Connect with us


Short-term margin pressure hits booming specialty chemicals industry



Short-term margin pressure hits booming specialty chemicals industry

Specialty chemicals is a booming industry in India, gaining from strong domestic demand and export opportunities. The industry is particularly in a sweet spot as many global players are looking to reduce their reliance on China post-Covid-19. Recent pollution control measures in China have also resulted in the closure of many factories in that country. It is directly benefiting their Indian counterparts.

Short-term headwinds

Specialty chemicals continue to remain a high-growth industry. However, it is witnessing a few headwinds on the margin front in the short- to medium-term.

Raw material prices across the chemical industry are on the rise. It is driving the prices across the value chain up. A price rise is imminent across basic chemicals, chlorine-based chemicals, benzene value chains, ethylene chains, and vegetable oils. The closure of plants across China has further escalated the shortage of raw materials. As a result, prices across the chemical value chain have skyrocketed.

The issue has been highlighted by several companies in their management commentaries post Q1 earnings. Aarti Industries noted a sharp increase in raw material prices. Other major players, including Galaxy Surfactants and Fine Organics, have also highlighted the unavailability of key raw materials resulting in a sudden spike in raw material prices.

Container crisis

Apart from the rising input cost, domestic players are also marred by the resurging issue of container shortage. Shipping rates across routes have increased by 2-5x over the past year. It is further indicated by Baltic Dry Index, which surged up to 3,600 in August 2021 from 1,500 in March 2021.

Logistic challenges along with rising input costs have added short-term margin pressure for specialty chemical players. The industry expects these issues to persist over the next 4-6 quarters. However, they have started to pass on the rising cost to customers to maintain their margins.

Growth path

Despite the emerging headwinds on the margin front, the Indian specialty chemicals industry has strong growth prospects ahead.

The industry is expected to double to $64 billion by CY25, from the current market size of $32 billion. Indian manufacturers are also looking to encash these opportunities with several specialty chemical players announcing aggressive capex plans in Q1FY22.

For instance, Aarti Industries’ additional pharma capacity is expected to come online during H2FY22. SRF has also announced the expansion of the fluorocarbon-based refrigerant capacity at an investment of Rs 550 crore. The company is also expecting to implement new projects at Dahej in the next 24 months. Another major player Deepak Nitrite has announced a healthy capex of Rs 1,000 crore in phenol-based downstream products. Rossari Biotech has made strategic acquisitions of two specialty chemical players – Unitop Chemicals and Tristar Intermediates.

(The author is CIO, Teji Mandi. Views are his own)

Main Article
Disclaimer: This post has been auto-published from an agency feed without any modifications to the text and has not been reviewed by an editor.