A Short Glimpse into the Indian Speciality Chemical Sector

India's chemical sector continues to be a desirable location for chemical companies and outperforms the rest of the world in terms of returns to shareholders. High hopes for sustained, ongoing expansion of the industry's top line and bottom line have been created as a result of this outperformance.

The Indian chemical industry is predicted to grow from USD 178 billion in 2021 to USD 304 billion by 2025, playing a significant role in the nation's economy. It accounts for almost 7% of GDP. For both domestic and international firms, the sector continues to be a desirable centre for prospects. An important sector of India's chemical industry is specialty chemicals. The industry has seen a considerable rise from end-user sectors such the food industry, automobile industry, real estate industry, clothing and cosmetics industry, among other industries, due to increased demand for value-added products from both domestic consumption and exports. The specialty chemicals market in India is also anticipated to grow faster than those in China, Japan, and the rest of the world.

Getting to know specialty chemicals

Speciality chemicals are chemicals intended for particular end-use applications that are used in small amounts (not in bulk). Speciality chemicals are used in a variety of industries, including agriculture, construction, pharmaceutical product processing, chemical and intermediate processing, food processing and home item commerce, as well as transportation. These substances are employed in the production of numerous everyday items.

Compared to commodity chemicals, this category of compounds is distinct. Commodity chemicals are ones that serve a variety of functions. Speciality chemicals, however, are those created for specific preparations.

Segments of the specialty chemicals industry in India

Speciality chemicals represent a large portion of chemical exports which is more than 50%. When it comes to determining the sub-segment potential for export, active pharmaceutical ingredients (APIs), dyes, and pigments continue to rule. Within the category of specialised chemicals, different market segments have different levels of competitiveness, margin profiles, safety from changes in raw material prices, and growth potential.

The speciality chemicals market could be divided into a variety of end-use-driven and application-driven sectors, including agrochemicals, personal care compounds, polymer additives, water chemicals, textile chemicals, and construction chemicals, along with surfactants, flavours and fragrances and dyes and pigments. These make up the bulk of the speciality chemicals market and collectively account for more than 80% of all speciality chemicals.

The three most alluring areas are Agrochemicals, Flavours and Fragrances (F&F), and Personal Care.

Strong product specialisation and differentiation, as well as rapid end-industry expansion, define them. Agrochemicals and F&F stand out among them because of their substantial markets and an array of scaled-up investable assets.

COVID-19 and the disruption of specialty chemical industry

During the COVID-19-induced lockdown, operations were affected in a number of important worldwide businesses as revenues were squeezed as a result of the obstruction in transportation infrastructures, which led to stockpiles and a lack of labour. However, because these sub-segments of specialised chemicals were recognised as vital, prevailing circumstances also boosted demand for them.

For example, there has been a rise in consumer demand for hygiene-related goods. The lockdown period also resulted in supply chain disruptions, which prompted corporations to de-risk their supply networks and move their reliance away from essential Chinese manufacturers and toward alternate nations like India. Moreover, manufacturers from China and other developed countries are likely to shift their manufacturing operations to India as a result of the "China plus one" plan.

Factors supporting the growth of Specialty Chemicals in India

There are numerous prospects for the import and export of specialised chemicals due to India's strong process engineering capabilities, low-cost production capabilities, and abundant workforce. Government initiatives like the Production-Linked Incentive (PLI) schemes and the Petroleum, Chemicals and Petrochemicals Investment Region (PCPIR) policy also contribute towards the growth and development of the specialty chemicals industry in India.

Challenges Involved

There will probably be some difficulties in the near future even if India wants to become a global manufacturing hub. For this reason, the nation should also concentrate on factors like R&D, capital investment, acquisitions, economies of scale, and most significantly, growing domestic demand to support the industry's rapid expansion.

One of the sector's main problems is that there are many unorganised firms who serve the demands of smaller unorganised clients in each of their separate sub-segments.

For instance, the unorganised market mostly serves the tobacco and incense stick industries in the case of flavours and fragrances, whereas in the case of surfactants, these businesses serve the unbranded soap and detergent producers.

India not only offers a trustworthy alternative to China for sourcing, but it also presents a very attractive chance for MNCs to expand their market share in a fast-growing region.It represents one of the fastest-growing consumer markets in the world, and because the per capita consumption of specialised chemicals is still quite low, there is a tonne of space for expansion. Growing disposable incomes, growing urbanisation, and a significant rise in the demand for high-end goods are just a few of the elements that are predicted to contribute to the speciality chemicals industry's rapid expansion in India.

References:

https://assets.kpmg/content/dam/kpmg/in/pdf/2022/11/Specialty-Chemicals-industry-India.pdf

https://www.avendus.com/crypted_pdf_path/img_5b0cef2c24ae01.44212494_avendus_specialty_chemicals_report.pdf

https://www.avendus.com/crypted_pdf_path/img_5f72fec709f754.34126596_Indian%20Specialty%20Chemical%20Industry.pdf

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