India is likely to account for greater than a fifth of incremental international consumption for chemical compounds over the subsequent twenty years as home demand is projected to rise to $1,000 billion by 2040, McKinsey mentioned in a report.
In the report titled ‘India: The subsequent chemical compounds manufacturing hub’, McKinsey mentioned the nation’s chemical trade has been a world outperformer in demand development and shareholder wealth creation during the last decade.
“It now stands poised to play an increasingly dominant role across both consumption and manufacturing in the global arena,” it mentioned.
The sector is projected to develop at 11-12% throughout 2021-27 and 7-10% throughout 2027-40 — tripling its international market share by 2040.
“India is expected to account for more than 20% of incremental global consumption for chemicals over the next two decades. Domestic consumption and demand is expected to rise from $170-180 billion in 2021 to $850-1000 billion by 2040,” it mentioned.
Chemicals discover broad utilization in human lives — from detergents to clothes and fragrances, from pesticides to paints, and telecommunication to music and media.
McKinsey mentioned the rising demand for bio-friendly merchandise globally may gain advantage India, as it’s among the many main producers of many chemical compounds which can be utilized in such merchandise.
“Triggered by the evolving geopolitical scenario and the trend to diversify from the existing core manufacturing markets; firms are seeking to make their supply-chains more resilient. With its strong value proposition, India could be a preferred destination,” it mentioned.
“However, India will continue to be import dependent for meeting its needs for chemicals. Out of the three main segments of the sector — inorganic, petrochemicals, and speciality — only speciality is expected to be a net exporter. Due to limited cracker infrastructure and scarcity of key feedstock and minerals, both petchem and inorganic segments will be import dependent.”
“Over recent years, changing geopolitical scenarios have led to many countries focusing on domestic self-sufficiency and localised supply chains. However, benchmarking India’s manufacturing competitiveness reveals that India has a strong starting point vs other key global chemical clusters that could translate into India becoming the next chemicals manufacturing hub,” McKinsey mentioned.
“India will be the fastest growing global demand centre for chemicals with domestic consumption set to grow at a 9-10% CAGR in the coming years on the back of rising disposable incomes, a favourable demographic dividend, increasing global preference for biofriendly alternatives, and growing diversification of global chemical supply chains,” it mentioned.
The speciality chemical compounds phase is likely to be a key driver of this development. It has the potential to contribute greater than $20 billion to India’s internet exports by 2040, a ten occasions jump from the present complete of $2 billion.
McKinsey mentioned benchmarking towards six international chemical clusters surfaces each India’s strengths and areas of enchancment as a world vacation spot for manufacturing chemical compounds. “Indian chemical companies often face obstacles in feedstock availability due to lagging cracker capacity and low access to building blocks and key minerals”.
Additionally, India faces a dearth of expert R&D expertise and challenges in well timed setting and land approvals. “Despite this, India is cost competitive in several chemical segments due to low capital and operating expenses such as labour, utility and overhead expenses etc,” it mentioned.
Coupled with promoters’ deal with excessive profitability and a tradition of course of innovation, Indian chemical firms generate one of many highest EBITDA per unit of funding in fastened belongings. “This is evident from global leadership of multiple Indian firms across segments like agrochemicals, pharma intermediates, dyes and pigments, carbon black etc,” it mentioned.
Many sub-segments in India’s chemical compounds sector supply alternatives for constructing at-scale companies. Winning performs exist throughout speciality chemical compounds (agrochemicals, flavours & fragrances, beauty chemical compounds), inorganic chemical compounds (caustic, fluorine) and petrochemicals (C4, C6 and C8 derivatives). “These sub-segments score high on both cost competitiveness — a function of domestic feedstock availability, trade balance, capacity utilisation, scope of process and tech innovation — and market attractiveness, an indicator of market size, demand growth, export potential,” it added.
