Chemicals will stay important constructing blocks of any future we build. Chemicals are not just an enabler of other industries, but also important to human life. It is important to nurture a sturdy chemical industry that makes as huge range of products as commercially possible and/or of strategic importance.
India’s chemical industry hits distinctive on the world stage, and lags a far way in the back of other economies. Though the industry’s ranking in Asia is only behind China, it is a distant second. Funding in the industry have happen in drips, and mainly from local enterprises. Big tickets ventures, on the other hand, were few and far between.
In the near-term, the chemical industry right here faces numerous demanding situations – a few from external factors and others from within.
Global chemical industry seeing monumental shifts
The global chemical industry is focusing monumental shifts – in demand, capability of build-up, running charges and profitability.
The economic slowdown in the evolved world, in part due demographic changes (decreasing and/or ageing populations), is slowing chemical demand. This has currently been depended by way put up-Covid slowdown in China – the world’s largest intake and manufacturing centre for chemicals – following the nation’s retreat from the funding-led direction that sustained economic growth for nearly 3 decades. As the result, the worldwide near-time period demand increase for basic chemical is anticipated to be lower than predicted just a few years ago. They are, for instance, expected to be down about 0.5% annually for commodity polymers, which might not appear much, but is enough to crush profitability.
Geopolitics has also become a trouble in an already-muddled situation and could modify funding patterns and exchange.
There isn’t any good news on the supply side – most value chains in basic chemical suffer from significant over-capability. Nevertheless, fundings stay made in new venture, specially in China, defying economic logic.
Consequent to those demands and supply side dynamics, numerous petrochemical products have reached capability utilization troughs, and the expected recovery is simplest beyond 2030. Though the industry is used to the up and downs of commercial enterprise cycles, this time appears different – the trough is deep, and extended.
Fundamental development in the chemical industry is stalling and leading to rampant commoditization of even so -known as specialities. At the identical time, tightening policies, originating broadly in Europe, is elevating the prices of compliance and operations. Industry captains there have dispatched out repeated pleas to administration for urgent reforms to unshackle new ventures and expansions. If now not, they warn, a hollowing out of the chemical industry in Europe is necessary.
From an investor point of view, the global chemical industry seems to have lost much of sheen. From being an outperformer in terms of rewarding shareholders for most of the last 2 decades, it’s today a laggard. This will constrain the industry’s capacity to increase assets to fund big ventures.
India’s chemical markets – demand a given, supply not so much
India stays a vivid spot in terms of development and will probable retain its pole position as the fastest growing large chemical marketplace. It (together with Africa at a later date) will come to drive global demand growth within the medium- to long-term.
However, in the near-time period even as the upward trajectory of increase of India’s chemical demand is a given (although you may quibble about numbers), manufacturing increase is unsure. In the last few years, lots of the incremental demand for base chemicals has been met by imports, no matter some fundings, consisting of by way of refiners seeking out higher value realizations for their subtle products, in choose price chains. But the tempo of new ventures is lagging demand growth, and the gap is anticipated to widen. The trade balance in chemicals – estimated at about $30-bn of net imports – is a cause for worry.
The loss of integration is preventing large value capture and is one of the reasons for bad competitiveness. The different reasons are poor competitiveness. Though there was a few progresses on both fronts, it is by no means good enough. Cluster-primarily based development is the key to more efficient in addition to more secure chemical operations and India has been missing out in this for a way too long. Some efforts are ongoing to create chemical parks along the eastern and southern coastlines and will possibly fructify in the following years. And not a day too soon.
Another demanding factor of latest boom is that it has come at the value of margins, for which the difficult external environment is in part accountable. There are a few symptoms of demand recuperation in the great chemicals business – feeding industries as diverse as pharmaceuticals, agrochemicals, personal care ingredients, colorants, etc. – however margins right here too are under strain.
