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Indian Chemical Industry and Mega Trends Impacting the Industry
Frost & Sullivan Presents an Exclusive Whitepaper on
Indian Chemical Industry
Indian Chemical Industry and Mega Trends Impacting the Industry
2© 2014 Frost & Sullivan
FOREWORD
The Indian chemicals industry is in a phase of growth where it is not only poised to be one
of the key markets globally but is also likely to emerge as a reliable supplier of quality chemicals
worldwide. Though at present, the Indian chemicals industry is less than 5 percent of the global
chemicals industry in size and per capita consumption levels are less than the global average
for most categories, it is likely to see a steady growth and continuous increase in the
penetration levels right up to 2020, provided suitable government impetus is provided. The
expansion thus envisaged in the sector also underlines the need to have more than five million
skilled professionals over the next five years.
Indian chemicals industry is currently pegged at US $36 Billion approximately, and is likely to
grow at a compounded annual growth rate of 10-12 percent over the next five years. Growth
will come from increase in domestic consumption, as well as rise in exports. Domestic growth
will be driven by increase in consumption and high growth in the end-user industries where
per capita consumption presently is low. Domestic demand of performance and agro chemicals
is likely to follow an accelerated growth path due increase in adoption levels and growing
consumer base. An evolving focus on regulatory compliances and sustainable chemistry
practices will enable the Indian industry to become a key manufacturing hub in the global map
in the years to come. Indigenous innovation will play an important role in making the industry
competitive vis-a-vis international companies.
We would like to thank ICC for giving Frost & Sullivan this opportunity to partner with them
for this event, and look forward to hearing industry stalwarts and thought leaders share their
opinion at this conference over the next two days. It was an enriching experience for Frost &
Sullivan to put this report together.
Chemicals, Materials & Foods Practice,
Frost & Sullivan – Middle East, North Africa and South Asia
Indian Chemical Industry and Mega Trends Impacting the Industry
3 © 2014 Frost & Sullivan
TABLE OF CONTENTS
Topics Page No.
1. Outlook for the Global Chemical Industry
a. Overview ..........................................................................................................................5
b. Key Trends ..........................................................................................................................6
2. Indian Chemical Industry .....................................................................................................8
a. Overview ..........................................................................................................................9
b. Key Characteristics ...........................................................................................................9
c. Key Segments ...................................................................................................................10
I. Base Chemicals: Overview ..................................................................................10
II. Base Chemicals: Key Trends ................................................................................10
III. Base Chemicals: Key Challenges .........................................................................11
i. Petrochemicals: Overview ...............................................................................11
ii. Petrochemicals: Key Trends .............................................................................11
iii. Petrochemicals: Key Challenges .....................................................................14
IV. Agrochemicals: Overview ....................................................................................15
V. Agrochemicals: Key Trends ..................................................................................15
VI. Agrochemicals: Key Challenges ..........................................................................18
VII. Specialty Chemicals: Overview ...........................................................................19
i. Dyes and Pigments: Overview ........................................................................20
ii. Dyes and Pigments: Key Trends ......................................................................20
iii. Dyes and Pigments: Key Challenges ...............................................................22
3. Mega Trends Impacting the Indian Chemical Industry ...................................................24
a. Energy/Resources ..........................................................................................................25
b. Technology Focus ..........................................................................................................25
c. Health and Wellness ......................................................................................................25
d. Infrastructure .................................................................................................................25
e. Globalization ..................................................................................................................25
Indian Chemical Industry and Mega Trends Impacting the Industry
4© 2014 Frost & Sullivan
Outlook of the Global
Chemical Industry
Indian Chemical Industry and Mega Trends Impacting the Industry
5 © 2014 Frost & Sullivan
OVERVIEW
The global chemical industry (excluding pharmaceuticals) stood at US $3.07 trillion registeringa growth of 2.3 percent during 2013. On a regional level, Asia was the region driving growthin chemicals, and NAFTA bounced back from recession.
Exhibit 1: Region Wise Chemical Industry, Global Market, 2013
Europe continued to recover from secondarydepression, albeit at a sluggish pace.
NAFTA: Renewed CompetitivenessRiding on demand from light vehicles and arecovering construction sector, the USbounced back from recession, registering agrowth of 2.7 percent. The shale gas boom,continued to propel the chemical industry inthe US, rendering competitive advantage dueto lower gas prices. Looking ahead to 2015
and beyond, significant shale-driven chemical capacity is expected to come online and generatefaster growth.
Europe: Sector Progressing Out of RecessionThe European market appears to be emerging out of the secondary recession. However, therecovery is expected to remain tentative. Even though agrochemicals and cosmetics are pullingup the chemical sector, high volume segments such as petrochemicals continue to plunge intocrisis primarily due to high energy and feedstock costs. The persisting weakness in applicationmarkets such as automotive, manufacturing, and construction, is adding up to the manufacturerswoes.
Agrochemicals look steady due to demand from fertilizers and allied products. Additionally,Europe remains above the fray due to huge volumes of trade, originating mainly from Germany.
The European outlook for chemicals is expected to turn positive, mainly due to growth in thespecialty sector. Local production, however, is likely to face intense competition from productsfrom the US, which are riding high on cheap energy and feedstock prices.
