The worsening coronavirus crisis has emerged as a threat to global economic growth. But if it leads to disruption in production of chemicals in China’s Hubei province, the epicenter of the outbreak, then it may benefit Indian manufacturers, according to JM Financial.
Hubei has a large chemical industry, and the closure in 2016 of Hubei Chuyuan —- one of China’s top producers of dyes — led to a jump in prices and saw shares of Indian producers rally multifold, the brokerage said in a report.
“Currently none of the Hubei industries seem to have been impacted and dye intermediate prices have also not rallied," analysts led by Mehul Thanawala wrote. Prices could start to climb if the epidemic continues to spread and restrict movement, they said.
Six Indian chemical stocks tracked by the brokerage — Galaxy Surfactants Ltd., Fine Organic Industries Ltd. , Navin Fluorine International Ltd., SRF Ltd., PI Industries Ltd. and UPL Ltd., have beaten the market in recent years, helped by robust growth in end-user industries and exports to China, which has closed many chemical facilities on environmental concerns.
This month’s reduction in the US-China trade tensions has improved the outlook for profit margins and exports at Indian manufacturers after a tepid 2019, the analysts said. India’s chemicals shipments increased at about 21% annually between 2014 and 2018 before moderating last year due to the trade war and slower economic growth, they wrote.