Indian Chemical Sector Faces Multi-faceted Risks, Driven by China's Overcapacity: Report
A Nuvama report reveals the Indian chemical sector faces significant structural and macroeconomic risks. China's persistent overcapacities in commodity chemicals, operating even at losses, depress global prices and limit recovery for Indian manufacturers. Additional challenges include elevated crude oil prices, a stronger Indian rupee impacting export realisations, weak demand in key Western markets across various sectors, and domestic policy/execution gaps like delayed environmental clearances and high logistics costs, all hindering India's global competitiveness.
The Indian chemical sector is grappling with a confluence of structural and macroeconomic challenges, as detailed in a recent Nuvama report. A primary concern is China's overwhelming overcapacity in global commodity chemicals, where state-backed producers maintain operations despite losses, significantly depressing international prices and stifling margin recovery for Indian manufacturers. China's dominance spans critical products like soda ash, caustic soda, and PVC, distorting the global supply-demand balance.Further compounding the industry's woes are elevated crude oil and feedstock prices, which directly inflate manufacturing costs for key chemical inputs such as naphtha and benzene, particularly impacting energy-intensive downstream chains. The report also highlights the USD-INR currency risk; a stronger Indian rupee diminishes export realisations, eroding India's cost advantages, especially when global chemical prices are already under pressure.Weak end-market demand in major Western economies, including Europe and the US, due to slowdowns in housing, consumer goods, automotive, and agrochemical sectors, continues to weigh heavily on volume growth. This translates to reduced demand for essential chemicals like PVC, caustic soda, and various intermediates.Domestically, policy and execution gaps present additional hurdles. The Nuvama report, citing NITI Aayog, points to issues such as delays in environmental clearances, inadequate enforcement of anti-dumping duties, and high logistics and energy costs within India. These factors collectively undermine the sector's competitiveness. The report warns that without swifter approvals and more supportive trade policies, India risks failing to capitalize on the opportunities arising from Europe's industrial shifts.
