The Indian chemical industry is one of the fastest-growing industries in the world. The specialty chemical segment, at USD 32 billion in 2019, constitutes about 18% of the total chemical industry in India. Chemical manufacturing is one of India’s oldest and most diversified industries. The industry’s growth is mainly driven by consumption growth and export opportunity. In the recently announced Union Budget the Finance Minister has stated for India to become a 5 trillion economy, our manufacturing sector has to grow in double digits on a sustained basis. To achieve this goal, manufacturing companies need to become an integral part of global supply chains.
Specialty chemicals are driven by extensive product R&D and innovation, which is a significant differentiator over the commoditized chemical industry. These chemicals are derived from basic chemicals and are sold on the basis of their functions. For example, paints, adhesives, electronic chemicals, water management chemicals, oilfield chemicals, flavours and fragrances, rubber additives, paper additives, industrial cleaners, and fine chemicals, sealants, coatings, catalysts, etc. come under this category.
China being the obvious choice of the most international buyers’, it supplies to the majority of nations and industries. China’s low costs and manufacturing prowess have turned the country into a powerhouse exporter of all manner of industrial goods. However, the global Covid-19 pandemic has changed the geopolitical circumstances of the marketplace. Also, China has also become more vigilant about the environmental standards in producing these specialty chemicals resulting in closure or lower operating rates of units that are found flouting these norms further resulting in the disruption of supply chains. The world is now sensitive towards such deliberations and is actively exploring alternate suppliers who are not just adhering to global environmental norms and can be relied upon for the consistency of supply chains. Also, increasingly focus on producing green chemicals is gaining ground. Governments are now pushing the climate change agenda and expect the chemical industry to adhere to the new norms in order to contain air and water pollution.
The new decade will be a new chapter for the entire sector with multiple factors at play. Indian producers have identified the opportunities and so has the Interest in India as an alternative to China spiked following supply disruptions that arose with the COVID-19 pandemic. This was further accelerated with timely Government interventions and the Atmanirbhar Campaign which has enabled Indian players to cater to the demand for Specialty Chemicals in 2020.
Growth drivers of the segment
The schemes like PLI announced by the government provides opportunities to the manufacturing sector are steps in helping the overall growth of the sector. Many downstream multinational companies that imported the bulk of their chemical requirements from China may consider supplementing this supply from elsewhere and large chemical markets that remain accessible in this scenario could present opportunities for Indian chemical companies.
The shift in production and consumption towards Asian and Southeast Asian countries in all sectors leading to increasing demand for Specialty Chemicals. Also, the number of patents that are being applied increases the scope for launching new products in the market. Changing consumer preferences towards a healthier lifestyle and environment-friendly products has further given a boost to the sector hugely.
Paints, textiles, cosmetics, healthcare, cleaning agents all of these sectors are now opting for ingredients that are environmentally friendly and provide protection from viruses and microbial germs. The demand will further go up as the Finance Minister announced 7 mega investment textile parks to be developed in 3 years. Health and hygiene have taken the centre stage due to the Covid-19 pandemic and this trend is expected to continue even after the vaccine is launched in the future.
Challenges ahead for the sector
A recent report by HDFC Securities said that the growth of specialty chemical companies will depend a lot on their ability to innovate. Indian chemical companies have augmented investments in R&D activities and India’s share in the aggregate R&D spending incurred over the globe by chemical companies has grown from 2.7 percent in CY08 to 3.3 percent in CY18.
One of the major challenges in the sector is due to the large number of unorganised players. About 30% of the sector comprises of the unorganised players today. These players are generally are constrained with resources like finances, talent, system perspective etc. and hence find it challenging to meet the ever changing customer needs and the regulatory norms.
China, which has a 20 percent share of global specialty chemicals revenue, tightened environmental norms resulting in closure or shifting of capacities in 50 chemicals manufacturing clusters. More closures are expected in the Jiangsu province over the next two fiscals. This supply disruption and increasing cost of compliance for Chinese players have meant global end-user industries diversifying their vendor base, including tapping Indian players. But, are Indian producers ready to re-calibrate the scale of their production capacities and supply chain logistics at the required pace to meet the incoming demand.
Conclusion
The Specialty Chemicals sector is poised for double digit growth in the coming year. This industry is currently valued at $32 billion and is expected to reach $65 billion by FY25. Amid the COVID-19 crisis, [1] the global market for Specialty Chemicals which was valued at $644.8 bn in 2019, is projected to reach $844.2 billion by 2027, growing at a CAGR of 3.7%.
India still lags behind the major developed nations in chemical consumption on a per capita basis. Growth in disposable income and an increase in urbanization is leading to the growth in the end-user segment like paints, personal care and home care, textiles, and adhesives. This, in turn, is emerging as one of the significant contributors to the top-line growth of specialty chemicals in India.
[1]https://www.grandviewresearch.com/industry-analysis/specialty-chemicals-market
