshaping global supply.

Rationale Behind Expansion

Industry data shows lyocell demand has been growing at a compound annual rate of over 15%, far outpacing traditional viscose. The key driver: lyocell’s solvent recovery rate exceeds 99.5%, and its wastewater discharge is about 60% lower than viscose. Under tightening EU and North American environmental regulations, downstream brands like H&M, Zara, and Uniqlo have explicitly increased lyocell procurement targets. Grasim’s timing capitalizes on the “green fiber” window.

From a cost perspective, the Phase II project’s per-ton investment is approximately ₹28,000 (about $330), 12% lower than Phase I, indicating Grasim has accumulated engineering experience in lyocell scale-up. This will gradually erode the cost premium of lyocell over viscose. For Chinese viscose producers in Shandong and Jiangsu, if the price gap narrows to below 10%, downstream fabric buyers will accelerate switching.

Impact on Industrial Clusters

The Harihar plant sits in Karnataka, a major textile hub with dense weaving and dyeing operations. The additional 110K tons of lyocell will significantly boost domestic supply in India, directly challenging China’s viscose staple fiber exports to India, which stood at 420,000 tons in 2025. Grasim’s new capacity could replace 80,000-100,000 tons of that demand.

For fabric sourcing hubs like Keqiao and Shengze in China, ample lyocell supply will push down blended fabric prices (e.g., lyocell/cotton, lyocell/polyester). Current domestic lyocell spot prices hover around RMB 18,000/ton. With expansions from Grasim and Chinese players like Sateri and Tangshan Sanyou, prices could fall below RMB 15,000/ton by 2027, lifting lyocell penetration in knitted and woven segments from 12% to over 20%.

Practical Recommendations

For Fabric Buyers - Monitor Grasim Phase II commissioning timeline (expected late 2027) and negotiate long-term fixed-price contracts with Indian suppliers to hedge price volatility. - Test color fastness and shrinkage of lyocell/cotton blends; data shows lyocell proportions above 40% require adjusted pretreatment processes. - Compare total lifecycle costs of viscose vs. lyocell (including carbon taxes); lyocell’s hidden cost advantage will widen under EU CBAM.

For Textile Exporters - Revise product catalogs to increase lyocell-based fabric offerings, especially for EU and Japanese clients whose “zero-carbon” label demand is rising. - Track Indian government export subsidies for lyocell; Phase II may qualify for PLI (Production Linked Incentive), making export quotes more competitive than Chinese counterparts. - Establish contacts with Grasim’s distributors in Southeast Asia (Vietnam, Indonesia) to leverage regional free trade agreements for tariff reduction.