India’s chemical industry is poised for strong growth in the future, says a report by Crisil Research. Going forward, with India’s GDP projected to grow at 7.5 per cent in the medium term, demand for specialty chemicals from various end-use industries – textiles, automobiles, construction and consumer durables – is likely to remain strong. According to the report, India’s largest independent integrated research house, penetration of specialty chemicals in India is lower than the global average at present. Going forward with increased focus on improving products, the intensity of specialty chemicals in various end-use domestic markets will rise. Therefore, over the next five years, specialty chemicals is expected to clock 12-13 per cent CAGR. Taking advantage of ample opportunities in the domestic specialty chemicals industry, companies like BPCL has added downstream capacities in certain chemicals, where India is a net importer. As part of the project, BPCL will manufacture specialty petrochemicals derived from propylene like acrylic acid, polyols and butyl acrylates. These will find applications in hygiene products, adhesives, plasticisers, water-based chemicals and sealants. Others such as HPCL, Indian Oil and Ratnagiri Refinery and Petrochemicals Ltd are also planning to replicate BPCL’s method by setting up units. In the past, growth of the specialty chemicals industry in India has been hampered by factors such as presence of small/ unorganised players, who could not cater to the growing demand. However, post demonetisation and implementation of the Goods and Services Tax (GST), the industry is gradually moving towards consolidation. Thus, with gradual consolidation in the industry as established players slowly show interest in downstream specialty and other chemicals segments, specialty chemical players would be in a better position to achieve economies of scale. For instance in the specialty chemicals segment, players like SRF, Sudarshan Chemicals, International Flavours & Fragrances and Jay Chemicals have announced capacity additions. Moreover, transparency in the industry is increasing with the filing of recent IPOs by Neogen Chemicals, Hindcon Chemicals, Galaxy Surfactants, Fine Organics, etc. This reflects the increase in size of operations and showcases the growth potential of the domestic chemicals industry. Chemical plants are shutting down globally. Closure of plants in countries such as EU and China owing to increasing environmental concerns has opened doors for Indian manufactures to invest further in specialty chemicals. While India also faces threat from environmental concerns, the threat is limited to smaller players and shall serve as an opportunity for larger players to capture the market. In fact, some of the large players have established themselves in global markets like the EU and US and have active export revenue share, which will help them to seize the opportunity. At the same time, global players are looking to diversify supply risk, thereby improving export opportunities for Indian players. But there are some challenges which need to be addressed for benefits to flow to take full advantage of the export market. Existing players will have to update their product mix and introduce specialty chemicals in their portfolio. This also calls for accelerated investments in R&D. Lack of infrastructural development and R&D investment acts as hindrance to the chemical sector. At the same time, threat of cheaper imports and unavailability of raw materials also impact domestic production growth. Going forward, government support in the form of feedstock availability and protection from aggressive imports is vital for the industry. India’s overall chemical production infrastructure continues to be at a nascent stage. For example, the basic chemicals industry in India is structured around refineries that have added an ethylene cracker. However, the downstream specialty chemicals still continues to be unorganised and fragmented. The government’s initiatives to promote the development of petroleum, chemicals, petrochemicals investment regions (PCPIRs) across the country, hasn’t been very fruitful. However, despite this, regions such as GIDC has established themselves as key chemical manufacturing hubs. Going forward, more support in terms of fiscal incentives like tax breaks and special incentives through petroleum, chemicals and petrochemicals investment regions or special economic zones to encourage setting up of downstream is expected from the government. Exports Growth (RHS) Global shutdowns coupled with rise in domestic production supported export growth in 2017 and 2018 units, will certainly enhance production capacity. In order to bring about structural changes in the working of the domestic chemicals industry, future investments should focus more on crude-to-chemicals complexes or refineries set up to cater to the production of chemicals, and not transportation fuels such as petrol and diesel. Nevertheless, opportunities in the segment continue to outweigh the challenges. Domestic demand growth coupled with opportunities in the export market show remarkable ability of India to establish itself as a global chemical manufacturing powerhouse.
Source – Fibre2Fashion.