Middle East: Value Addition is the KeyWith North America’s emergence in inexpensive feedstock, MENA’s leadership position is fading away. Suppliers, however, are promptly responding by adding value to basic petrochemicals.Additionally, major participants such as SABIC are in the process of investing in the US toleverage opportunities being thrown by shale gas. Manufacturers are continuing to invest inChina, signifying interest in the Asian market. Inspired by the shale gas story in the US, the regionis exploring its own shale gas opportunities. Development, however, is still in the nascent stage.
With the US’
renewed competitiveness,
Europe is expected to
witness further
challenging times ahead
Southeast Asia, along
with countries such
Mexico, Argentina etc.
are expected to emerge as
potential regions in
chemicals domain
52%
17%
23%
6%2%Asia
NAFTA
Europe
Latin America
Rest of the World
NAFTA: North American Free
US $3.07 Trillion
NAFTA: North American Free Trade AgreementSource: Frost & Sullivan analysis
Indian Chemical Industry and Mega Trends Impacting the Industry
6© 2014 Frost & Sullivan
MENA is also witnessing increased interest by global majors such as Dow and Exxon, withmulti-billion dollar projects expected to come in by 2016-2017. Some of the major investmentsinclude Sadara Chemicals (joint venture between Saudi Aramco and Dow Chemicals), a US$20 billion integrated chemical facility; a joint venture between Exxon and SABIC for rubberand elastomer in Al-Jubail; capacity expansion for PetroRabigh, a joint venture between SaudiAramco and Sumitomo Chemicals.
The chemical industry in MENA is expected to grow by 4.5 percent annually during 2013-2015, riding on robust growth in the non-oil GDP.
Asia: Emergence of Southeast AsiaAsia remains the growth pillar for global chemicals industry. Even though the region faced revived competition from North American manufacturers, Asia (excluding Japan) registered ahigh growth of 7.8 percent, cruising high on regional demand in automotive and constructionindustry.
While the steady local demand keeps market growth at a fast pace, challenges pertaining toovercapacities are looming large, especially in China. Slowdown in exports volume is likely tobe neutralized by strong demand locally, especially in Southeast Asia and China.
The Chinese chemical industry, which witnessed a slight slump in the past two years due toreduced investments in infrastructure, is likely to gain traction again and reach 8.5 percentgrowth during 2013-2015. Growth is likely to be onset by rebounding agrochemicals drivenby increased fertilizer consumption, fine chemicals, and specialty chemicals. Constructionchemicals are expected to witness a mild plunge following decreased investments in infrastructure.
Facing years of depression, the Japanese chemicals sector is looking up, aided by rigorous stimuli and fiscal policy by the new government. Increased chemical production coupled withthe depreciating yen, is likely to boost exports.
KEY TRENDS
Regional Shift: East Drives Demand, West Bringing Up SupplyWith recent developments in shale gas, the US has bounced back with internationally competitive supply. Proven shale gas reserves have positioned US as the region having highestfeedstock advantage globally. Promising opportunities thrown by the shale gas boom, has introduced a new wave of investments by the chemical industry in the region. Although experiencing pressure through higher taxes and spending cuts, the US market witnessed a 10percent surge in capital spending, valued at US $42.4 billion. During 2013, over 135 new chemical production projects (totally valued at over US $90 billion) were announced. Capitalinvestment is expected to grow at a healthy rate of 8 percent through 2016. Increasing capitalinvestment ensures higher production volumes. Demand, however, is expected to grow slowlygiven the maturity the region has attained. In such a case, the eastern and southern hemispherewith their robust growth outlook, are promising destinations. With some of the key industriessuch as textiles having already moved to the east, others such as agrochemicals, plastics, pharmaceuticals, and automotive components are fast moving to growing Asian economiessuch as China, India, etc.
Bulk/base chemicals
in the Asian markets
are expected to
undergo major
strategic changes
Indian Chemical Industry and Mega Trends Impacting the Industry
7 © 2014 Frost & Sullivan
Regional Structuring of Chemical PortfoliosExhibit 2: Regional Shift in Chemical Portfolio
With the shift in demand trends, US and European producers are positioning themselves towards value added downstream products. Europe has been forced to close down capacitiesin commodity chemicals and realign focus towards specialty and service/functionality drivenchemicals. Asian markets, however, are adding capacities to their existing products with lesserforays in capital intensive downstream products.
Capacity UtilizationExhibit 3: Region Wise Capacity Utilization, Global Market, 2013
Facing secondary recession and intense competition, high capacity utilization remained thekey encouraging factor for European manufacturers. China, on the other hand, remained severely oversupplied due to slowdown in key exports markets.
75.2
79.2
65
77
USA Europe China IndiaCountry/Region
Util
izatio
n (%
)
Source: Frost & Sullivan analysis
Source: ACC, CEFIC, Frost & Sullivan analysis
Indian Chemical Industry and Mega Trends Impacting the Industry
8© 2014 Frost & Sullivan
Indian Chemical
Industry
Indian Chemical Industry and Mega Trends Impacting the Industry
9 © 2014 Frost & Sullivan
India Overview: The Indian chemical industry was the second largest producer in Asia in terms of volume afterChina. The industry was pegged at US $136.5 billion for 2013, accounting for approximately 7percent of India’s GDP. The industry accounted for over 12 percent of total Indian exports.Base chemicals continued to be the largest segment accounting for over 35 percent of thetotal chemicals demand, followed by pharmaceuticals and specialty.
