Nuvama Warns India's Chemical Sector Faces Risks from China Overcapacity, High Crude Prices, and Weak Global Demand
India's chemical sector faces significant challenges, as highlighted by a Nuvama report. Key risks include China's persistent overcapacity, which depresses global prices, and elevated crude oil costs inflating feedstock prices. Additionally, weak demand in Western markets for various goods, a strong Indian rupee impacting exports, and domestic policy execution gaps further threaten the sector's competitiveness and profitability. These factors collectively hinder recovery and sustained growth for Indian chemical manufacturers.
India's chemical industry is navigating a complex landscape of structural and macroeconomic risks, according to a recent Nuvama report. A primary threat stems from China's extensive overcapacities in global commodity chemicals, including crucial products like soda ash, PVC, and phenol. Chinese state-backed producers often operate even at losses, creating a distorted supply-demand balance globally and suppressing prices, thereby limiting the recovery potential and margins for Indian chemical manufacturers.Another significant concern is the volatility of global crude oil and feedstock prices. Elevated crude costs directly inflate the input expenses for key chemical intermediates such as naphtha, benzene, propylene, and ethylene, making energy-intensive downstream chemical chains particularly vulnerable. This pressure on input costs squeezes profitability for Indian companies.Furthermore, the sector is grappling with weak end-market demand in major Western economies like Europe and the US. Persistent slowdowns across diverse sectors—housing, consumer goods, FMCG, agrochemicals, automotive, and construction—have significantly impacted the uptake of chemical products. This manifests as reduced demand for PVC, caustic soda, polycarbonates, intermediates, and solvents.The report also identifies the strengthening of the Indian rupee against the US dollar as an important headwind. A stronger rupee diminishes export realizations for Indian companies, particularly for bulk and mid-value products, eroding their cost advantages in key export markets. Internally, policy and execution gaps within India, such as delays in environmental clearances, weak enforcement of anti-dumping duties, and high logistics and energy costs, further dilute India's global competitiveness. Nuvama warns that without swift approvals and supportive trade policies, India risks missing critical opportunities, especially in light of Europe's industrial decline.
