The chemical industry is an extremely varied segment in the overall industrial structure of India. Being of the country’s oldest industries, chemicals have a sway over almost all other major industries of India. At a time like today, chemicals are needed almost everywhere. Be it food processing, metals, textiles, stuff made of leather or even rubber. It may very well be hard for you to identify one segment where chemicals aren’t needed.

Here are the four major categories in this regard:

  • Inorganic Chemicals
  • Organic Chemicals
  • Petrochemicals
  • Agro oriented chemicals.

 

There are currently 70,000 commercial products produced by the chemical industry. All of these range from cosmetics, toiletries, plastics and pesticides. The Indian chemical industry is somewhat of a dominant figure in the global trade of chemical. Thanks to our current demographics which largely consists of youths, the skilled worked and low costs of manufacturing, we are benefitting in the chemical business. The demand for chemicals is also very high in India. Various Agro based chemicals such as guar, starch, yeast and others are valued at around 1450 billion. They also contribute around 14 percent of the industrial sector’s contribution to our gross domestic product, which is a huge deal. Industrial chemicals have a share of nearly 10 percent in the overall exports of our country. It is spread over around 2000 units, which are mostly in the smaller sector. But, almost one third of the market is controlled by just the top 10 players.

Most of the growth in the past 25 years has been driven by Asia, which now owns almost half of global chemical sales.

About 85 percent of our chemical market is made up of Petrochemicals, synthetic fibers, pharmaceuticals, pesticide and fertilizers, paints and other materials. Whatever remains is presided upon by the intermediate chemical goods, or the specialty chemicals which aren’t produced in just any factory. The numbers are safely somewhere in the billions. Although it is an important part of our economy, the chemical industry isn’t spread over the entire country. In fact, most of it is prevalent only in the western part of our country. It has a whopping 48 percent share of our total investments. Gujarat takes the prize away when it comes to claiming the largest piece of the pie. It contributes the most to our total production of chemical goods.

Chemical Industry Vision 2030 A European Perspective

If the business gurus and technical experts are to be believed, within the next ten years, our chemical market is going to expand by almost four times. Anyone who wants to start up a venture in this field should jump right in. The fruit in the future is going to be plump and juicy. Our global growth rate in terms of chemical trade and manufacturing is a lot faster than most other countries. This industry is going to be booming a lot wider than it already is. Of course, as everything else in our country, this segment can use some technical innovation as well. As soon as some heads join together and new ideas are formulated, the Indian chemical industry in going to explode like never before. Every penny will be doubled in no time.

Indian chemical industry can touch $214 billion in next 4 years [source]

Factors to Consider When Starting a Chemical Manufacturing Plant

Before a chemical facility is built, intensive studies are done to come up with cost and profit projections, determine plant design feasibility, test marketability and establish the viability of the project. Some of the basic factors to consider include:

Market – for a plant that would manufacture intermediate product, will there be other industries that will need such raw materials for their own manufacture? If the plant plans to manufacture consumer goods like soaps, toothpastes, bleach, is the market enough to support such business?

Resources – where would the raw material come from? If the material will be sourced locally, can local resources sufficiently provide for the capacity of the operation? Where would the manpower come from? Is there enough skills among the locals for all the jobs available, or would the company hire people from other places?

Location – how is the proposed site located in relation to the source of the raw materials and to the intended market? Will it conveniently and cost-effectively receive raw material shipment and dispatch products for distribution? Does the site conform to the land use classification of the place and meet all other regulatory requirements?

Waste disposal – how will manufacturing waste be disposed? Is the proposed location suited for the waste disposal design of the plant?

Viability – considering all these factors, can the project be operated profitably?

Typically, chemical manufacturing plants are situated near the source of raw materials and near end users of their products. That is why it is usual for them to be near ports and be located near other industries – industries to which they sell the substances they produce.

Chemical manufacturing has certain adverse effects to the air, soil and water, which in turn could negatively affect people, plants and animals. As such, it is heavily regulated by the government. A chemical plant’s location must meet zoning regulations and its operation must conform to strict standards of environmental safety. It is subject to periodic tests and is penalized for non-conformance.

Key Industries driving the growth of Specialty Chemicals:

Automotive Sector: Indian focus of small cars is changing to midlevel cars, thereby increasing demands. Current production of automotive is growing on the average at 9-10%. The need for components, using such coatings is also increasing (current production of approx. 2million cars, 3million 2/3 wheeler, 0.3million LCV/HCV and unknown number of bicycles).

Most of global majors are present in India, therefore, related TIER I and II vendors. These companies follow norms of rest of the world, making it mandatory for others to follow.

Automotive Component export is a major segment of user industry, using specialty chemicals to meet the production standards of rest of the world.

International community is looking at India as a manufacturing base for reasons of manufacturing economy, knowledge of common language (English), multi directional technically skilled manpower.

Construction Chemicals: Construction industry is growing at approx.16% annually, to be recognized as an industry worth US$ 100bn by end of XII five year plan. Specialty chemicals account for only 0.4% of total construction spends as compared to a possible 1%, which is the norm in developed economies (paints, coating material, reinforcing fibers, admixtures and others). The key factor is, to have/developing products and adopting advanced coating, ceiling and reinforcing material like polyurethane base coating, silicon and polymer based re enforcing material.

Water Chemicals: The demand for water is growing, thereby putting pressure on availability of water for irrigation, drinking and industrial use. Chemicals for conserving this resource seem to be on priority list. Recycling/conservation of water has become a must. Water treatment chemicals for reducing in-process industrial applications, to reduce BOD /COD, disinfecting water for potable purpose offers potential beyond doubts.

Textile Chemicals: With the growth of demand, in both domestic and export market for textiles, the chemicals like dyes and pigments offer never reducing requirements.

Personal Care: With growing affluence, Indians are able to spend more on hygiene and personal care products. Increasing demand for wide range of cosmetic chemicals, health care products and well as hygiene products using specialty chemicals , polymers and oleo chemicals. This segment’s growth is expected to surpass the growth of other segments.

Valuation of specialty chemical segment: The nature of specialty chemical industry is very complex and therefore, while valuation, this must be considered. This industry provides stable margins in stark contrast to basic chemical industry. Specialty chemicals do not go through the stringent regulatory approvals, as in case of pharma, agrochemicals or food industry but supplies critical material used in these industries. These small volume/high value products contribute a small percentage to the total cost, enjoying a high level of client’s stickiness.

The sector is poised for a strong growth to both, top and bottom line, there by offering reentry opportunity.