Exhibit 4: Segment Wise Chemical Industry Share, Indian Market, 2013
Over the last decade, the Indianchemical industry has strengthenedits competitiveness in agrochemicalsand pharmaceuticals segments,becoming one of the major exporters for these segmentsglobally. The industry also witnessed increased investmentsin the specialty sector, which ispoised to be the fastest growingsegment in India. Post the dip observed during 2013, key
end-user segments such as construction, automobile, packaging, and electronics are expectedto drive the demand immensely. Construction and automobiles are likely to grow at 12 percenteach, packaging at over 13 percent, electronics at 13 percent rendering a promising growth ofover 12 percent to the chemicals demand.
KEY CHARACTERISTICS
Capacity Utilization: Foreign Trade Impacting EfficiencyThe Indian chemical industry has experienced mixed efficiency in the past three years. Sub-segments of bulk chemicals such as petrochemicals and alkali chemicals have run their facilities at an average of 80 percent, whereas sub-segments in specialty such as agrochemicals,dyes, and pigments have witnessed a capacity utilization rate of 65-70 percent. Although localdemand, raw material prices, power and energy costs remain the primary factors impactingthe utilization rate, factors pertaining to trade such as demand fluctuations have affected theutilization rates adversely. For example, export oriented specialties such as pesticides, dyes,and pigments, etc. have observed a declining utilization rate post-recession. Manufacturers insegments with considerable imports, such as petrochemicals, alkali chemicals, etc. have managed to maintain around 80 percent utilization.
Policy and Promotion: PCPIRs Slated to be Investment DriversOver the past 15 years, the Indian Government has taken several measures to give an impetusto the chemicals industry. The government allows 100 percent FDI in the industry. Licensingrequirement is substantially flexible for the production of most of the chemicals including pesticides, dyes, organic, and inorganic chemicals.
Pharma, Agro and
Specialty chemicals
are the key segments
contributing towards
foreign
exchange reserve
With product quality
becoming the crucial
component of the
decision matrix for
customers,
regulations regarding
licensing are expected
to evolve further
21%
10%
20%17%
3%
29%Petrochemicals
Other Base Chemicals
Specialty Chemicals
Fertilizers
Agrochemicals
Pharmaceuticals
$136.5 Billion
Source: Frost & Sullivan analysis
Indian Chemical Industry and Mega Trends Impacting the Industry
10© 2014 Frost & Sullivan
The Government has introduced the Petroleum, Chemical, Petrochemical Investment Regions(PCPIR) Policy that focuses on an integrated approach to promote growth and investment inthe petroleum, chemicals and petrochemicals sectors through use of common infrastructureand support services. Raw material availability of Naphtha for the petrochemical and plasticindustry plays a critical role in PCPIR. PCPIR is designated to have a combination of productionprojects, public utilities, logistics, environmental protection, residential areas, and administrativeservices. Vishakhapatnam and East Godavari District in Andhra Pradesh, Bharuch in Gujarat,Paradip in Orissa and Cuddalore and Nagapattinam Districts in Tamil Nadu are the currentPCPIR projects. These PCPIRs have received investments worth US $10 billion for infrastructureand are expected to generate industrial investments of over US $75 billion.
Such positive measures have already started bearing fruit, with the Indian chemical industryreceiving FDI to the tune of US $8.8 billion during 2000-2013, with 75 percent of the inflowsbeing received in the last 3 years.
KEY SEGMENTS
Base ChemicalsOverview: Petrochemicals, man-made fibers, industrial gases, fertilizers, chlor-alkali, and otherorganic and inorganic chemicals, form the base chemicals segment. This segment accounts forover 50 percent of the total Indian chemical production.
KEY TRENDS:SUPPLY SIDE
Fragmented Structure: Barring the basic building blocks such as ethylene, propylene, and butadiene, etc., the supply side for other organic and inorganic chemicals is highly fragmented.Majority of Indian manufacturers operate on much smaller scales in comparison to their globalcompetitors. Such a scenario deprives the sector of the benefits of economies of scale anddomestic products are strained due to cheaper imports.
KEY TRENDS: DEMAND SIDE
Base Chemicals Trade:Organic Chemicals
Exhibit 5: Major Organic Chemicals Trade, India, 2008-2013
End to end
integration trend is
yet to take off in
India
Source: Department of Chemicals & Petrochemicals, Frost & Sullivan analysis
8231181
15622007 19691840
28103276 3315
4142
0500
10001500200025003000350040004500
2008-09 2009-10 2010-11 2011-12 2012-13
Exports
Imports
Year
Volu
me
(KT)
Indian Chemical Industry and Mega Trends Impacting the Industry
11 © 2014 Frost & Sullivan
In organic chemicals, imports continue to exceed exports, even when local manufacturers arereeling under the pressure of tremendous overcapacity. The primary reason is attributed tocheaper imports from China.
