Gujarat, the powerhouse behind 75% of India’s chemical manufacturing, is finally back on track after a tough year. The sector suffered heavy losses due to a significant drop in domestic and export orders and rising raw material prices, leaving many factories operating below capacity. Despite these challenges, there is still a ray of hope.
Recent data from the Chemical Export Promotion Council (Chemexil) shows that chemical exports, including organics, inorganics, dyes, intermediates and agrochemicals, declined by 14%, from $23.78 billion in FY23 to $20.38 billion in FY24.
However, the situation is changing now. There has been a significant increase in demand locally and internationally in the last few months, which has instilled a sense of optimism in the industry. Export figures for April and May 2024 show a growth of 2.8% to $3,572 million compared to $3,475 million in the same period of 2023, indicating that the worst may be over.
This revival is primarily driven by increased activity in various end-user industries and a steady improvement in export demand due to gradual stabilisation in global markets. A report by Crisil Research predicts a bright future for the chemical sector India is projected to grow robustly at 7-9% in FY25, driven by a revival in domestic and international demand and the low base of the previous year.
Experts are quite bullish about the speciality chemicals sector, which accounts for about 21% of the domestic industry.
“Its margins are expected to improve this fiscal after suffering a sharp drop in the previous fiscal due to high inventory and low product realisation,” the report said.
Mihir Patel, vice-president of the Gujarat Chamber of Commerce and Industry (GCCI), shared some encouraging news: “Ahmedabad-based chemical units were operating at 50% capacity until a few months ago, but now the capacity utilisation has increased to around 70%, which is a good sign for the industry.”
Even in south Gujarat, where businesses are cautiously optimistic, there is a ray of hope. “People who have been in the sector for 50 years say they have never seen such tough times in their careers. We saw some improvement in March and April, but the growth has been marginal in the last two months,” said Vatsal Naik, president of the South Gujarat Chemical Manufacturers Association.
“Given some movement in the market, we are expecting a revival soon. The war and its impact in Europe are the major factors affecting the chemical industries,” he said.
Ahmedabad-based dye manufacturers are also seeing an improvement in demand from both domestic and international markets. Bhupendra Patel, chairman, Chemexcil – Gujarat, explains the challenges: “The last one and a half years have been tough for the chemical industry, especially the dyes and intermediates sectors. The Russia-Ukraine war led to high inflation in Europe and the US. Also, the European chemical industry faced a sluggish phase, which led to a drop in orders. China aggressively introduced cheaper products in the international markets and delayed payments from countries with low dollar reserves created working capital problems for our manufacturers.”
There are at least 800 dyes and intermediates manufacturers in Ahmedabad. At least 10% of these were working at reduced capacity for only three to four days a week until three months ago. The industry has also seen a large number of layoffs. According to industry estimates, more than 5,000 people lost their jobs in the sector last year.
However, Nilesh Damani, secretary, Gujarat Dyestuffs Manufacturers Association (GDMA), said, “The chemicals sector has improved as inventory levels have reduced significantly. About a year ago, there was a lot of volatility in prices, so buyers adopted a strategy of buying only as per requirement. Due to this, orders were low. Now a lot of inventory has been cleared over time. Demand is better, but freight rates and turnaround time have increased. But it is expected that the chemicals sector will see better margins in the 2024-25 financial year.”
Industry experts predict a full recovery in the next two quarters. Ankit Patel, MD, Meghmani Organics Ltd, highlighted the rising demand for agrochemicals. “There has been an increase in orders due to disruptions in the supply chain. The demand for agrochemicals is rising domestically and globally,” he said.
Chemical prices have also risen slightly in recent months. Anand Desai, MD of specialty chemicals maker Anupam Rasayan Ltd, said, “Inventory levels have come down, and with demand improving, raw material prices have stabilised. China, which earlier supplied at very cheap rates, has started selling chemicals at higher prices again. Orders from the US have improved, although European demand is lower than expected. We expect a continued improvement in demand over the next few quarters.”
Industries are facing export challenges, but the Indian market is offering new opportunities. “Chemical industries are now getting business in Indian markets and neighbouring countries. Our exports need to be increased further, but the ongoing war remains a matter of concern,” said Satish Patel, president of Vapi Industries Association (VIA). Vapi is a major hub for chemical industries.
“Recently launched government schemes are boosting growth and business has improved significantly. Due to cost advantages in land, labour and common facilities, we are better positioned to compete globally,” said local manufacturer Kalpesh Vora.
“The chemical manufacturing industry faced a slowdown due to global issues post-Covid. It was expected to grow in 2022, but the Ukraine war and China’s economic slowdown delayed the recovery. Though the industry did not recover last year, we are finally seeing some growth,” said Ravi Kapoor, chairman, Indian Chemical Council (ICC), Gujarat.
“There were cash flow issues, new capital expenditure was on hold and the job market was stagnant. But now, we are seeing green shoots in the chemical industry. Demand is picking up, though I am cautiously optimistic for the year ahead,” said Kapoor, who is also the managing director of Heubach Colour Pvt Ltd. He added that the industry’s growth depends heavily on consumer demand and hopes that the global economic recovery will positively impact the sector.
Vadodara-based Deepak Nitrite, an important chemical manufacturing player, has also shown signs of improvement.
According to a company spokesperson, “There is a lot of optimism about business in India. The agrochemicals segment remains weak, but there are signs of improvement in the coming quarters. Stockouts and overcapacity in China led to price cuts and dumping, which affected supplies to key customers. However, this situation is expected to improve gradually.”
