Can Chemicals Stocks make a comeback and Is India Set to Overtake China in the Chemical Industry?

by Trade Brains | Oct 15, 2024 | Market, Stocks | 2 comments

For the past 2 to 3 years, Chemical stocks have faced challenges due to China’s overcapacity. Investors see opportunities as global supply chains shift and demand for specialty chemicals grows. Commodity chemicals can not provide an edge over China’s supply but specialty chemicals can allow competition.

Consolidation within the sector may lead to stronger, more competitive firms with improved economies of scale due to increasing capacity. Over the period, the industry is bound to grow and we will see how India can emerge as a better alternative to China to hold on to the opportunities.

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Chemicals play a vital role in every aspect of modern life, including industries and consumer products worldwide. They form every piece of material used especially in construction, transportation, electronics, and countless other sectors.

The agricultural industry relies heavily on chemicals for fertilizers and crop protection, which ensures food security. Pharmaceuticals and healthcare products depend on chemical compounds to treat diseases and improve quality of life. Water treatment chemicals safeguard public health by providing clean, safe drinking water.

The textile industry uses chemicals for dyeing, finishing, and creating fibers that shape the fashion world. Chemicals enable the production of lightweight, durable materials crucial for energy-efficient transportation and renewable energy technologies.

They contribute to the development of advanced materials used in aerospace, defense, and cutting-edge research fields. The electronics industry relies on specialty chemicals for semiconductors, displays, and other components in our digital devices. Chemicals are essential in the production of cleaning and hygiene products, maintaining public health and sanitation.

They play a crucial role in energy production and storage, from fossil fuels to batteries for renewable energy. The food industry uses chemicals for preservation, flavour enhancement, and packaging which ensures quality and safety. They contribute to the development of solutions, such as biodegradable plastics and eco-friendly products.

They are integral to the creation of paints, coatings, and adhesives used in various industries and consumer goods. The automotive industry depends on chemicals for everything from tires to lightweight composites and electric vehicle batteries.

India’s specialty chemicals industry is experiencing growth as some global companies adopt the China+1 strategy. The country can use its cost advantages, skilled workforce, and improving infrastructure. This helps to attract international chemical manufacturers.

The country stands poised to capture a significant share of the global market as China faces environmental and regulatory challenges. The specialty chemicals segment, comprises low-volume, high-value products which offer growth potential for Indian manufacturers.

The nation ranks 6th globally and 3rd in Asia for chemical sales, contributing about 2.5% of global chemical sales. The country’s specialty chemicals market is expected to grow at a CAGR of 10-12% between 2020 and 2025.

The changing regulatory environment in China creates opportunities for Indian players to expand their global market share. The country’s growing urban population and increasing domestic consumption drive demand for specialty chemicals across various sectors.

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To be competitive in the global market, every country faces fierce competition from China. China’s chemical industry was facing issues related to environmental regulations which triggered a downturn. This situation creates both challenges and opportunities for Indian chemical manufacturers.

Most of the companies in the commodity space might feel pressure but specialty segments can provide stability, especially during downturns.Chinese companies experience increased capital expenditure and operational expenses, reducing their competitiveness in the export market.

Global companies adopted a China+1 strategy to diversify supply risk which helped Indian manufacturers to expand. India’s chemical industry can benefit from the country’s scale, technology, skilled labor, and government support to fill the gap. However, China’s Overcapacity situation lead to pricing pressures on certain chemical products in the global market.

Indian companies focus on developing niche products and improving operational efficiency can help them to maintain competitiveness. The shift in global supply chains can provide an opportunity for Indian chemical firms to establish long-term relationships with international buyers.

Indian manufacturers can leverage their strengths in specialty chemicals to capture market share in high-value segments. The Indian government’s support through initiatives like “Make in India” helps domestic chemical companies scale up operations.

With Collaboration between Indian and global chemical firms, there might be technology transfer and market access. This transition offers a chance for India to strengthen its position as a reliable and quality-focused chemical supplier to the world.

Pidilite Industries: The company leads the adhesives and sealants market with its Fevicol brand. Their diversified product portfolio and strong distribution network contribute to its market dominance. Pidilite consistently improves its product through its investment in research and development. This helps them introduce new products to meet ever-growing customer needs.

Linde India: They are a leading industrial gas company, that benefits from growing demand across various sectors. The company’s position in the healthcare segment supplies medical oxygen as well as gases for industries. They are even into cryogenic and non-cryogenic construction air separation plants.

SRF: The company demonstrates its growth through its diversified presence in technical textiles, chemicals, aluminum foils, and packaging films. SRF’s diversified portfolio and expansion into new geographies help to mitigate market risks. The company’s focus on high-value fluorochemicals and sustainability enhances its global market position.

Gujarat Fluorochemicals: They lead in fluoropolymers, refrigerants, and specialty chemicals. Gujarat Fluorochemicals emphasis on import substitution and export presence reduces market dependencies. The company’s investment in backward integration and high-performance materials also enhances its competitiveness.

Deepak Nitrite: The company has transformed itself from a bulk chemical player to a leading specialty chemical manufacturer. The company manufactures organic, inorganic, and fine chemicals. Their strategic acquisitions and capacity expansions have strengthened their market position in key segments. Deepak Nitrite’s focus on phenolics and their derivatives caters to growing demand from various end-use industries.

India’s chemical industry stands at a pivotal moment, poised for growth and global expansion. The sector benefits from shifting global supply chains and increasing demand for chemicals. Indian companies leverage their cost advantages, skilled workforce, and improving infrastructure to capture market share.

The government’s supportive policies and focus on ease of doing business further enhance the industry’s competitiveness. However, challenges remain, including the need for continued investment in research and development and sustainability. Indian chemical firms must navigate potential trade tensions and adapt to evolving environmental regulations.

With the right strategies and investments, India’s chemical industry can solidify its position as a global leader. The sector’s success will play a vital role in realizing India’s ambition of becoming a manufacturing powerhouse. What do you think about the chemical stocks potential? How can this Industry benefit from these changes? Let us know your views in the comments section below.

Written by Santhosh

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A captivating read! Your insights are invaluable.

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