KEY CHALLENGESOvercapacity: For the past four years, the base chemical segment has felt the pressure ofovercapacity, with the capacity utilization rate hovering around 60 percent for inorganic chemicals and at around 65 percent for organic chemicals. Sluggish domestic and exports demand; and increased imports from China and the Middle East are the major factors attributed to the persisting overcapacity. The capacities saw a jump of around 10 percent since2008, underlining the unpreparedness of the industry for the demand slump.
PetrochemicalsOverview: Petrochemicals are chemical products derived from petroleum. The main branchesof products are olefinic and aromatic, which are then processed onward into plastics, rubber,important industrial chemicals and intermediates, dyes, pharmaceuticals, fertilizers, and synthetic fibers. Petrochemicals’ manufacturing is an integrated set-up with many manufacturers/plants in a localized area sharing resources to maximize economies of scale.
Petrochemicals represent a growing market in India, with average CAGR from 2007 to 2013at 7.5 percent, in line with development initiatives in the Indian economy. India’s petrochemicalindustry is an oligopoly with four predominant players: Reliance Industries Limited (RIL), GasAuthority of India Limited (GAIL), Haldia Petrochemicals Limited (HPL), and Indian Oil Corporation Limited (IOCL). The Indian industry is also confined geographically to certainstrategic hubs such as Dahej, Gujarat; Kochi, Kerala; Panipat, Haryana and Haldia, West Bengal.The total demand for petrochemicals in India in 2012-13 was 32.5 million metric tons.
Major polymers manufactured in India include polypropylene (PP), polyethylene (PE), polyethylene terephthalate (PET), Ethylene, Purified Terephthalic Acid (PTA), Polyvinyl chloride(PVC), polystyrene (PS), etc. The largest application of petrochemicals in India is in polymers,which are used in packaging, automobiles, and construction end-use segments. Manufacturingcapacities in India are being augmented to support India’s rapidly growing demand and to reduce net import of polymers. The overall polymer industry in India is forecast to grow at10-11 percent in the next three years.
KEY TRENDS: SUPPLY SIDE
Downstream Integration: Indian petrochemicals manufacturers are increasingly investing inacquiring downstream products capabilities. Companies such as RIL, IOCL etc. are foraying indownstream products such as butyl rubber, styrene butadiene rubber, etc. Such steps are beingobserved as futuristic, towards increasing global competitiveness. Global leaders such as BASFhave integrated capabilities from basic petrochemicals to end specialty.
Strategic Alliances and Consolidation: The Indian petrochemicals segment has observed aslew of alliances such as OPAL (a joint venture between ONGC, Gujarat State Petroleum Corporation and GAIL), HMEL (joint venture between HPCL and Mittal Energy), RelianceSibur (joint venture between RIL and Sibur Petrochemicals) etc. The alliances are aimed atleveraging the feedstock/crude vis-à-vis petrochemicals/downstream capabilities of the participating companies.
Downstream
integration is
expected to play a
pivotal role in the
sustainability of
petrochemicals supply
Indian Chemical Industry and Mega Trends Impacting the Industry
12© 2014 Frost & Sullivan
Exhibit 6: PCPIR Projects, India
PCPIR: The PCPIR Policy is expected to revolutionize the petrochemical industry, provided it getsimplemented with absolute efficiency and intended purpose, with anchor investors being realanchors supporting the downstream chemical industry. Also, the timeframe for investmentsrealization is crucial.
KEY TRENDS: DEMAND SIDE
Understanding the Indian Potential
Exhibit 7: Per Capita Polymer Consumption
Per capita polymer consumption in India is one of the lowest globally standing at nearly 1/10th
of the developed countries and less than 1/3rd of their developing counterparts. Such a lowconsumption average indicates a robust outlook for base chemicals, especially petrochemicals.
With IOCL’s and
RIL’s foray into
synthetic rubber,
dependence on
imports is expected to
go down
10
45
32
109
0 20 40 60 80 100 120
India
China
Brazil
USA
Kilograms
Source: APPCPIR, Gujarat PCPIR, Frost & Sullivan analysis
Source: Industry Estimates, Frost & Sullivan analysis
Indian Chemical Industry and Mega Trends Impacting the Industry
13 © 2014 Frost & Sullivan
Trade:Exhibit 8: Major Petrochemicals Trade, India, 2013
The petrochemicals sector continues to rely on imports to meet the demand, especially insub segments such as polymers and synthetic rubbers.
Domestic Demand:• Olefins comprise ethylene, propylene, butadiene, styrene, ethylene dichloride, and vinyl
chloride monomer that are used in the production of several commercially important derivatives and intermediates. Olefins are forecast to grow at 8-9 percent CAGR until 2016.
• Fiber Intermediates include acrylonitrile, caprolactum, pure terephthalic acid and monoethylene glycol. This category is expected to grow at 5-7 percent CAGR until 2016.
• Synthetic fibers include polyester filament yarn (PFY). The overall segment is forecast to grow at 7-8 percent CAGR until 2016.
