Chemicals Monthly Update – August 2024

The chemical industry witnessed a monthly decline in prices across various segments. This trend is attributed to a subdued business outlook in end-user industries, which has impacted demand for chemical products. Meanwhile, crude oil prices saw a marginal increase over the same period. The decline in chemical prices and the slight uptick in crude may reflect shifts in demand-supply dynamics and changing market conditions in the broader industrial landscape. However, India remains on a strong footing in chemicals, led by the increasing interest of global companies to source from India to de-risk their supply chain, increasing share of specialty chemicals in the overall product mix and robust capex by chemical companies to capture future growth. The global chemical industry appears more stable; with EU 27 commentary suggesting a slight uptick in order book but still reflecting limited demand. The EU27 chemical industry has shown a positive trend, moving beyond its ultimate output and low-capacity utilisation. The EU27 chemicals exports to the non-EU 27 area increased by EUR5.6bnfromQ4-2023 to Q1-2024. The country analysis shows that the USA and the UK contributed mainly to this positive development. Observing the change in this critical data point in the past few quarters, we turn positive on the chemical sector recovery in the European region. However, it is expected to be gradual. 

China reported high chemical production in 2024, accounting for more than 40%of global chemicals sales. The monthly data shows high production level in China in December 2023, followed by a clear negative trend from December 2023toApril 2024.Our outlook for the Indian chemical companies remains cautious in the medium term. In recent quarters, chemical companies have shown mixed performance. We believe that a tough time for the chemical industry is behind us, and the sector is poised for improvement in performance as the business outlook turns positive. We, thus, believe that Indian chemical companies reverberated with gradual improvement in H1 FY25, while significant recovery is only expected in H2FY25. We hope various headwinds, such as volatile crude oil prices, higher logistic costs, and supply chain disruptions, will normalise and expect most chemical companies to perform better. The demand recovery from various end-user industries and utilisation levels of most chemical companies have increased during the quarter, 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. Acetic acid, PVC, and ethanol prices have advanced, while Benzene, Toluene and Acetone prices have corrected during the month. Prices of Phenol have recovered in recent months after a correction. In the refrigerant category, prices of R134a have decreased in recent months, whereas R-32 prices have softened. Fluorspar prices decreased during the month. However, Palm Kernel Oil prices increased on a monthly basis. 

Companies such as Aarti Industries, Archean Ltd., Chemplast Sanmar, Deepak Nitrite, GNFC, Jubilant Ingrevia, Laxmi Organics and Sudarshan Chemical are the key beneficiaries. 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. Companies delivering value-added products and moving up the value chain will fare better than pure commodity plays in the long term.