Page 123 - CW E-Magazine (29-10-2024)

Point of View

$1 trillion chemical industry is pie-in-the-sky, but

opportunities abound

At the recently held India Chem exhibition and conference (a report of which appears in the news pages) much was said about the bright
prospects for India’s chemical industry, especially in the context of the need for countries and companies to derisk supply chain vulnerabilities
by lessening import dependence on one country. There were several statements that India is emerging as a global centre for chemical
manufacturing, which, considering the size of the local industry and the projects in the offing can only be described as a ‘gross exaggeration.’

Let’s take all the talk of India’s chemical market reaching $1trillion by 2040, which has a nice ring to it, and hence ripe for mindless
reiteration.

Given that the current size of India’s chemical market (depending on who you ask and what you include) is of the order of $250-bn, this
aspirational number is a far cry. Expecting a quadrupling in the next 16 years seems farfetched, considering the market (domestic consumption
plus exports) has been averaging growth rates of the order of 7% historically. The magical number seems to be picked up from a report by
the management consultancy, McKinsey, in 2023, and closer reading reveals many sub-texts. For a start, the report talks of a range from
$850-bn to $1,000-bn for India’s chemical market size by 2040. A hefty share of this – in the range of $250-bn to $300-bn – comes from
pharma products (vaccines, injectables, medical devices, etc.), and some personal care consumer products (shampoos, hair oils, toothpastes,
soaps, etc.) It is unclear as to whether this market size is assessed on the basis of ex-factory prices or at the hands of the consumer, but
either way not all of this can be credited to the ‘chemical’ market as commonly understood. At best, the ‘chemical’ contribution will be only
around 20% or thereabouts. If this is appropriately allocated to the overall chemical market, the aspirational market size comes down to
$650-bn to $760-bn, and this includes a $50-bn to $60-bn contribution from the fertiliser sector.

It is a good idea to set targets beyond the ordinary, but one must not be lulled into believing that this is for the asking and will be realised
under a business-as-usual scenario.

The drivers for growth in India’s chemical industry stem from both the domestic market opportunity and exports. As of now, India’s chemical
industry is a net importer, with an unfavourable balance of trade of the order of $15-bn spread across all major sectors – petrochemicals,
speciality chemicals and inorganic chemicals. This number is expected to rise to about $45-bn by 2040, after considering projects currently under
implantation or in the planning stages. Considering petrochemicals are the biggest chunk of this, it is worthy of a more detailed examination.

Investment opportunities in petrochemicals
Over the last decade, the reliance on imports of petrochemicals has been growing, as domestic investments lagged demand.

While India imported petrochemicals worth $14-bn in 2021 (and exported $8-bn), these have increased year-on-year since, and 2023
imports are conservatively estimated at around $20-bn (even as exports were more or less unchanged). Some of the chemicals in the list
of ones imported represent the first lot that can be considered for local investments, and a few such projects have come to be realised.
Over the last couple of years, we have seen projects getting commissioned for phenol/acetone, acrylate monomers, some synthetic rubbers
(styrene butadiene and butyl), polyolefins, etc. In the next phase – spanning the next 2-3 years – we should have projects making styrene,
oxo-alcohols, acrylic acid & acrylates, polyvinyl chloride (PVC) resin, bisphenol-A, polycarbonate, among others, coming onstream. What
is noteworthy is that the projects have come up on the basis of fundamental viability, and are not reliant on extraneous support, such as
production linked incentives, for which the clamour continues.

Despite these new projects, in most instances, the anticipated demand growth will outstrip incremental supply, and imports will continue.
The case of PVC exemplifies this well. In about two years, nearly 2.5-mtpa of greenfield capacity for this commodity thermoplastic is expected
to come online from three projects. Despite this, imports will continue and will likely still be around 1.9-mt in FY28 (see news item in this issue).
The McKinsey report alluded to earlier sees India’s petrochemical imports rising to a staggering $101-bn by 2040, as against exports of
$60-bn – leaving a wide trade gap of $40-bn+ from this sub-sector alone.

Project selection
It will be foolhardy to expect India’s chemical industry to make all that the country needs. There are several petrochemical value chains
wherein it would be hard to ensure intrinsic competitiveness, mainly due to lack of access to competitively priced feedstock. Take the case

Chemical Weekly October 29, 2024 123

Contents Index to Advertisers Index to Products Advertised