823
1181
1562
2007 19691639 1548 1639
21822487
0
500
1000
1500
2000
2500
3000
2008-09 2009-10 2010-11 2011-12 2012-13
Exports
Imports
Year
Volu
me
(KT)
Source: Department of Chemicals & Petrochemicals, Frost & Sullivan analysis
Indian Chemical Industry and Mega Trends Impacting the Industry
14© 2014 Frost & Sullivan
Exhibit 9: Major Petrochemicals Demand Growth, India, 2013
• Para-xylene, orthoxylene, meta-xylene, benzene and toluene are used in the manufacture of chemical intermediates and are expected to grow at 8-9 percent CAGR until 2016.
• Carbon black witnesses its main applications in tyres and pigments, and is expected to grow at approximately 9 percent CAGR until 2016.
• Surfactant petrochemical derivatives include Linear Alkyl Benzene (LAB) and Ethylene Oxides (EO).
• Elastomers (rubbers) include Styrene Butadiene Rubber (SBR), Polybutadiene Rubber (PBR), Nitrile Butadiene Rubber (NBR) and Ethylene Propylene Diene Monomer (EPDM). This segment is expected to grow at 6-7 percent CAGR until 2016.
KEY CHALLENGES
Feedstock Cost and Margin Pressures: With the advent of shale gas in the US market, thecrude based base chemicals market is reeling under tremendous competitive challenges overraw material availability and prices. The US and MENA based manufacturers are leading thesegment with their renewed (continued in case of MENA) competency. Products from thesemarkets have increased price competition thereby increasing margin pressure on the domesticmanufacturers.
8113 8959 9913 11037
80708633
936210810
59576360
6699
71383388
34733663
3965
666697
731
764
406455
480
513
20902283
2485
2710
37293722
3947
5145
2011 2012 2013 20140
5000
10000
15000
20000
25000
30000
35000
40000
45000
Polymers Olefins Fibre Intermediates
Synthetic Fibers Surfactants Elastomers
CB and CBFS others
Fiscal Year
Volu
me
(KT)
Source: Frost & Sullivan analysis
Indian Chemical Industry and Mega Trends Impacting the Industry
15 © 2014 Frost & Sullivan
AGROCHEMICALS
Overview: With the agricultural industry accounting for around 20 percent of the Indian GDP,agrochemicals segment assumes added significance in Indian economic growth. The agrochemicalsindustry stood at a little over US $4.3 billion during 2013, with a 5 year CAGR of 8 percentduring 2008-13. India is the fourth largest producer of crop protection chemicals globally, afterUS, Japan, and China. Key agrochemical segments are insecticides, herbicides, fungicides, biopesticides, and others.
Exhibit 10: Growth of Agrochemical Industry, Historic and Forecast, India, 2013
KEY TRENDS: SUPPLY SIDE
Brand Building and Awareness: Market participants are increasingly focusing on increasingawareness about products, through organizing farmers’ camp across the country. Also, companies are providing end-to-end solutions for complete requirements during a crop season.
Business Consolidation: Indian major such as Rallis has established strategic alliances withglobal participants such as DuPont, FMC, Bayer, Syngenta and Japanese major Nihon Nohayaku.Global leader Bayer is expected to acquire stakes in Kaveri Seeds. These alliances are targetedtowards increasing the geographical penetration and diversification of product portfolio.
Global Competitiveness: Indian participants are investing substantially in key componentssuch as R&D and distribution channels. Additionally, series of acquisitions globally, such asthose by United Phosphorus Ltd. (UPL) signify the thrust towards increasing the competitivenessin global markets.
Market is expected to
shift from insecticides
to herbicides in the
long run
1.55
2.05
2.93.2
3.9
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
2009 2013 I II III
CAGR
2018Year
Valu
e (b
illio
n)
Source: Frost & Sullivan analysis
Indian Chemical Industry and Mega Trends Impacting the Industry
16© 2014 Frost & Sullivan
KEY TRENDS: DEMAND SIDE
Market PotentialExhibit 11: Per Capita Pesticides Consumption
Per capita consumption ofagrochemicals in India is at0.6 kg/ha, one of the lowestglobally. With the increasingawareness, reach and surgingaccessibility, India is poised tobe one of the fastest growingmarkets for agrochemicals.
Horizontal ShiftExhibit 12: Agrochemicals Product Share, India, 2005 and 2013
Exhibit 13: Agrochemicals Product Share; (I) For India, 2020 (II) For Global, 2013
Herbicides are poised
to witness
tremendous
penetration,
especially in rice and
wheat crop protection
Source: Industry Estimates, Frost & Sullivan analysis
Source: Frost & Sullivan analysis
Source: Frost & Sullivan analysis
0.6
13
7
4
0 2 4 6 8 10 12 14
India
China
USA
Global
Kilogram/hectare
70%
13%
16%
1%2005
Insecticides
Herbicides
Fungicides
AgBio anOthers
65%
17%
15%
3% 2013
61%20%
15%4%
Insecticides
Herbicides
Fungicides
AgBio anOthers
23%
45%
25%
7%
(I) (II)
Indian Chemical Industry and Mega Trends Impacting the Industry
17 © 2014 Frost & Sullivan
Indian demand for agrochemicals has traditionally been driven by insecticides. The reason isattributed to demand from cash crops such as cotton. However, with increasing research andawareness, various weeds dampening the growth of food crops have been recognized. Withthe objective to eliminate such weeds and increase the crop productivity, herbicides are experiencing the fast growth. The trend is to align globally where herbicides account for thelargest demand in the pie, in the long run.
