Page 131 - CW E-Magazine (5-9-2023)

Point of View

Colorants industry must support technology upgra-

dation efforts aiming for sustainable growth

The colorants industry – spanning the production of dyes, pigments and their intermediates – is an important segment of the Indian chemical
industry. It is largely comprised of small and medium enterprises (SMEs), offering sizeable employment opportunities, directly and indirectly.
It supports important industrial sectors, including textiles, leather, paper, and plastics, to name a few, and most of these are labour-intensive
businesses, as well. Like only a few other sub-sectors of the Indian chemical industry, the colorants industry is a net foreign exchange earner,
and has consistently been so for more than a decade. This is a commendable achievement given that in some product categories the industry
competes with China for global market share.

But in recent years the industry has clearly lost some of its sheen, and much of this has to do with the its structure and inability to
modernise, innovate and improve processes so as to better the quality of products, and more importantly, its environmental compliance
record. While it is unfair to tar the whole industry for the awful actions of some, it is a fact that the industry has for long been in the crosshairs
of regulators – particularly in Gujarat, where most of the units are located. Forced closures for flouting environmental norms are, indeed,
commonplace. The industry is also stuck in a commodity groove out of which only a few have been able to come out. There are simply
too many units making ‘me-too’ products and they compete in local and international markets with price as the sole differentiator. This is a
slippery slope that has benefitted no one.

Fragmented industry structure
That the industry is fragmented is well-known, but how much so is debatable. As per some estimates, there are about 700+ companies in
the industry and nearly 90% are small. This industry structure has severely limited the ability of companies to invest in process improvements,
new product development and, as pointed out before, environmental compliance. Total installed capacity in the industry, as per estimates
made by the Department of Chemicals and Petrochemicals, Ministry of Chemicals and Fertilisers, Government of India, was about 533-ktpa
in FY22, and production was about 398-kt. This translates to a capacity utilisation rate of about 75%, which is not bad considering much of
the industry operates batch processes with significant downtime between batches. But the caveat is that these numbers reflect only the
medium and large-sized units, and not the long tail of small ones. Include these in the capacity and production figures and the numbers will
be much less impressive.

Fall in exports
Even before the recent downturn, the colorants industry was under pressure on exports. As per provisional estimates by Chemexcil,
the export promotion agency that covers the sector, exports of dyes fell 23% in volume and 21% in value in FY23, compared to the previous
year. Exports of intermediates, however, fared better, rising 47% in volume and 11% in value, but in absolute terms this is a much smaller
sub-category that cannot reverse the overall declining trend. Overall, exports of dyes and intermediates in FY23 tallied up to $2.61-bn, compared
to $3.42-bn in FY22 – a decline of a whopping 24%.

And the travails seem to be continuing in this fiscal as well, largely due the inventory pile-up along the supply chain and the poor market
conditions, particularly in Europe where a sizeable chunk of India’s exports go, and in China where the domestic recovery has been much
less muted.

Export data for Q1FY24 reveals a 30% drop in values for dyes and 21% for dye intermediates, compared to the similar period of the previous
fiscal. Overall, exports of dyes & intermediates fell 29% to $563-mn in Q1FY24, compared to $798-mn in Q1FY23. Worryingly, export volumes
of dyes plunged 18% in Q1FY24.

Suppliers here speak of overseas buyers even reneging on purchase orders, and an inability to force the issue lest the long-term relationship
with the buyer is jeopardised. Several units in Gujarat have shut, and many more have slashed operating rates. The problem is seemingly
worse in dyes than in pigments, possibly due the fact that the latter serves a broader range of applications than the former, but even here there
have been serious disruptions. Producers of phthalocyanine pigments – a sector that India has traditionally dominated – have been adversely
impacted by the imposition of anti-dumping duty by China on imports from India. These duties, imposed in February this year, affected exports
from November 2022, when the preliminary determination of dumping was made, and the duty penalties range from 15-82% of the export values.

What has also impacted business here is the entry of Chinese suppliers into products historically the purview of Indian producers – such
as vinyl sulphone-based reactive dyes.

Chemical Weekly September 5, 2023 131

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