India's Chemical Sector Grapples with Global Overcapacity, High Costs, and Weak Demand
India's chemical sector faces significant headwinds from China's chronic overcapacity, driving down prices globally. Elevated crude oil prices inflate feedstock costs, while weak demand in Western markets impacts volume growth. A strong rupee reduces export realizations, and domestic policy gaps hinder competitiveness. These combined pressures are squeezing margins, limiting pricing power, and delaying a sustained recovery, leading to a cautious near- to medium-term outlook, according to a Nuvama report.
India’s chemical sector is grappling with a complex mix of structural and macroeconomic challenges, according to a recent Nuvama report. A significant structural risk stems from China's overwhelming overcapacity in commodity chemicals, where state-backed companies often operate at a loss, distorting global supply-demand dynamics and suppressing prices. This persistent pressure from China makes it difficult for Indian manufacturers to achieve meaningful price recovery and maintain margins.Simultaneously, the sector is facing elevated crude oil and feedstock prices, which directly inflate production costs for energy-intensive downstream chemical value chains, further eroding already tight margins. Weak end-market demand in Western economies, particularly across sectors like housing, consumer goods, agrochemicals, and automotive in Europe and the US, significantly impacts volume growth for Indian chemical exports. Furthermore, a stronger Indian rupee against the US dollar reduces export realizations, negating India’s cost advantages, especially when global chemical prices are already under pressure.Domestically, the Nuvama report, citing a NITI Aayog report, highlights critical policy and execution gaps. Delays in environmental clearances, weak enforcement of anti-dumping duties, and high logistics and energy costs collectively undermine India's competitiveness. These internal issues prevent India from fully capitalizing on strategic opportunities, such as Europe's ongoing industrial decline. The cumulative effect of these global and domestic challenges suggests a cautious near- to medium-term outlook for India's chemical sector, with substantial improvement depending on a recovery in global demand, robust domestic policy execution, and a more balanced global supply environment.
