Specialty Chemicals: Retain Their Leading Position

Even though the market has been unreliable ever since the pandemic created a tidal wave of disruption, the chemical industry has unquestionably remained resilient and chemical stocks have continued to outperform. Mandar Wagh explains how government initiatives, the China Plus One strategy and India’s proximity to the Middle East would all contribute to further growth in this sector 

India’s chemical industry makes a significant economic contribution to the country. Some of the major categories of the chemical industry include bulk chemicals, agrochemicals, petrochemicals, polymers, fertilisers and specialty chemicals. India benefits from economies of scale thanks to its close proximity to the Middle East, the major source of raw materials for petrochemicals. After the United States, Japan and China, India is the world’s fourth-largest producer of agrochemicals and the world’s third-largest consumer of polymers. Except for pharmaceutical products, India ranks eleventh in chemical exports. It supplies around 15-16 per cent of the world’s total dyestuff and dye intermediate production, making it a major global dye supplier. [EasyDNNnews:PaidContentStart]

Specialty chemicals are used to streamline manufacturing procedures as well as add value to the finished goods. Understanding the chemical composition and qualities and how they contribute to the intended application is crucial since the success of specialty chemicals depends on the fusion of technical and performance characteristics. Due of their applications across multiple products such as construction materials, polymers, cosmetics, textiles, coatings, plastic additives, dyes and pigments, surfactants and agrochemicals, specialty chemicals are beneficial to a variety of industries. Specialty chemicals also serve as intermediates or raw materials at various stages of the manufacturing of pharmaceuticals, another vital sector of the Indian economy.
 

Market Size
 

The Indian chemical industry had a market value of USD 178 billion in 2019 and is anticipated to reach USD 300 billion by 2025 with a CAGR of more than 9 per cent. The chemical industry, which the government recognises as being vital to the growth of the Indian economy, is allowed 100 per cent foreign direct investments (FDI) except some hazardous chemicals. The industry is predicted to receive investments worth ₹ 8 lakh crore by 2025. It is much diversified, spanning more than 80,000 commercial products and employs more than 2 million people. 

Chemical clusters are located in Gujarat, Maharashtra, Uttar Pradesh, Tamil Nadu and Madhya Pradesh. Specialty chemicals account for a sizeable 22 per cent of the chemicals and petrochemicals business in India. The demand for specialty chemicals is predicted to grow at a CAGR of 12 per cent from 2019 to 2023. Additionally, specialty chemicals make up a sizeable portion of more than 50 per cent of all chemical exports in terms of trade. Given the increasing need from various end-user industries, both domestic and global demand and opportunities will rise.
 

Equity Markets and Specialty Chemical Stocks
 

The equity markets disappointed in 2023 and investor optimism is shattered as key benchmark indices have fallen around 1 per cent year-to-date. However, despite the pandemicdriven lockdowns and market uncertainties, one sector that remained strong was chemicals. Chemical stocks skyrocketed as a result of the enormous potential created by the pandemic’s pharmaceutical requirements. Even after the multiple waves of corona virus, the majority of stocks continued the rally. When the performance of chemical stocks was compared over a one-year period, Pentokey Organy (India) topped the list with outstanding returns of more than 360 per cent in just one year! 

Multiple stocks experienced significant buying interest and more than doubled investors’ wealth after hitting back-to-back upper circuits. Despite market weakness, Pentokey Organy (India) also emerged as the best-performing chemical stock in the past month, attracting investors with a strong uptrend of over 80 per cent in such a short period. The majority of the top specialty chemical stocks, as measured by market capitalisation, displayed a robust rally over the last month. With rises of more than 35 per cent, Anupam Rasayan India led the gains. Aarti Industries and Laxmi Organic Industries are some of the stocks that suffered sharp declines over the past year but have recently enjoyed significant gains.


 

The China Factor 

With China’s supply chain disruption and the US, Europe and China trade war, there are various opportunities for the Indian chemical industry. Also, China has lately started to lose its pricing advantage as a result of growing government enforcement of stricter environmental laws regarding environmental pollution from Chinese chemical and pharmaceutical companies. As the US and European businesses are under pressure from institutional investors to lessen their dependence on China, the pandemic’s disruption of supply chains has also contributed to China’s declining supremacy in the chemical industry. 

China Plus One is a strategy in which companies avoid investing just in China and instead diversify their operations to other countries. The China Plus One approach is driven by the need to discover attractive investment destinations. India has the technical expertise and potential to provide the global markets with manufacturing which is also cost-competitive and this might enhance its market share by taking advantage of China’s declining position. India not only has a sizeable number of companies involved in the production of chemicals but also has the requisite skills, technical competence and manpower to meet global demands.

Outlook

To boost the chemical industry, the government has announced a variety of programmes. In addition to initiatives, the Department of Chemicals and Petrochemicals secured ₹ 173 crore from the government as part of the Union Budget 2023-24. The budget also proposed exempting denatured ethyl alcohol from basic customs duty in order to promote the ethanol blending programme and the government’s energy transition efforts. Production Linked Incentive (PLI) scheme-driven projects with an allocated budget of ₹ 1,629 crore have been introduced to further develop bulk drug parks. The government has backed single window clearance for central and state approvals in order to make business easier. 
 

The petroleum, chemical and petrochemical investment regions (PCPIRs) have been authorised by the Indian government in the states of Andhra Pradesh, Gujarat, Odisha and Tamil Nadu to promote investment and industrial development. The PLI scheme was introduced by the government in 2021 with a budgetary commitment of ₹ 18,100 crore over five years. The government intends to enhance local production of advanced chemistry cells in accordance with the strategy to reduce battery prices in the country, which would also reduce the cost of electric vehicles. Another goal of the plan is to increase exports and domestic manufacturing. 
 

The chemical sector is faced with numerous difficulties such as expensive quality audits, supply interruptions, fluctuating foreign exchange rates, price volatility and weaker demand as a result of the global economic downturn. The key safety and regulatory concerns for the chemical industry include plant accidents, pollution control board notices and effluent treatment plants. Nevertheless, the industry is predicted to experience significant tailwinds in the near future. With a greater emphasis on research and development, preserving long-term relationships with MNCs, and delivering specialised chemicals, Indian chemical companies are moving up the value chain.
 

Manufacturers of specialty chemicals have significantly raised their capital expenditure due to an improvement in local demand as well as growing exports. A report by CRISIL predicts that India’s market for specialty chemicals will expand more quickly than that of China, boosting its market share from 3 per cent to 4 per cent in financial year 2021 to 6 per cent by 2026. Additionally, rising disposable income, urbanisation and the massive demand for items in rural areas are some of the key growth factors for the industry. Substantial revenue growth will also be powered by a change in the global supply chain generated by the China Plus One strategy and an upswing in domestic end-user demand. 

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