![](https://www.cmgassets.com/s3fs-public/styles/article_node_main_image/public/2024-07/pexels-magda-ehlers-pexels-2569839.jpg?h=b7b9e179&itok=1GxDY1wR)
Indian chemical industry sees 9% decline over three years
Enhancing digital and global strategies can boost short-term margins.
India's chemical industry experienced a 9% decline in total shareholder return (TSR) from 2020 to 2023 due to falling margins, according to a February 2024 McKinsey report.
This decrease is attributed to stalling global demand, overcapacity in key export markets, and commodity price volatility.
Over the last two years, the industry faced a widening trade deficit with exports declining 4% annually.
Notably, India's chemical exports to North America saw a significant year-on-year growth drop from 21% (2019-2021) to 2% (2021-2023). Europe and APAC, which account for about half of India's chemical exports, also experienced steep declines in market growth from 11% to 1% and 10% to 4%, respectively.
Current challenges
Overcapacity in Europe and declining demand in APAC have pressured Indian chemical companies, potentially reducing utilization below 70% by 2030.
Geopolitical unrest, global overcapacity, and China's demand-supply dynamics have exacerbated commodity price volatility, further challenging the sector.
Rising feedstock prices and falling capacity utilization have decreased petrochemical margins over the past two years.
Five key priorities
There are five key priorities that chemical companies could consider to secure their competitive advantage in a volatile market.
First, companies could build functional excellence through digital and analytics-based performance improvement. This could significantly increase annual Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) by 400 to 500 basis points.
Next, companies should consider internationalisation and becoming truly global to seek out new value pools.
Amongst the ways to do this is to build or acquire a suite of institutional capabilities such as global business development, customer access channels, local legal entities, supply chain infrastructure (warehouses, depots, etc.), application development setups, and deep regional regulatory understanding.
This could help companies increase annual revenue by 10% to 30%.
Third, accelerating innovation through application-based innovation and new product development particularly import substitution, can also help possibly increase annual revenue by around 5 to 10 percent.
Intense focus on innovation and research has assisted chemical companies create differentiation between companies.
Fourth, sustainability should also be a dual focus for companies, as they move towards decarbonisation and invest in green alternatives.
Finally, companies should consider deepening and globalising the talent pool that could help equip themselves with the right skill set and capabilities across functions that include research and development, technical sales,
and shop-floor operations.
While the first two priorities of improving functional excellence and adopting global strategies can help enhance margins in the near term, the remaining ideas can ensure the continued relevance and competitiveness of Indian chemical companies in the long run.
By focusing on these priorities, the Indian chemical industry can shape the future of chemical companies and potentially achieve the ambition of a US $1t chemical market by 2040.