Petrochemical value chains are filling up, however no longer fast sufficient
numerous propylene-primarily based ventures had been commissioned within the last couple of years, and more are predicted to comply with, with the olefin coming from refineries and propane dehydrogenation ventures. The first of the latter is probable to be commissioned in the next years and might be followed by way of at the least one more, further augmenting the provision of this olefin. The obsession with polypropylene as the outlet for propylene has faded particularly and tasks for phenol & acetone, acrylate esters, and oxo-alcohols have been commissioned inside the recent past. The subsequent 2 years will see some more.
On the ethylene front, imports of ethane all the way from US will choose up steam. While it’s miles now being completed handiest by Reliance Industries here, some others have introduced purpose to follow suit. This will allow those cracker operators to advantage from an considerable, low-cost feedstock, though the economics can be extremely compromised via the costs related to ferrying the hydrocarbon throughout oceans in custom-built shipping vessels.
Sustainability associated challenges specially with respect to plastics will bend the demand growth curve for thermoplastics downward. In addition to local rules – which includes ban on single use plastics, and mandates to incorporate levels of recyclate into inflexible packaging – global efforts to adjust intake and probably even manufacturing of plastics are ongoing. Some consensus is predicted to emerge from those discussions in a year or so.
numerous value chains in India are nonetheless empty and could live this way for multiple of reasons for the near term. For some (e.g., MDI), Indian demand is still remains insufficient to support a world-scale plant. But this need to correct in time, and those who invest ahead of the curve will reap advantage of a first entrant. Lack of access of entry to to technology is also restricting the capability to invest into a few value chains (e.g., alpha-olefins, acetic acid). The workaround right here is probable through joint ventures and one such challenge (acetic acid) is now in plannings. A third, and in all likelihood the most limiting factor, is poor competitiveness. This normally stems from a raw material drawback (e.g., methanol produced from natural gas), and workarounds (including using biomass or coal) are complex, high-priced and unviable without robust economic and/or policy guide.
Fine chemicals are a sweet spot – but change is coming here too
The best chemical industry – estimated at approximately $285-bn in 2024, with about 69% of output going to the pharmaceutical industry – has visible a apparently irreversible trend of outsourcing production from the western world to Asia (China and India, especially). This has been an vital motive force for growth in India’s chemical industry, and the aggressive benefit that Asian companies have stems from the decrease capex and opex while building and working multi-purpose plants. Today, some hundred businesses in India and China compete for business, challenging western producers.
But the brand new-determined preference for extra self-reliance within the US, EU and Japan should change the dynamics of the commercial enterprise. Governments are eager to derisk deliver chains – a weak spot uncovered harshly via Covid – and are prodding businesses to ‘near-shore’, ‘friend-shore’ or localize manufacturing. This is being aided by technology shifts, which include the usage of biocatalytic structures and continuous method plants that allow safer and more efficient operations. Whether a combination of policy measures and technological change will bring back a resurgence of fine quality chemical manufacture in the western world will bear watching.
Tariffs – an opportunity?
The ‘reciprocal’ tariffs released by the US on all its trading partners is the newest of the uncertainties plaguing the markets these days. The scenario is evolving almost on a each day basis and businesses are being hard-pressed to take even routine choices in terms of trade. World trade in chemicals is substantial and has served the industry nicely for the maximum parts, however it’s been upended for sure. The technology of globalization appears to be over, and bilateral arrangements will take its region. But they may now not make up entirely for the benefits delivered about by open-trade.
It is apparent that China’s production industry is the main target of the tariff actions, and in a experience other nations are collateral harm. The tariffs imposed on India, or for that be counted any other nation, are much less punitive than on China. If this differential is continued – and it’s far a huge if – there will be possibilities for Indian businesses to carve out market share from Chinese suppliers within the US market. China’s exports of chemicals to the US are roughly 2.5x India’s, and theoretically this differential might be up for grabs. But a great deal will hinge on the potential of India’s chemical industry to scale up and accomplish that in a responsible and sustainable manner. That isn’t a given!
