India's Chemical Sector Outlook Improves with FTAs and Potential China Overcapacity Resolution
India's domestic chemical industry sees an improved outlook due to Free Trade Agreements (FTAs) with the US and EU. These FTAs offer a level playing field and duty differential benefits against China, enhancing export competitiveness and strengthening India's global supply chain position. While company-specific factors remain crucial, discussions about China's Anti-Involution Policy addressing overcapacity could further bolster the commodity chemical sector. Positive factors like stable raw material prices and lower freight costs also supported the sector despite uneven recent performance.
A recent report by Centrum indicates a significant improvement in the outlook for India's domestic chemical sector, primarily driven by Free Trade Agreements (FTAs) with the United States and the European Union. These agreements are crucial as they offer Indian chemical companies a level playing field with other developing nations and provide substantial benefits from duty differentials compared to China. By reducing tariffs, these FTAs are expected to create more favorable market access, thereby strengthening India's position in global chemical supply chains and fostering long-term growth for the industry.The report, however, emphasizes that the overall outlook will retain a company-specific element, contingent on factors such as individual business mix, product portfolio, and operational strengths. Companies possessing diversified products and robust execution capabilities are anticipated to capitalize more effectively on emerging opportunities. Furthermore, ongoing discussions surrounding China's Anti-Involution Policy present a potential upside for commodity chemicals. If this policy successfully addresses China's historical issue of overcapacity, which has long suppressed global prices and demand, it could lead to a restoration of supply-demand balance. This, in turn, would improve pricing conditions and enhance profitability for chemical companies worldwide, including those in India.Despite some uneven performance in the third quarter of FY26, the sector benefited from several positive factors. These included strong profitable growth in specific segments, the successful ramp-up of recently established capacities supported by dedicated orders, stable raw material prices, and reduced freight costs. These strengths are vital for Indian companies to improve efficiency, develop specialized products, and maintain competitiveness amidst global challenges. The combination of strategic FTAs and potential shifts in global market dynamics paints a cautiously optimistic picture for India's chemical industry.
