Indian chemicals industry poised for 15-20 per cent growth amid China’s struggle with untapped capacity: Report

The Indian chemical industry is gearing up to capture a larger share in the global market as China struggles with unused production capacity, which is likely to keep chemical prices stable, reports Axis Capital.

With an expected 4 per cent compound annual growth rate (CAGR) in the global specialty chemicals sector, India’s chemical industry is poised to expand at a faster pace of 15-20 per cent CAGR between CY22-30, driven by ongoing capacity expansion, R&D. Have an estimate. investment, and strategic market positioning.

Indian chemical companies are systematically expanding their production facilities, investing heavily in research and development (R&D), and securing contracts to secure supply chains.

Currently, China’s share in the global chemical market is more than 40 percent, with the US and EU contributing 13-15 percent each.

India’s market share remains around 4 percent, but it is poised to grow substantially as global supply chains diversify away from China.

This puts them in a good position to benefit from the global shift towards outsourcing. With higher costs in Europe and companies looking to reduce their dependence on China, Indian companies are stepping in to fill the gap.

Over the past decade, India’s top 20 chemical companies, in both specialty and bulk sectors, have significantly increased their capital expenditure (capex).

Average annual capital expenditure increased from about Rs 33 billion during FY 2012–15 to Rs 70 billion in FY 19–21 and Rs 116 billion in FY 2012–24.

This boom is evident in specialty and bulk chemical companies, with capital expenditure in FY2014 alone being almost equal to the cumulative investment made during FY2012-15.

This aggressive expansion has been largely supported by internal resources, ensuring a stable balance sheet and healthy working capital management.

Between FY22-24, the gross block of chemical companies witnessed a compound annual growth rate (CAGR) of 21-23 per cent, compared to 10-15 per cent CAGR in the previous period (FY12-18).

Specialty chemical companies, in particular, almost doubled their gross block between FY20-24, benefiting from higher global commodity prices that boosted asset turnover.

Indian chemical companies are making concerted efforts to strengthen their R&D teams, adopt new chemistries and expand into diverse product offerings.

These steps are in line with the ongoing global supply chain de-risking which presents a significant growth opportunity for Indian players.

With contracts received from global innovators, the industry is not only increasing capacity but also enhancing its technical skills, process innovation and cost optimization to strengthen the competitive position.

The ability of companies to innovate and optimize costs will be key to sustaining growth, especially amid increasing global competition.

China’s recent push towards production of value-added chemical products for sectors such as electric vehicle batteries, solar cells and semiconductors may intensify the competitive landscape, posing risks to players in the generic segment.

However, Indian companies can benefit from their differentiated offerings and backward-integrated operations, which will allow them to capture market share from China and Europe through higher volumes, process innovations and new product introductions.