India's Chemical Industry Set to Grow as China Faces Challenges
India's Chemical Industry Set to Grow as China Faces Challenges
The Indian chemical industry is preparing to capture a larger share of the global market as China deals with unused production capacity, which is expected to keep chemical prices stable. According to a report by Axis Capital, the global speciality chemicals sector is anticipated to grow at a 4% compound annual growth rate (CAGR), while India's chemical industry is projected to expand at a faster rate of 15-20% CAGR from 2022 to 2030. This growth is driven by ongoing capacity expansion, research and development (R&D) investments, and strategic market positioning.
Indian chemical companies are expanding their production facilities, investing heavily in R&D, and securing contracts to enhance supply chain safety. Currently, China holds over 40% of the global chemical market, with the U.S. and the European Union each contributing 13-15%. India's market share is around 4% but is expected to grow significantly as global supply chains diversify away from China. This shift presents an opportunity for Indian firms to fill the gap left by high costs in Europe and reduced dependence on China.
Over the past decade, India's top 20 chemical companies have significantly increased their capital expenditures (capex). The average annual capex rose from approximately Rs 33 billion during FY12-15 to Rs 70 billion over FY19-21, and further to Rs 116 billion in FY22-24. This expansion has been supported by internal accruals, ensuring stable balance sheets and healthy working capital management. Between FY22-24, the gross block for chemical companies saw a CAGR of 21-23%, compared to a 10-15% CAGR in the preceding period (FY12-18).
Speciality chemical companies nearly doubled their gross block between FY20-24, benefiting from higher global commodity prices. Indian chemical firms are strengthening their R&D teams, embracing new chemistries, and expanding into diversified product offerings. These efforts align with global supply chain derisking, presenting significant growth opportunities for Indian players. With contracts from global innovators, the industry is scaling up capacity and enhancing technical skills, process innovation, and cost optimization to bolster competitive positioning.
Innovation and cost optimization will be crucial for sustaining growth amid global competition. China's focus on producing value-added chemical products for sectors like electric vehicle batteries and solar cells could intensify competition, posing risks to the generics segment. However, Indian companies could benefit from their niche offerings and backward-integrated operations, capturing market share from China and Europe through higher volumes, process innovations, and new product introductions.
Doubts Revealed
Chemical Industry
The chemical industry involves companies that produce industrial chemicals. It's important because it provides materials for many other industries, like agriculture, pharmaceuticals, and manufacturing.
China's Challenges
China is facing issues with having more production capacity than needed, meaning they can make more chemicals than they can sell. This can lead to financial losses for companies.
CAGR
CAGR stands for Compound Annual Growth Rate. It's a way to measure how much something, like an industry, grows over several years, on average, each year.
R&D
R&D stands for Research and Development. It's when companies spend money and time to create new products or improve existing ones, which helps them stay competitive.
Supply Chains
Supply chains are the systems that move products from the manufacturer to the consumer. They include all the steps and processes involved in producing and delivering goods.
Capital Expenditures
Capital expenditures are funds used by a company to buy, maintain, or improve its physical assets, like buildings or machinery. This helps the company grow and improve its operations.
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