Indian chemical industry set for 15-20 per cent growth amid China’s struggles with unused capacity: Report

 The Indian chemical industry is positioning itself to increase its share of the global market, especially as China faces challenges with excess production capacity, which is likely to stabilize chemical prices, according to a report by Axis Capital.

With a projected compound annual growth rate (CAGR) of 4 percent in the global specialty chemicals sector, India’s chemical industry is anticipated to grow even faster—between 15 and 20 percent CAGR from CY22 to CY30. This growth will be fueled by ongoing capacity expansions, increased investments in research and development (R&D), and strategic market positioning.

Indian chemical companies are methodically expanding their production capabilities, heavily investing in R&D, and securing contracts to enhance the security of their supply chains.

Currently, China holds more than 40 percent of the global chemical market, while the U.S. and the European Union each account for 13-15 percent. India’s market share stands at around 4 percent but is set to increase significantly as global supply chains shift away from China.

This transition places Indian firms in a favorable position to take advantage of the global trend toward outsourcing. With rising costs in Europe and a push to reduce reliance on China, Indian companies are poised to step in to fulfill demand.

Over the last decade, the top 20 Indian chemical firms, covering both specialty and bulk sectors, have markedly increased their capital expenditures (capex). The average annual capex grew from about Rs 33 billion during FY12-15 to Rs 70 billion over FY19-21, and further to Rs 116 billion in FY22-24.

This growth has been particularly evident in the specialty and bulk chemical sectors, with FY24’s capex nearly matching the total investments made in FY12-15.

This aggressive expansion strategy has largely relied on internal funding, leading to robust balance sheets and effective working capital management.

Between FY22-24, the gross block for chemical companies experienced a CAGR of 21-23 percent, compared to 10-15 percent in the earlier period of FY12-18. Specialty chemical firms nearly doubled their gross block between FY20-24, driven by higher global commodity prices that improved asset turnover.

Indian chemical companies are intensifying their efforts to enhance R&D capabilities, exploring new chemistries, and diversifying their product ranges. These initiatives align with the ongoing global trend of supply chain derisking, presenting significant growth opportunities for Indian players.

By securing contracts with global innovators, the industry is not only scaling up its capacity but also improving its technical expertise, innovating processes, and optimizing costs to strengthen its competitive edge.

The ability of these companies to innovate and manage costs will be essential for sustaining growth, especially in a climate of increasing global competition.

China’s recent focus on producing value-added chemical products for sectors such as electric vehicle batteries, solar cells, and semiconductors could heighten competition, posing challenges for players in the generics market.

However, Indian firms may benefit from their specialized offerings and backward-integrated operations, allowing them to capture market share from China and Europe through increased volumes, process innovations, and the introduction of new products.

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