Chemical Industry Overview: May 2024 Demand & Pricing Trends

Gradual demand recovery expected

The chemical industry is experiencing a mixed trend in prices across various segments. Domestic demand is gradually coming back post-destocking, and prices are expected to firm up as demand improves. Globally, inventory destocking in the chemical industry is slowing down, indicating a return to normalcy. EU27 chemical production increased for the third consecutive month in April 2024 and moved into positive territory for the first time in February 2024 after 20 months of decline. Export orders showed encouraging signs until March 2024, but saw a slight downturn in April 2024. While it’s still early to say demand is fully normalising, China’s high level of chemical production and intentions to increase exports could impact global competitiveness.

Weak global demand from key downstream sectors and persistently high energy costs are expected to weigh on the sector’s future prospects. Our outlook for Indian chemical companies remains cautious in the medium term. Recent quarters have shown mixed performance, with gradual improvement in Q4FY24 supported by better export demand for global players. Lower demand and higher domestic and global capacity continued to impact commodity chemicals like Chlor-alkali and Soda Ash. Indian chemical companies are expected to see gradual improvement in H1FY25, with significant recovery anticipated in H2FY25.

Despite challenges, the chemical industry has weathered the storm due to long-term destocking trends. Indian chemical companies are well-positioned to benefit from growing domestic demand. We expect headwinds like volatile crude oil prices, higher logistics costs due to disruptions in the Red Sea, and demand-supply dynamics to normalise, leading to better performance for most chemical companies. Early signs of demand recovery from various end-user industries keep the long-term sector outlook positive.

Pricing trends remain mixed. China’s prices are disconnected from Indian prices due to local demand-supply dynamics. Import prices for soda ash remain weak, while prices for Methanol, Acetic Acid, and Aniline have increased. Prices for Benzene, Ethyl Acetate, and Acetone have corrected, while Phenol prices have modestly recovered. In the refrigerant category, R134a prices have risen recently, whereas R-32 prices have softened. Bromine and IsoPropyl Alcohol (IPA) prices have decreased. Overall, most chemical prices have bottomed out for now. We will closely monitor supply disruptions in the Red Sea and geopolitical issues like the Israel-Iran conflict for any potential impact on pricing.

Key beneficiaries in the Indian chemical sector include Aarti Industries, Archean Ltd., Chemplast Sanmar, Deepak Nitrite, GNFC, Jubilant Ingrevia, Laxmi Organics, and Sudarshan Chemical. Companies higher up in the specialty chemical value chain, such as SRF and Navin Fluorine, stand to benefit significantly. We prefer companies delivering value-added products and moving up the value chain, as they are likely to fare better than those focused on pure commodity chemicals in the long term.