India specialty chemical makers struggle amid poor global demand, dumping

MUMBAI (ICIS)–Profitability of specialty chemicals producers in India is being weighed down by poor demand amid the global economic slowdown and volatile crude prices, with market conditions unlikely to improve in the next three to four months.

Competition from imports, largely coming from China, also affects local players amid weakness in demand in the eurozone and the US, industry players said.

The domestic specialty chemicals market represents 22% of India’s total chemicals and petrochemicals market.

In the past few years, many Indian specialty chemicals producers have announced expansion in capacities and have also forayed into new chemistries to meet increasing demand.

By 2040, India could have a 10-12% share in the global chemicals market, growing to $850bn-1,000bn, from $170bn-180bn in 2021, according to a study by management consultancy firm McKinsey & Co and industry body Indian Chemical Council (ICC).

INDIA ATTRACTS MORE IMPORTS
Some global factories grappling with overcapacity amid weak domestic consumption have been shipping out more products to India, which is faring better compared with major economies in the west, industry sources said.

“In the first half of the current financial year 2023-24, the chemical industry faced significant hurdles,” Deepak Nitrite CEO Maulik Mehta had said on 16 November in a meeting with analysts.

“Concerns have been about destocking by Chinese enterprises, uncharacteristic weakness in the Eurozone, and a transient reduction in discretionary income and expenditure owing to a hike in interest rates to calm inflation in major economies,” Mehta said.

Deepak Nitrite produces chemical intermediates for end-user segments such as agrochemicals, dyes & pigments, textiles pharmaceutical, plastics, textiles, paper and home and personal care segments and petrol derivates intermediates.

“We faced an unprecedented phase of challenges in the specialty chemicals industry, primarily due to a rapid change in input costs which resulted in lower landed costs of imported competitor products,” Balaji Amines managing director Ram Reddy said in a filing to the Bombay Stock Exchange on 20 November.

“This has been further exacerbated by destocking by global industry players in the Indian market,” Reddy said.

For Gujarat Fluorochemicals (GFL), “our performance was impacted in all three business segments, namely, bulk chemicals, fluorochemicals, and fluoropolymers”, a company source said.

GFL’s fluorochemical segment was negatively impacted due to dumping, and sluggishness in demand particularly in Europe, he added.

“We expect the prices to have bottomed out, and the second half of the current financial year will be better than the first half,” he said.

SRF Ltd also reported weakness in demand across sectors.

“The demand environment for some industrial chemicals remains subdued due to sluggish growth witnessed in agrochemicals and pharmaceutical industries,” the company had said on 6 November.

Meanwhile, Alkyl Amines is preparing to petition for anti-dumping duty on imports of acetonitrile, a company source said.

“We are in the process of putting the papers together to apply for anti-dumping (duty) and the whole process takes about six months, ” Alkyl Amines executive director Kirat Patel had said in an exchange with financial analysts on 8 November.

The industry expects the contraction in global demand to continue until December and most companies expect to see a normalization of demand only from the next financial year beginning April 2024.

“We expect the worst to be over in the first half of the current fiscal [year]and anticipate that it will take a few more quarters for normalised demand across various end segments/product lines,” Aarti Industries said in a statement on 10 November.

Aarti produces benzene-based derivatives which cater to the agrochemical, fuel additives, pharmaceutical, polymer, home and personal care segments.

DEMAND OUTLOOK TO IMPROVE FROM APRIL 2024
GFL is seeing a “gradual increase in demand from the US markets following the phase of destocking,” the company official said.

“We are trying to optimize our product mix for the entire fluoropolymer segment to move towards higher end grades, and this is expected to yield better results soon,” he said.

The company also expects sunrise sectors like electric vehicles, green hydrogen, semi-conductors and solar energy products to increase demand for its products, the GFL official added.

While exports may take time to recover due to sluggishness in global demand, the Indian downstream market remains a bright spot, Mehta of Deepak Nitrite said.

“We anticipate a normalized performance starting from the January to March quarter of the current financial year,” Mehta said.

While key export markets are grappling with demand pressures due to the global situation, the good news is that domestic consumption and demand remains largely intact,” he added.

India’s exports are expected to remain weak against the backdrop of an unfavourable global economy, but strong domestic demand will likely sustain growth in the near term, US ratings agency Moody’s Investor Services said in its Global Macro Outlook 2024-25 report released on 9 November.

Meanwhile, the domestic manufacturing sector is expected to sustain current economic activity and generate higher investments through to March 2024, according to a recent survey by the Federation of Indian Chambers of Commerce & Industry (FICCI).

In April-June 2023, India’s fiscal first quarter, the south Asian economy posted a 7.8% year-on-year growth, up from 6.1% in the previous quarter on higher government spending, coupled with increased private capital expenditure and strong services growth.

The Reserve Bank of India (RBI) expects the country’s year-to-March 2024 GDP growth to average 6.5%.

With a full-year GDP growth projected at above 6%, India is expected to be among the fastest-growing emerging market economy for the period.

Focus article by Priya Jestin