Page 121 - CW E-Magazine (29-4-2025)

Point of View

Fine chemicals are a sweet spot for India, but

change is coming

The business of fine chemicals is one where India has carved a reasonably competitive position, both locally and in international markets. The
industry plays to the country’s strengths in chemistry and process engineering, while not exposing weaknesses that plagues the bulk chemicals
industry, notably the lack of access to cheap energy and feedstock. The seemingly irreversible trend (till recently) to outsourcing production of
fine chemicals by the western world has been a boon to the profitable growth of the industry here and led to a significant expansion of capacity
for a slew of products.
But changes are afoot in the way in which fine chemicals are made and, more recently, in their markets. The new-found need for greater self-
reliance in vital value chains that feed particularly to the pharmaceutical industry is not just restricted to India. Major economies – the US, Japan
and the European Union (EU), in particular – are concerned over supply chain risks and are putting in place measures for localization, near-shoring
or friend-shoring the manufacture of critical inputs.
All of these will have an impact on the fine chemical industry here.

Fine vs speciality vs commodity chemicals
Fine chemicals are chemicals typically produced to a specification (usually a high level of purity), in batch processes where multi-step
transformations are sequentially carried out. These chemicals serve as inputs to several industrial sectors – pharmaceuticals, agrochemicals,
flavours & fragrances, food & beverage, cosmetics, nutraceuticals, coatings, etc. Fine chemicals differ from speciality chemicals in that the latter
are often formulated products meant to serve a functionality and are sold for what they ‘do’ in an end-use, not so much for what they ‘are.’ Both
terms are used liberally and interchangeably but mean different things. There is also a tendency to classify almost everything a speciality as it
strikes a note of uniqueness and high margins, which can be far from the truth. In fact, in the world of rapid commoditization of products, true
specialities are a rarity!
Fine chemicals are often sold to speciality chemical companies, such as drug manufacturers, who formulate these purchased ingredients
with other inputs, and sell to customers.

Fine chemicals are typically pricier than commodity chemicals – selling upward of $15 per kg – and the economics of their production, most
often in multi-purpose plants (MPPs), is less influenced by factors such as scale of manufacturing and raw material pricing (though both matter
to some extent). This is unlike commodity chemicals, which are mostly made in dedicated, continuous plants, wherein bigger is better, and with
margins heavily dependent on access to cheap raw materials (presently mostly hydrocarbon based). Operationally, the focus by fine chemical
manufacturers is on the efficient and seamless orchestration of chemistry and chemical engineering. In bulk chemicals, on the other hand, the
emphasis is much more on engineering aspects with the chemistries usually simpler and well understood. Notwithstanding these differences,
there is scope for innovation in both – incremental and fundamental.

The emergence of the business of fine chemicals
The emergence of the fine chemicals industry as a distinct entity can be traced to the second half of the 1970s, when a large pharmaceutical
company resorted to outsourcing a key intermediate for the active pharmaceutical ingredient (API), cimetidine (an anti-ulcer drug), to a fine
chemical company in Switzerland, to make up for the lack of sufficient in-house manufacturing capability. While in 1993 the fine chemical industry
had revenues of about $42-bn, this grew to $128-bn in 2014, and to about $285-bn in 2024. The pharmaceutical industry remains the largest
customer of the fine chemical industry today, accounting for about 69% of the latter’s revenues, followed by agrochemicals (10%), flavours &
fragrances (7%), food additives (4%), dyes & pigments (3%), and others (7%).

Manufacture of fine chemicals – the migration to Asia
As mentioned earlier, fine chemicals are usually made in MPPs, typically consisting of stirred stainless steel reactors and glass-lined reactors,
with associated paraphernalia. As per a recent paper (DOI: 10.1021/acs.oprd.fc00010), the unit cost for a fully installed reactor in a MPP in Europe,
North America or Japan, in 2010 was $1-mn/m , compared to $0.1-mn/m in India or China. The ten-fold differential was one of the reasons for
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the eastwards shift of the fine chemical industry.
The other factor that led to the hollowing out of fine chemical production in the western world were the increasingly tight environmental
regulations there. Fine chemical manufacture comes with a hefty environmental footprint, as it generates copious amounts of waste. The ‘E-factor’
(the quantity of waste generated per kg of desired product) of the industry has been estimated at around 50, in general, going beyond 100 for

Chemical Weekly April 29, 2025 121

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