Demand Distribution:Exhibit 14: Agrochemicals Demand Distribution, India, 2009 & 2013
Exhibit 15: Major Agrochemicals Exports, India, 2013
Agrochemicals have emerged as one of thefastest growing segments in exports supply from India. For the 2005-2012 period, exports from India have grown bya CAGR of over 13-14 percent. Thisgrowth is expected to further surge towards over 15 percent in the next 5years.
Exhibit 16: Major Agrochemicals Trade, India, 2013
Demand from Latin
American markets
highlights strategic
decisions such as UPL
acquiring Brazilian
major DVA Agro
Brazil
Source: Frost & Sullivan analysis
53%47%
2009
Domestic
Exports
48%52%
2013
Domestic
Exports
$2.95 Bn $4.23 Bn
72
8793
103110
14 1319 22 19
0
20
40
60
80
100
120
2008-09 2009-10 2010-11 2011-12 2012-13
Exports
Imports
Y
Volu
me
(KT)
26%
43%
8%
5%
9%
9% NAFTA
Latin America
Southeast Asia
Africa
Europe
Rest
Source: Frost & Sullivan analysis
Source: Department of Chemicals & Petrochemicals, Frost & Sullivan analysis
Indian Chemical Industry and Mega Trends Impacting the Industry
18© 2014 Frost & Sullivan
KEY CHALLENGES
Overcapacity:
Exhibit 17: Capacity and Capacity Utilization Rate, Major Agrochemicals, India,2008-09 to 2012-13
Slump in the exports market coupled with recent slowdown in domestic demand, has broughtabout substantial overcapacity in the industry.
Lack of awareness for optimum product usage: In the existing distribution system, e-farmerspurchase the final product from retailers. The retailers, especially those situated away fromthe urban centers, are generally not proficient with product knowledge, to suggest a preciseproduct matching the farmer’s requirement.
Spurious Pesticides: Over 40 percent of the pesticides sold were spurious products and substandard pesticides, which apart from not having the desired effect on pests/insects haveadversely affected the crops. Spurious products come with tremendous margins forretailers/distributors which helps the manufacturers in increasing the penetration.
Growth of GM Seeds: The market for Genetically Modified (GM) seeds is gaining traction inIndia. These seeds have the immunity towards various adverse factors, thereby decreasing therequirement of agrochemicals.
The extent of
spurious products’
presence, signifies the
need for stringent
regulations Source: Department of Chemicals & Petrochemicals, Frost & Sullivan analysis
146 163200 209 210
7972
62 64 63
0
10
20
30
40
50
60
70
80
90
0
50
100
150
200
250
2008-09 2009-10 2010-11 2011-12 2012-13
Capacity
Capacity Utilization
Year
Volu
me
(KT)
Indian Chemical Industry and Mega Trends Impacting the Industry
19 © 2014 Frost & Sullivan
SPECIALTY CHEMICALSIntroduction: Specialty chemicals are the fastest growing segment of the chemicals segmentin India. The segment comprises of sectors such as dyes and pigments, fine chemicals, paintsand coatings, construction chemicals, textile chemicals, water treatments chemicals, flavorsand fragrances, personal care chemicals, etc.
Exhibit 18: Evolution of Indian Specialty Chemicals Industry
TIM
ELI
NE
Supply Side Demand Side
Few Indian companies with
standalone units and importers
cater to the demand. Global
MNCs present only through
distributors/importers.
Low demand arising mainly
from agro and affiliated
industries. Growth in
construction and
automotive limited.
Global MNCs establish sales
offices. Indian participants
increase the manufacturing
base. Imports form a large
part of supply.
Construction and
automotive industry
starts gaining traction.
Global MNCs establish
foothold through joint
ventures. Indian participants
equip themselves with
greater technical knowledge.
Construction and
automotive industry
experience surge in
demand, driving the
demand for specialty
chemicals.
A slew of investments by
MNCs through
manufacturing set up and
acquisitions. Several
companies set up research
and development facilities.
India has positioned itself as
a major exporter in sub
segments such as Fine
chemicals, Agrochemicals,
dyes and pigments etc.
While the demand
continues to thrive on
growing construction and
automotive industries,
niche applications such
water treatment, flavors
and fragrances, oilfield
chemicals have emerged
as potential growth
drivers.
1980s-1990s
1990-2000
2000-2005
2005-Present
Source: Frost & Sullivan analysis
Indian Chemical Industry and Mega Trends Impacting the Industry
20© 2014 Frost & Sullivan
Overview: Indian specialty chemicals stood at US $27.3 billion during 2013 registering a 5year CAGR of 12 percent during 2008-2013. Specialty chemicals segment typically grows attwice the rate of GDP in a developing economy. The demand for specialty has largely beendriven by automotive and construction sectors.
Indian products have strong presence in exports markets as well. Export of specialty chemicalsfrom India is one of the fastest growing segments in Indian exports. Dyes and pigments alongwith the Active Pharmaceutical Intermediates (APIs) constitute the majority of specialty exports. Global competitiveness in terms of cost and quality of products has enabled Indianmanufacturers to successfully establish themselves in the exports market.
