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How India Is Becoming The Next Big Destination For Chemical Sourcing?

5 min read
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India offers huge investment opportunities across all segments of the chemicals industry. In the petrochemical industry, growth will be led by its huge domestic demand, the need to develop local capabilities for key building blocks and intermediates, and a continued look out for import alternatives. In specialty chemicals, we foresee a substantial opportunity for both international and domestic sales. India is fast emerging as a sourcing/contract manufacturing destination for specialty and agrochemicals. Low chemical penetration across agriculture combined with an accelerated growth and shifting demand pattern in the domestic market helps create a healthy demand for manufacturers.

India is an attractive hub for chemical companies. Trends impacting the global chemical industry could lead to massive opportunities for chemical manufacturers in India moving forward. Depending on how Indian players map their value creating priorities could broadly shape the future of the industry and India’s trade performance. 

Owing to the existing disruption in China, most global companies are rethinking their outsourcing and are looking for ways to diversify their supply chains to mitigate the “China” risk considering travel restrictions which may significantly discourage companies from pursuing new product development in China for a while.  India’s $212 billion chemical industry is witnessing rapid growth due to excessive domestic consumption, emergence of niche products, alternative import substitutes, and an ongoing global demand shift from China.

The government acknowledges the chemical industry as a major contributor to the growth of the Indian economy with 100% FDI.  Basic chemicals and their related products like petrochemicals, fertilisers, paints, varnishes, perfumes, pharmaceuticals, etc constitute a significant part of the Indian economy. While the petrochemical demand is expected to grow at 7.5% CAGR from 2019-2023, with a rising demand of polymers at 8%, the Indian agrochemicals market is expected to grow at 8% CAGR by 2025 reaching USD 4.7. The specialty chemicals sector is expected to reach USD 40 billion by 2025 while the Indian chemical industry as a whole is expected to reach USD 304 billion by 2025. 

According to Elchemy, India’s chemical industry is a global outperformer regarding total returns to shareholders, and this has resulted in high expectations for sustained, continual growth with a rising demand from end-user industries such as home care, personal care and food processing segments.

Industry players should accelerate to build an at-scale business and take advantage of economies of scale which could benefit companies in India by opening new geographic areas and customer sections; therefore, providing access to capital, cutting-edge technologies, alternative and cost-effective feedstock.

It also suggested industry players and associations to actively collaborate with government bodies to address industry challenges. Supportive government measures could include an integrated petrochemical and specialty-chemical master plan and then expediting the implementation of chemical and petrochemical investment regions.

India’s specialty chemicals companies are expanding their capacities to cater to the rising demand from domestic and overseas. India witnessed impressive growth in chemical exports in the recent past. This massive growth has been due to a surge in shipments of organic, inorganic chemicals, agrochemicals, dyes and dye intermediates and specialty chemicals. India exports Caustic Soda to more than 44 countries. In the year 2020-2021 (Apr-Nov), India has exported Caustic Soda worth 17.82 USD million. The Methylene Chloride market is expected to rise at a substantial rate between 2022 and 2026 globally. The market grew at a steady rate in 2021 and is expected to rise significantly. Elchemy is extremely strong in Caustic Soda and Methylene Dichloride with very competitive pricing and a superlative customer service.

India is a leader in dye production and exports to over 90+ countries which contributes to 16%-18% of world’s dyes exports. India manufactures more than 50% technical grade pesticides and is therefore the 4th largest producer of agrochemicals globally. India is the largest manufacturer and exporter of castor oil in the world and accounts for 90 % of total global exports. India exports inorganic and organic chemicals mostly to the United States, China, Brazil, Germany and UAE along with tanning, synthetic rubber, dyes, agrochemicals, plastics, synthetic rubber, filaments with an export value of US$ 29.3 billion.  

Specialty chemical companies increased capex on demand surge from domestic and international players despite input-cost risks. Domestic players are ramping up capabilities to sustain the increasing demand from both global and domestic markets. In FY22, sales grew 42.4 percent to Rs 1,63,403.8 crore from FY21’s Rs 1,14,776 crore. Crisil estimates capital spending by chemical manufacturers to surge by 50 percent to Rs 15,000 crore through 2023. The revival in domestic demand has come from end-user segments such as dyes, food ingredients, agrochemicals and fragrances that constitute more than half of the total demand.  In FY23, Crisil expects revenue growth at 14-15 percent and margins to remain impacted by higher input costs.

Global chemicals companies have significantly consolidated their supply chain solutions to a significant extent, with several products now getting sourced from one or two countries. This was driven by the rising pressure to lower costs, produce larger volumes, and more stringent environmental regulations in developed countries. However, over the last decade, global value chains have drastically evolved and shifted. A strong demand in domestic consumption, the emergence of a potential China + 1 strategy in global supply chains, the availability of cost-effective and skilled labour in India, and it’s rapidly improving regulatory environment, driven by global trade frictions, tightening environmental regulations and rising labour costs in China, Covid-19 pandemic have potentially contributed to this drastic shift.

India exports to more than 180 countries including USA, China, Turkey, Russia, China, Hongkong, Japan, Korea RP, Taiwan, Macao, Mongolia. Therefore, to be able to provide a secured and reliable supply chain to the world, the next decade of chemical manufacturing proudly belongs to India.

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