Riding the Chemical Wave: India's Ascent in Global Markets

As China grapples with unused production capacity, India's chemical industry is strategically positioned for rapid growth. With investments in R&D and global diversification, India's market share is set to expand significantly as companies innovate, optimize costs, and capture opportunities from shifting global supply chains.

Amid China's challenges with surplus production capacity, India is primed to capture a greater slice of the global chemical market, as per Axis Capital's analysis. The global speciality chemicals sector is eyeing a steady 4% compound annual growth rate (CAGR), while India's own industry is predicted to outpace this with a robust 15-20% CAGR between 2022 and 2030. This growth is attributable to strategic capacity expansions, increased R&D investments, and improved market positioning.

Indian chemical companies are strategically broadening their production capabilities, committing significant resources to research and development, and securing vital contracts to fortify supply chains against potential disruptions. China currently dominates the chemical market with over 40% of the global share, whereas the U.S. and European Union hold 13-15% each. While India's share is modest at around 4%, it is well-positioned for considerable growth as international supply chains diversify away from China, presenting Indian firms with an opening to step in and fulfill global chemical needs.

In recent years, the top 20 Indian chemical companies, spanning both speciality and bulk segments, have drastically increased their capital expenditures. Capex surged from an average of Rs 33 billion during FY12-15 to Rs 116 billion in FY22-24, highlighting aggressive growth funded by internal cash flows, which strengthen financial stability. This period also saw significant augmentation of the gross block, with a 21-23% CAGR outpacing the previous decade, driven by higher global commodity prices and increased asset utilization.

The sector is making robust efforts to boost R&D teams, adapt to innovative chemistries, and diversify product lines, aligning with the global trend of supply chain diversification. The industry's capability to secure contracts from global technology leaders has underscored its focus on scaling up capacity, enhancing technical proficiency, and optimizing costs, which are vital for competitive endurance.

However, with China pivoting to advanced chemical products in electric vehicle batteries, solar cells, and semiconductors, the competitive stakes are high. Nonetheless, India's niche offerings and integrated operations present opportunities to capture market shares diverted from China and Europe by leveraging increased volumes, novel process improvements, and introducing new products.

(With inputs from agencies.)