Chemicals Monthly Update – September 2024

The chemical industry witnessed a monthly price decline across various segments. This trend can be attributed to subdued global business outlook as crude supplies from oil-producing regions may be disrupted. As India imports a significant portion of its crude oil from the Middle East, any rise in crude oil prices will increase chemical companies’ costs and affect profitability. On the global front, EU27 has seen a slight upturn in output despite weak demand and high energy prices. The EU27 chemical industry seems to have reached its ultimate low in Q2-2023. However, given the lack of demand, the European chemical industry production volumes are still far from the pre-Covid levels. Energy is still expensive than before the crisis and not competitive globally. We believe that the EU gas prices which are currently higher than the US needs to decrease, and the overall business confidence in the chemical industry needs to improve. We expect European recovery to benefit Indian exports; however, recovery is likely to be gradual without any stark improvement in H1FY25, as suggested by Indian chemical companies during the last couple of quarters. Our outlook for Indian chemical companies remains cautious in the medium term. Indian chemicals companies are likely to report muted earnings in Q2FY25 as global chemical demand looks moderated sequentially, geopolitical tensions disturb trade flow, prices remain suppressed, and input costs are inching up sequentially. However, the visible moderation in chemical demand in Q2FY25 looks temporary and is primarily due to trade challenges, such as the unavailability of containers and longer trade routes due to ongoing wars. We, thus, believe that Indian chemical companies reverberated gradual improvement in H1FY25, while significant recovery is only expected in H2FY25. We anticipate various headwinds, such as volatile crude oil prices, higher logistic costs, war-related situations and supply chain disruptions, to normalize and expect most chemical companies to perform better. The demand from various end-user industries and utilization levels of most chemical companies have increased during Q1FY25, which shows signs of recovery and keeps the sector outlook positive in the long term.

The pricing trends remained weak in most chemicals. China’s chemical prices remain disconnected from Indian prices due to local demand-supply dynamics, while soda ash import prices remain weak. Acetone and Propylene prices advanced, while Acetic acid, Benzene and Acetic Acid prices corrected during the month. Prices of Phenol recovered in recent months after a correction, while Toluene and Ethanol contracted during the month. In the refrigerant category, prices of R-22 increased in recent months, whereas R-134 prices softened. Fluorspar prices decreased, whereas ethanol remained muted during the month.

From a longer-term perspective, companies higher up in the specialty chemical value chain, such as SRF and Navin Fluorine, stand to benefit. We prefer companies that are higher up the specialty chemicals value chain and stand to benefit immensely from a longer-term perspective. To conclude, companies delivering value-added products and moving up the value chain will fare better than pure commodity plays in the long run.