India depends on China for chemicals across the value chain with the latter's share in imports for broad categories ranging between 10 and 40%, according to officials at the Indian Chemical Council.
"The supply chains are drying up so we could see an impact in the next few months. A wide variety of raw material is imported from China and it is not possible to quickly switch around for alternative sources. Also, cost-wise China used to be the most competitive. Some people are seeing cost increases that have to be absorbed and passed down the chain," said Sudhir Shenoy, country president & CEO - Dow Chemical International Private Ltd India.
China being a huge hub for material movement, a fallout of restrictions is that if containers remain stuck in the country, there are not enough to move in the rest of the world, Shenoy said.
India's share in global chemical trade by value is 3%. Chemicals form a significant part of the overall trade flow in India and ranks fourth in imports, after mineral fuels and oils, precious stones and metals, and electrical machinery.
Petrochemicals are the largest category of India's chemical imports by value at 54%. Intermediaries constitute 60% of petrochemical imports. Intermediaries like ethylene oxide, propylene oxide, polyols, phenol, acrylic acid, and styrene are the primary feedstock for specialty chemicals which in turn are used to produce a vast majority of consumers and technology products.
"If you go through dyestuff, the main raw material is coming from China. Now the inventory is sold off and within a month if we cannot get this material, there will be shortage of reactive dyes and there is no other destination that we can source it from," said Jayantibhai Patel, president, Alkali Manufacturers Association of India.
India is largely self-sufficient in naphtha, the feedstock for petrochemical building blocks and bulk polymers. However, the country has been facing significant domestic supply shortfall in almost all petrochemical intermediaries of up to 52%. This has led to petrochemical intermediaries imports rising at a compounded annual growth rate of 5% between 2014 and 2018.
But a few players also see this supply shortage as an opportunity to boost manufacturing and increase prices. "I think India's chemical industry may benefit as this is also an opportunity to produce more. Our business has seen increased demand from users and product prices have also improved," said Rajendra Gogri, chairman and managing director, Aarti Industries Ltd, a chemical manufacturer, and supplier.
Indian pharma companies import almost 70% of pharmaceutical ingredients from China.
Companies involved in the production of rubber chemicals, graphite electrodes, carbon black, dyes and pigments may benefit from the current situation as they may see an uptick in demand because of a fall in imports from China.
The domestic chemical industry, led by the Indian Chemical Council (ICC), has set a goal of doubling turnover from the current $150 billion to $300 billion by 2025, provided the government extends its support to the proposed infrastructure and policy changes.
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