Chemical industry in transition: Who will thrive?

The Indian chemical industry is divided into two main segments: basic chemicals and speciality chemicals. Basic chemicals include petrochemicals, fertilizers, and inorganic chemicals. Speciality chemicals include agrochemicals, pharmaceuticals, and dyes. 

India is the world’s sixth-largest producer of chemicals and the third-largest producer in Asia. The industry is expected to grow at a CAGR of 9% over the next five years, reaching a size of USD 300 billion by 2025. 

The Indian chemical industry is driven by a number of factors, including: 

• Growing demand from various end-user industries such as textiles, pharmaceuticals, automotive, and construction 
• Increasing availability of raw materials such as crude oil, natural gas, and coal 
• Supportive government policies such as the National Chemical Policy and the Make in India initiative. 

List of Chemical Sector companies with a market cap exceeding Rs 2,500 crore

This table shows the prices of various chemicals in September 2023, along with the year-over-year (YoY) and month-over-month (MOM) change in price. 

• Chemical prices in India have been declining in recent months, primarily due to Chinese manufacturers selling their products at prices below cost. This follows a period of unusually high prices in 2021 and 2022.
• However, there are some signs of improvement in certain chemicals, due to strong domestic demand and a decrease in the intensity of dumping by Chinese players. This is because prices that are so low cannot be maintained for long, and crude oil prices are rising.
• Chemical companies are navigating a dynamic market environment characterized by both rising and falling prices for key products. Companies that are able to adapt effectively to these changing conditions are likely to emerge stronger in the long run.
• Soda ash producers Tata Chemicals, GHCL, and DCW are benefiting from rising prices for this key product, which is used in a variety of products, including glass, detergents, and paper. Tata Chemicals is increasing production at its soda ash plant in Gujarat to meet growing demand.
• Phenol producers, such as GFL, are also benefiting from rising prices. Phenol is used in a variety of products, including plastics, resins, and pharmaceuticals. GHCL is investing in new technology to improve the efficiency of its phenol production process.
• On the other hand, some companies in the chemical sector are struggling due to falling prices for certain products. For example, acrylic acid producers BPCL, IOCL, and BASF are facing margin pressure. Acrylic acid is used in a variety of products, including plastics, paints, and adhesives.
• Toluene producers Reliance, BPCL, and Indian Oil are also facing margin pressure. Toluene is used in a variety of products, including plastics, explosives, and synthetic rubber. GFL is developing new products that use less toluene, such as bio-based toluene, which is made from renewable resources.

The Indian chemical industry is in a state of transition, with companies facing both challenges and opportunities in the current market environment. Companies that are able to adapt effectively to the changing dynamics of the industry are likely to emerge stronger in the long run.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.