Indian Chemical Industry : The Next Big Thing!
The Indian Chemical Industry is one of the most established and fast growing sectors of our country. It plays an integral role in our economic development thereby serving as a critical input for the industrial and agricultural development. This sector has always witnessed considerable growth in the past and is currently poised to further this momentum Here are some of the most important triggers that we think will help its cause:
- The Indian Chemical & Petrochemical Industry is currently valued at close to $140 Billion i.e. ~3% of the global chemical industry and is expected to reach $200 Billion by 2020.
- India’s Specialty Chemical Industry has been valued at $25 Billion and is well poised for growth. It has grown by 13%-14% in the last five years and is expected to reach $70 Billion by 2020. Also, the sharp fall in the crude prices (one of the basic raw materials for the sector) from $100/barrel to $35/barrel has improved the margins for chemical players by a great extent.
- The Colourant Chemical Industry is worth $6.8 Billion in India thereby exporting nearly 75% of the production.
- Total production of the Indian Chemicals Industry was 21.2 Million tonnes during the last financial year thereby producing more than 70,000 commercial products.
- India is only third after China and Japan in terms of chemical production in Asia. Globally, it is the sixth in terms of volumes.
- A major growth driver behind India’s Chemical Industry is its high domestic consumption. Our country consumes more than 33% of its output with promising trends of growth. Also, growing disposable incomes and increasing urbanization of the Indian economy is fuelling the end consumption demand for textiles, paints, adhesives and construction, which, in turn has, and will lead to substantial growth of the domestic Chemical Industry. Another promising figure is that chemicals constitute close to 5.4% of total Indian exports.
Government Subsidy & Initiatives:
- Government planning to further extend anti-dumping duty on imports of a chemical used in the making of products like soaps and cosmetics, from China to protect the domestic industry from cheap in-bound shipments. This is proves to be of great help to the domestic players from the Directorate General of Anti-dumping and Allied Duties (DGAD) which is carrying out constant investigations in this matter.
- In terms of investments, our government recognizes the Chemical Industry as a key growth element for our economy and has hence permitted 100% FDI through automatic route and de-licensed the manufacture of most of the chemical products except a few hazardous chemicals.
- The government has proposed a $100 Million chemical innovation fund by securing 10% of the total inclusive National Innovation Fund set up by the National Innovation Council to encourage commercialization efforts for innovations generating inclusive growth.
Other Major Developments:
- Just recently, the Chinese chemical giant Hubei Chuyuan, had to shut down its operations as its government asked its polluting plants to move from the east side to the west side as the former was heavily populated by humans. It was the largest dye intermediate manufacturer in the world making 2000 tonnes which is 30% of the global consumption and the largest producer of H-acid, K-acid and Para base. India is the second-largest manufacturer of H-Acid, globally after China. H-Acid is used as a chief dye intermediate in the manufacture of black dyes, but produces a terrifying 50 Kg of non-biodegradable and toxic waste for every 1 Kg of usable material.
- This has created a fairly huge supply glut thereby thriving chemical prices and increasing the profitability of Indian companies.
- The prices of H-Acid which were in the range of Rs. 300-360/Kg, has now shot up to Rs. 900-1000/Kg.
- The prices of Gamma acid have shot up by more than 60% from Rs. 360 to Rs. 540
- The prices of Vinyl Sulphone which stood at Rs. 160-180/Kg during the previous financial year, has now shot up to about Rs. 240-275/Kg globally.
- A similar scale incident happened last year in China again when another chemical major, Zhejiang Runtu faced a shutdown notice. It had to take necessary compliance actions which took the company nearly 4 months to come back to its original operational capacity. During this period, the price of H-Acid soared from Rs. 250/Kg to a whopping Es. 2000/Kg to finally settle at Rs. 300 again after Zhejiang starting its operations.
What to expect next:
- This trend of the Chinese government enforcing shut downs on their chemical majors has been observed since the past 15 odd months. Most of the times, it leads to a sharp temporary rise in the price of the chemicals for 3-4 months before settling down at the normal rate when the companies take corrective actions and become operational again.
- Also, these chemical majors have a commanding market share in their respective segments. Hence, one can expect great rallies in the Indian chemical markets till the time their Chinese counterparts become operational again.
- Usually, the time required by the companies to address these situations and start functioning again is 3-4 months.
- With Hubei Chuyuan facing a shutdown recently and the G-20 SUMMIT around the corner, one can expect the banned companies to commence their operations only after the event i.e. approximately 5 months from now. Thus, there will definitely be volatility in the prices of the chemicals and India is set to benefit the most.
- Surprisingly, these shutdown notices coincide with the season of peak demand (Feb- July) for these chemicals. Companies in the Indian market catering to this segment are Bhageria Industries Ltd, Bodal Chemicals Ltd, Shree Pushkar Chemicals & Fertilisers Ltd, Atul Ltd, Aarti Industries Ltd among others. As you can see, 3/5 companies have grown by more than 20% in the past one month. Have a look at their stock performances since the past one month:
Hence, taking all these triggers into consideration, one can say that the Indian Chemical Industry is set to become the Next-Big-Thing of our economy!