Demand and price recovery unlikely to be strong
The global chemical industry is currently facing a period of lower demand and pricing, primarily due to various economic challenges worldwide. Despite these hurdles, there is an expectation of gradual improvement in the latter half of the fiscal year. The chemical sector, particularly in emerging markets, has seen some buoyancy thanks to anticipated interest rate cuts. However, it remains to be seen how the sector will navigate through potential fresh inflationary pressures and supply chain disruptions, especially if issues like the Red Sea crisis continue. The general demand for chemicals has been weak, impacted by economic slowdowns in key regions such as Europe, the US, and China. This slowdown has led to reduced consumer demand and lower-than-expected inventory levels in various industries.
In terms of pricing trends, most chemicals have experienced subdued prices, although there have been instances of modest recovery from low levels. Notably, heavy soda ash and caustic soda prices have seen a significant decrease, while prices for certain chemicals like benzene and methanol have risen. The fluctuation in prices is also evident in the refrigerant category, with varied trends observed in December 2023. Overall, it appears that chemical prices have reached a low point for the time being, and future growth will likely depend on how demand in China evolves in the coming months.
From a company perspective, certain firms in the chemical industry, especially those specialising in specialty chemicals, are poised to benefit from these market developments. Companies like Aarti Industries, Alkyl Amines, and Clean Sciences, known for their higher position in the specialty chemicals value chain, are likely to see long-term benefits. On the other hand, the commodity chemicals segment is expected to see improved pricing levels owing to solid domestic demand. In the long run, companies that focus on delivering value-added products and moving up the value chain are anticipated to outperform those concentrating solely on commodity chemicals.
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