The Indian Chemical industry plays a vital role in enabling economic growth. (2) The industry falls under two categories:
- Basic chemicals – including petrochemicals
- Other industrial chemicals – including speciality chemicals and agrochemicals.
Globally, India accounts for approximately 16% of the dyestuff and dye intermediates production. (1) The expected growth in the agrochemicals/speciality chemicals sectors will be 8% /12% CAGR respectively by 2022. The petrochemical industry is also expected to see strong growth of 7.5% CAGR between 2019 and 2023.
2022 – A Promising Year
2022 is expected to be a promising year, with India’s GDP growing fast at an estimated 9.1%. India will outperform China with greater optimism stemming from the Indian chemicals and energy sector. (1) The industry will demonstrate significant investment opportunities of US $108 billion by 2025, with employment growth of around 2 million people. (1) With these prospects of significant investment moving towards India, Indian chemical companies are poised to benefit greatly. The industry may also face increasing capital expenditure since notable players are expected to engage in capacity building activities and foray into emerging markets.
Hindrances to Sustained Growth
While the future prospects for the industry are bright, it has seen a few bottlenecks that plague the industry in the second half of 2021. The pandemic has impacted the industry resulting in a drop in the operating margins, contracting gross margin, rising raw material costs and increasing operating costs, etc. (2)
- Gross margins have contracted, and operating costs are significantly shot up. (3)
- Raw material prices have increased due to a cut in Chinese production caused by an energy crisis.
- Supply chain constraints have also contributed to the supply contraction in raw materials. (3)
- A rise in operating costs due to higher freight costs and increased coal and gas prices. (3)
Future Prospects
Most Indian chemical companies have addressed high input costs by introducing price hikes. With the prices of caustic soda and other raw materials beginning to decline, chemical companies are limiting any further price hikes. There is also a significant improvement in the supply chain situation. It raises the prospects of high gross margins and stabilizes the operation costs for the industry. (3)
Government’s support for the industry
Looking at the industry’s significant contribution to India’s GDP, the Government must devise a new plan to resurrect and recover the lost ground. One more area of focus would be sustainability and decarbonization efforts initiated by the industry. India must align itself with greater sustainability with increased investment in eco-friendly technology, digitization and research & development. (2)
The Onset of the Third Wave and its Impact
Researchers from IIT Kanpur have placed the third wave triggered by the Omicron variant of the Covid-19 virus in India around mid-December and peak of the third wave in India by February 3rd. . (4) Public health experts suggest that India is already in the midst of the third wave, with parts of the nation demonstrating a surge in Covid-19 cases. This surge is mainly attributed to Omicron, with the cases of Delta variants decreasing in volume. (5) As per the media reports, the third wave has begun with metro cities, including Kolkata, Mumbai, and Delhi, together accounting for 75 per cent of Omicron cases. With no clear benchmark of what is considered a wave, the rapid pace of the growing number of cases, high R-values, and test positivity rates indicate the onset of the third wave. (6)
The Omicron variant is determined to be a source of concern since it carries an increased risk of reinfection. (7) The lockdowns imposed because of the third wave could disrupt the economy due to restrictions on the movements of both labour and materials, (7) As previously witnessed in the second wave, it could disrupt the availability of labour in the densely populated areas, as they tend to migrate to their native places and thus causing labour shortage. The migration will also lead to an increase in the number of caseloads. (8) As witnessed in the previous waves, the economy will get impacted by higher credit costs, restricted physical movement of staff and deterioration in financial profiles on companies. (9)
Shifts Required to Tackle the Third Wave
The strategy to tackle the challenges posed by the third involves the following shifts:
- A shorter horizon planning will facilitate the agility and flexibility required to attend to the supply chain problems of the industry.
- The world has neither seen such pandemic in nearly a century nor its recurrence at such shorter intervals.
- Hence, undue reliance on trend analysis is highly unreliable to address the global shocks.
- The adoption of a broader view towards resilience. (10)
Concluding Thoughts
Fineotex Chemical Limited (FCL) is one of the largest textile auxiliaries manufacturer based in India. It has been actively forging strategic new alliances and joint ventures globally to deliver solutions in the speciality chemicals and textile chemicals sector. The company is able to meet the exponential growth in market demand for its products due to the recent addition of the Ambernath manufacturing facility in Maharashtra.
For more information, visit www.fineotex.com.
References:
- https://www.indianchemicalnews.com/compendium
- https://www.indianchemicalnews.com/webinar/chemical-industry-outlook-2022-36
- https://www.moneycontrol.com/news/business/markets/indias-chemical-industry-will-continue-on-growth-path-says-jm-financial-7841371.html
- https://timesofindia.indiatimes.com/india/omicron-may-trigger-3rd-wave-could-peak-by-february-3-iit-k-study/articleshow/88463482.cms
- https://economictimes.indiatimes.com/news/india/experts-warn-of-a-third-wave-as-cases-hospitalisations-rise/articleshow/88677605.cms
- https://www.outlookindia.com/website/story/india-news-newsalert-india-officially-in-third-wave-of-covid-19-says-covid-19-task-force-chief/408103
- https://www.financialexpress.com/industry/sme/msme-eodb-in-depth-with-omicron-what-awaits-for-indias-msme-sector-as-third-wave-fear-looms/2383287/
- https://www.chemspeceurope.com/2021/english/event/industry-news/?id=165
- https://www.livemint.com/news/india/covid-third-wave-may-pose-threat-to-credit-profile-of-india-inc-11633162515288.html
- https://www.weforum.org/agenda/2021/03/chemical-industry-trends-forecasting-resilience/
- https://www.gep.com/blog/mind/the-impact-of-covid-19-on-the-specialty-chemicals-industry