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India's Chemical Sector Faces Triple Threat: China Overcapacity, High Oil, Weak Demand

A Nuvama report outlines significant structural and macroeconomic headwinds facing India's chemical sector. The primary risk stems from China's massive overcapacity in commodity chemicals, which keeps global prices depressed as state-backed producers operate at a loss. Additionally, elevated crude oil prices increase feedstock costs, while weak demand in key Western markets like Europe and the US hampers volume growth. The report also cites domestic policy gaps, including slow environmental clearances and high logistics costs, as factors eroding India's competitiveness.

Key Points: India Chemical Sector Risks: China Overcapacity, Oil Prices, Demand

  • China's overcapacity depresses global prices
  • High crude oil inflates feedstock costs
  • Weak Western demand hits volume growth
  • Strong rupee hurts export competitiveness
  • Policy delays dilute India's cost edge
2 min read

India's chemical sector facing risk from China overcapacity, high crude prices and weak global demand: Nuvama

Nuvama report warns India's chemical industry faces structural risks from China's overcapacity, high crude oil prices, weak Western demand, and policy gaps.

"China's chemical industry continues to operate with massive overcapacities across virtually all major commodity chemical chains - Nuvama Report"

New Delhi, January 15

The chemical sector in the country is facing multiple structural and macroeconomic risks, with challenges ranging from China's persistent overcapacities to elevated crude oil prices and weak demand in key western markets, according to a report by Nuvama.

The report highlighted that one of the biggest structural risks for Indian chemical manufacturers comes from China's dominance in global commodity chemical capacities. China holds significant global capacity across products such as soda ash, caustic soda, phenol, PVC, polycarbonates, epoxy resins, TDI, phthalic anhydride and acetic acid.

Despite demand conditions, utilisation levels in China remain well below optimal levels, keeping global prices depressed.

Nuvama noted that state-backed Chinese producers continue operating even at losses, which distorts the global supply-demand balance and caps recovery potential for Indian chemical companies, limiting any sustained improvement in pricing and margins.

It stated "China's chemical industry continues to operate with massive overcapacities across virtually all major commodity chemical chains".

The report also added that elevated crude oil and feedstock prices are another major concern for the sector. Higher crude prices inflate the cost of key chemical feedstock such as naphtha, benzene, propylene and ethylene.

The report added that energy-intensive downstream chemical chains are particularly vulnerable during periods of sustained oil price volatility.

The Nuvama report also flagged USD-INR currency risk as an important headwind. A stronger Indian rupee against the US dollar reduces export realisations for Indian chemical companies, especially those dealing in bulk and mid-value products.

Since Europe and the US are key export destinations, currency appreciation can negate India's cost advantages, particularly when global chemical prices are already under pressure.

Weak end-market demand in western economies continues to weigh on volume growth. According to the report, a persistent slowdown in Europe and the US across housing, consumer goods, FMCG, agrochemicals, automotive and construction-linked sectors has impacted demand.

Weak residential construction has affected demand for PVC, caustic soda and polycarbonates, while subdued agrochemical and pharmaceutical demand has weighed on intermediates and solvents.

In addition, policy and execution gaps within India remain a challenge. Citing the NITI Aayog report, Nuvama pointed out that delays in environmental clearances, weak enforcement of anti-dumping duties and high logistics and energy costs dilute India's competitiveness.

Without faster approvals and more supportive trade policies, the report warned that India risks missing the opportunity created by Europe's industrial decline.

- ANI

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Reader Comments

P
Priya S
The China overcapacity issue is a known problem for years. Their state-backed companies can operate at a loss to capture markets. We need stronger anti-dumping duties and maybe even strategic government backing for our own critical chemical industries. It's an economic security issue.
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Rohit P
High crude prices are a double whammy for us. It increases input costs and weakens global demand. Hope the government's focus on green energy and biofuels can provide some long-term relief and reduce this dependency. 🇮🇳
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Sarah B
Working in exports, I see the currency risk firsthand. A stronger rupee sounds good, but it hurts our competitiveness when global prices are low. The RBI has a tough balancing act. Maybe time to diversify exports beyond just US and Europe?
K
Karthik V
The report is right about policy gaps. We talk about ease of doing business, but delays in clearances and high logistics costs are still a major headache for manufacturers. Streamlining this should be a top priority to capture the Europe shift.
M
Michael C
While the challenges are real, this also presents an opportunity for innovation. Can our chemical companies pivot more towards specialty chemicals with higher value addition, rather than competing directly with China on commoditized bulk products? Focus on quality over quantity.
N
Neha E

We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.

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