Specialty chemical companies have no near-term respite amid tariff woes
Weak demand, geopolitical headwinds, and US tariffs are keeping specialty chemical companies under pressure in H1FY26, but the second half may benefit from easing uncertainties and stronger exports.
The specialty chemical sector is headed for a tepid finish to the first half of FY26 (H1FY26), grappling with geopolitical headwinds and the lingering effects of US tariffs.
After a mixed performance in Q1FY26, expectations for Q2FY26 are muted. The second quarter is seasonally weak for most bulk and non-agrochemical firms. For agrochemical companies, meanwhile, excess rainfall across key Indian states likely disrupted crop-protection sprays, hurting demand. That, coupled with weaker exports, following pre-tariff buying in Q1, are also expected to weigh on Q2 earnings performance.
Except some pockets, latest chemical prices trends are discouraging as the dynamic tariff scenario has led to a pause in investments by end-user industries, affecting specialty chemical firms.
“Tariff is applicable on a number of major products exported to the US, like R32/R125 for SRF, Navin Fluorine International (NFIL), and Gujarat Fluorochemicals (GFL), on methyl methacrylate (MMA) for Aarti Industries, and on 2,4 D for Atul (Ltd). We have witnessed peaking of R32 prices in export markets, particularly the US, and hence continue to be cautious about refrigerant gas players like SRF, NFIL, and GFL," said Emkay Global Financial Services report dated 20 September.
For bulk chemical companies Aarti and Atul, Emkay sees a gradual earnings recovery. A bulk chemical is produced on a large scale since it serves as a fundamental raw material or intermediate for many specialty chemicals and consumer products.
Bleak outlook
Sentiment has also been weighed down by bleak commentary from large global players.
“US companies Dow Chemical and Eastman Chemical recently downgraded guidance for Q3CY25, citing soft demand from the consumer durables and building and construction sectors as well as weak spreads in chemical intermediates such as acetyls," said September Kotak Institutional Equities report dated 22 September.
Suppliers of chemical intermediates are also indicating a slowdown of demand from global agrochemical customers. Kotak points out, this could be possibly due to both the front-loading of ordering that happened in the past few months ahead of US tariffs and now the actual impact of the tariffs on economics and end-demand.
Shares of key specialty chemicals companies are down 5-26% so far in 2025. H2FY26 is expected to be relatively better than the first half, as clarity on the impact of tariffs on earnings and outlook emerges, but a rapid rebound seems unlikely.
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