India's chemical sector facing risk from China overcapacity, high crude prices and weak global demand: Nuvama

New Delhi [India], January 15 : The chemical sector in the country is facing multiple structural and macroeconomic risks, with challenges ranging from China's persistent overcapacities to elevated crude oil prices and weak demand in key western markets, according to a report by Nuvama.

The report highlighted that one of the biggest structural risks for Indian chemical manufacturers comes from China's dominance in global commodity chemical capacities. China holds significant global capacity across products such as soda ash, caustic soda, phenol, PVC, polycarbonates, epoxy resins, TDI, phthalic anhydride and acetic acid.

Despite demand conditions, utilisation levels in China remain well below optimal levels, keeping global prices depressed.

Nuvama noted that state-backed Chinese producers continue operating even at losses, which distorts the global supply-demand balance and caps recovery potential for Indian chemical companies, limiting any sustained improvement in pricing and margins.

It stated "China's chemical industry continues to operate with massive overcapacities across virtually all major commodity chemical chains".

The report also added that elevated crude oil and feedstock prices are another major concern for the sector. Higher crude prices inflate the cost of key chemical feedstock such as naphtha, benzene, propylene and ethylene.

The report added that energy-intensive downstream chemical chains are particularly vulnerable during periods of sustained oil price volatility.

The Nuvama report also flagged USD-INR currency risk as an important headwind. A stronger Indian rupee against the US dollar reduces export realisations for Indian chemical companies, especially those dealing in bulk and mid-value products.

Since Europe and the US are key export destinations, currency appreciation can negate India's cost advantages, particularly when global chemical prices are already under pressure.

Weak end-market demand in western economies continues to weigh on volume growth. According to the report, a persistent slowdown in Europe and the US across housing, consumer goods, FMCG, agrochemicals, automotive and construction-linked sectors has impacted demand.

Weak residential construction has affected demand for PVC, caustic soda and polycarbonates, while subdued agrochemical and pharmaceutical demand has weighed on intermediates and solvents.

In addition, policy and execution gaps within India remain a challenge. Citing the NITI Aayog report, Nuvama pointed out that delays in environmental clearances, weak enforcement of anti-dumping duties and high logistics and energy costs dilute India's competitiveness.

Without faster approvals and more supportive trade policies, the report warned that India risks missing the opportunity created by Europe's industrial decline.

Disclaimer: This post has been auto-published from an agency feed without any modifications to the text and has not been reviewed by an editor