KEY SUB SEGMENTS
Dyes and PigmentsExhibit 19: Classification of Dyes
OverviewGlobal demand for dyes and pigments stood at US $28 billion during 2013. Indian revenuesfor dyes and pigments accounted for over 15 percent of the global sales, at US $4.3 billion.Over the past 10-15 years, the global dyes and pigments industry has witnessed a paradigmshift with production relocating from the US and Europe to China, India, and other SoutheastAsian countries. Indian dyes and pigments industry is marked by large presence of unorganizedsector, with over 1000 small scale units manufacturing dyes and pigments.
KEY TRENDS: SUPPLY SIDE
Fragmented Structure: The industry constitutes over 1,000 small scale manufacturers. Approximately 50 major producers are present in the industry.
Exhibit 20: Supply Structure, Dyes and Pigments Industry, India, 2013
Dyes and pigments,
along with
agrochemicals, form
the export driven bloc
in the specialty
domain
With the stringent
environmental
regulations,
consolidation likely
to happen with the
market share of
organized
participants poised to
increase
Reactive Direct VAT Disperse Others
Dye
Unorganized
- Approximately 50 companies - Global Competitiveness - Technology driven - Product Innovation and brand building
-Approximately 1000 companies -Lower price realization - Presence only in bulk segments
Organized
35% 65%
Source: Frost & Sullivan analysis
Source: Industry Estimates, Frost & Sullivan analysis
Indian Chemical Industry and Mega Trends Impacting the Industry
21 © 2014 Frost & Sullivan
Industry consolidation in Western India: Around 90 percent of the dyestuff production is ac-counted for by states of Gujarat and Maharashtra. Apart from various incentives offered inthese states, concentration of major end users such textiles, paper etc. is the key factor forsuch a regional concentration in the dyestuff industry.
KEY TRENDS: DEMAND SIDE
Application Split: Textile Drives the Demand
Exhibit 21: Demand by application, Dyes and Pigments Market, India, 2013
Demand Distribution: Production Thrives on Exports
Exhibit 22: Demand Distribution, Dyes and Pigments Industry, India, 2013
Indian products are majorly exported to the US, Europe, and Latin America. India has been one ofthe major exporters in the dyes and pigments segments, accounting for over 10 percent of theworld trade.
Exhibit 23: Dyes and Pigments Industry Value, India, 2008, 2013 and 2018
Dyes and pigments exports grew at a CAGRof over 13 percent during2008-2013, and are forecast to cross US $5billion by 2018.
65%15%
10%
10%
Dyes
Textiles
Paper
Leather
Others
51%
23%
9%
10%7%
Pigments
Inks
Coatings
Textiles
Plastics
Others
34%
66%
Demand Split
Domestic
Exports
S
$4.3 Bn
1.49
2.85
5.02
0123456
2008 2013 2018Year
Valu
e (B
illio
n)
Source: Frost & Sullivan analysis
Source: Frost & Sullivan analysis
Source: Frost & Sullivan analysis
Exports to grow at
faster rate than the
domestic demand
Indian Chemical Industry and Mega Trends Impacting the Industry
22© 2014 Frost & Sullivan
Demand Outlook: Exports share likely to increase further.
Exhibit 24: Dyes and Pigments Exports, India, 2008, 2013 and 2018
Scenario I: The industry continues to witness the sluggish growth witnessed in the past two years. Forecast: CAGR-7 percent
Scenario II: Growth resumes to 2011 level in the coming two years. Forecast: CAGR-9 percent
Scenario III: Overall economy recovers from the four year slump and higher penetration rates. Forecast: CAGR-12 percent
Demand for dyes and pigments are likely to be driven by segments such as inks, paints, andplastics. The textiles segment will remain the largest end user for dyes and pigments.
KEY CHALLENGES
Overcapacity:
Exhibit 25: Major Dyes and Dyestuffs Capacity and Capacity Utilization, India,2008-09 to 2012-13
Inks and paints have
witnessed one of the
fastest growths,
thereby directly
impacting the
demand for dyes
Source: Frost & Sullivan analysis
Source: Frost & Sullivan analysis
28
0.93
1.45
2.02.2
2.6
0
0.5
1
1.5
2
2.5
3
2008 2013 I II III
Valu
e (B
illio
n)
164188
218
252 252
67
79 78
69 68
40
45
50
55
60
65
70
75
80
85
0
50
100
150
200
250
300
2008-09 2009-10 2010-11 2011-12 2012-13
Capacity
Capacity Utilization
Volu
me
(KT)
(%)
Indian Chemical Industry and Mega Trends Impacting the Industry
23 © 2014 Frost & Sullivan
As the exports demand gained traction during the mid-part of the last decade, manufacturersstrategized various capacity expansions, which were supposed to come in line by 2010-2012.The exports demand, however, slumped substantially due to global recession, forcing the manufacturers to run at lower utilization.
Capacity expansions
with anticipated
demand figures,
boomeranged and
resulted in
overcapacity
Indian Chemical Industry and Mega Trends Impacting the Industry
24© 2014 Frost & Sullivan
Mega Trends Impacting
the Chemical Industry
Indian Chemical Industry and Mega Trends Impacting the Industry
25 © 2014 Frost & Sullivan
Mega Trend 1-Energy/Sources: Need for energy security is forcing many countries to reducetheir dependence on oil and move towards other sources. Further, the recent nuclear crisisin Japan will increasingly favor the use of renewable energy sources such as solar energy andwind energy, and enhance safety related products and governance.
Industry Focus - 2020:• Making chemicals available from starch or seed oil stock• Use of novel feedstock like algae• Smart grid infrastructure• Stress on more efficient use of resources
Mega Trend 2-Technology: Technology development across sectors like IT, telecom, robotics,and innovative materials will enhance the need for innovation in the chemicals space to keeppace with changing world, either to match with vendors or to the supplier base.
Industry Focus - 2020:• Nano - composites for food packaging and nano wires for Optoelectronics• Self-repairing plastic products• Smart factories with zero-emission technologies
Mega Trend 3-Health and Wellness: In most countries worldwide, per capita healthcarespending is rising faster than per capita income which is unsustainable. Focus on preventionleads to a rise in expenditure on products for weight management and functional foods/beverages.
Industry Focus - 2020:• Personal care nutricosmetics• Fortification products with enhanced compatibility of use• Lifestyle and ergonomics key aspects in materials design
Mega Trend 4-Infrastructure: Tremendous improvement in operational efficiency being theneed of the hour across the globe, a lot of stress is on getting the infrastructure right. Economic development is now directly related with the kind of infrastructure projects in place.
Industry Focus - 2020:• Trade across the globe becoming easier to trace and manage• Materials for more energy efficient buildings with improved life• Prolonged storage and transport life of perishable products
Mega Trend 5-Globalization: Globalization has resulted in increasing competition from developing economies. The key success factor is availability of low cost production facility orfeedstock. These markets have high impact from global trends which needs to be locally addressed.
Industry Focus - 2020:• Trade across globe, Middle East becoming next production hub• Europe will lead the global chemicals industry for regulatory compliance• Demand influence from different markets
By 2020, nearly half
of world electricity
will be produced in
emerging regions
Nanomaterial,
flexible electronics,
lasers; SMART
materials will drive
multiple applications
Indian Chemical Industry and Mega Trends Impacting the Industry
26© 2014 Frost & Sullivan
A Few Developments in Chemicals and Materials Space: Most of the development in terms of products or processes has been to address the changingneeds due to one or more of the Mega Trends.
Exhibit 26: Chemicals and Materials Industry Growth Cycle
Globally, we are seeing MNCs moving to re-align their product portfolio and business strategywith Mega Trends. For example, Dow Chemicals has a product suite catering to infrastructureand personal care industries. At an organization level also, we are seeing increasing emphasison aspects of sustainability and responsible manufacturing. BASF is the only industrial company that has regularly presented comprehensive and quantitative corporate carbon footprint statistics since 2008 and has recently announced ambitious environmental, health,and safety goals for its 2020 vision such as reduction of greenhouse gases by 25 percent permetric ton of sales product.
If current trends hold
by 2050, healthcare
spending will double,
with treatment
claiming only 20-30
percent of the total
spend vis-a-vis 50-60
percent in current
scenario
Around US $41
Trillion is expected to
be spent globally on
infrastructure related
projects
Growth Stage
Product MaturitySource: Frost & Sullivan analysis
Indian Chemical Industry and Mega Trends Impacting the Industry
27 © 2014 Frost & Sullivan
GLOSSARY
1. Department of Chemicals & Petrochemicals: http://chemicals.nic.in/
2. Department of Fertilizers: http://fert.nic.in/
3. Chemicals and Petrochemicals Manufacturer’s Association of India: http://cpmaindia.com/
4. The European Chemical Industry Council: http://www.cefic.org/
5. American Chemistry Council: http://www.americanchemistry.com/
6. Dyestuffs Manufacturers’ Association of India: http://www.dmai.org/
7. Pesticides Manufacturers & Formulators Association of India: http://www.pmfai.org/home
8. Indian Paint Association: http://www.ipaindia.org/index.html
9. American Coatings Association: http://www.paint.org/index.php
DISCLAIMERThis White Paper prepared by Frost & Sullivan is based on analysis of secondary informationand knowledge available in the public domain. While Frost & Sullivan has made all the effortsto check the validity of the information presented, it is not liable for errors in secondary information whose accuracy cannot be guaranteed by Frost & Sullivan. Information hereinshould be used more as indicators and trends rather than representation of factual information. The White Paper is intended to set the tone of discussions at the conference inwhich it was presented. It contains forward-looking statements, par ticularly those concerningglobal economic growth, population growth, energy consumption, policy support for watersupply. Forward looking statements involve risks and uncer tainties because they relate toevents, and depend on circumstances, that will or may occur in the future. Actual results maydiffer depending on a variety of factors, including product supply, demand and pricing; politicalstability; general economic conditions; legal and regulatory developments; availability of newtechnologies; natural disasters and adverse weather conditions and hence should not be construed to be facts.
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