Indian Specialty Chemical Industry: Poised for a quantum leap

Indian Specialty Chemical Industry: Poised for a quantum leap

Integral to India’s economic surge and its aspirations to become a global manufacturing hub by fulfilling end-consumer needs

  • By Shobhit Aggarwal , Chief Strategy Officer - Global Chemicals, Fashion Yarn & Insulators, Aditya Birla Group | May 26, 2022

India’s specialty chemicals sector has been playing a pivotal role in driving the chemical industry’s growth. It constitutes approximately 20% of the total chemicals market in India by value. India is emerging as a preferred manufacturing hub including contract and custom synthesis for specialty chemicals both for domestic as well as export markets. The Indian specialty chemicals industry is expected to grow 11-12% to reach an estimated USD 64 bn by 2025. Further, it is expected to provide an opportunity of an additional USD 60 bn across specialty chemicals segments over the next 8-10 years. 

The numbers are big but what makes specialty chemicals a segment to watch out for is the role it plays in enabling India’s advances in megatrend industries such as nutrition and wellness, hygiene and personal care, water treatment, lightweight vehicles (including EVs) and renewables. 

In order to capitalize this growth potential, Indian speciality chemical companies need to ride the wave of evolving trends by servicing newer sectors, venturing into new chemistries. Industry also needs to adopt new ways of doing business with emphasis on collaborations and digitization. 

Evolution of a revolution

Interestingly, India accounts for 16% of dye specialty chemicals globally, but we are still less than 5% of the overall global specialty chemical pie. The reason for this is India has always focused on a restricted range of traditional segments like agrochemicals, pharma and textiles to some extent. However, other markets have ventured into segments like automotive, polymers, food, nutrition, life science, defense, etc. increasing the pie of the specialty chemicals. 

There is an ongoing evolution towards sustainable products and processes, circular economy and end of life material recovery. Thus, the chemicals industry is witnessing an increasing scope of servicing new sectors with products and solutions, with an increasing need for specialty chemicals and materials. 

The Indian industry today will thus evolve to capitalize on the larger trends at play to move synchronously with global companies. This will lead to a surge of new chemistries that will flow into India and be offered by Indian chemical companies, which were conventionally the bastion of only the major international players. 

Indian specialty chemical companies will need to adapt to these changing requirements with strong technology support, investment in research & development, identification of customer needs and focused customer collaboration. 

Collaboration with the stakeholders

As complexity and sophistication enters the downstream industries and consumer demand for contemporary products and technology grows, the customers of downstream industries would look to the Indian industry to provide not just products but robust solutions. 

Through active collaboration with the value chain, Indian companies will need to start thinking of solutions that will impact the entire downstream ecosystem – make processes more efficient and products more sustainable. This would need increased R&D, innovation and application development.  For instance, mobility ecosystems of the future involving fleets of autonomous and electric vehicles, will require a whole new range of materials and specialty chemicals to produce everything from custom-made interiors, lightweight materials and batteries, to simplified powertrains. 

At Aditya Birla Group’s Advanced Materials business, we are witnessing enhanced collaboration with customers for developing green and sustainable technology. For example, by using our pioneering technology platform ‘Recyclamine’, a non-recyclable epoxy thermoset can now be recycled, and material additives can be salvaged. This technology can be applicable across industries like wind, automobiles, sports equipment, and other segments. It will not be long before India adopts these technologies in a major way. 

Besides collaboration with customers, strategic partnerships with global players and complementary domestic players will help in creating a sustainable large scale business by leveraging each other’s capabilities and synergies e.g. Grasim Industries Ltd, Chemicals Division announced a partnership with Lubrizol for setting up largest CPVC plant in India 

Digital Disruption

Digital, undoubtedly, will be one of the key drivers of our future. From process automation, digital simulation, artificial intelligence, predictive analytics and preventive digital interventions, today’s chemical companies are exploring technologies that drive efficiency, quality and cost optimization. 

Given the pressure on the margins (especially in contract manufacturing), specialty companies will be required to adopt digital solutions in the areas of manufacturing efficiencies for cost reduction, online product information and sales portals, supply chain optimization, etc. The holistic adoption of digitalization by the chemical industry will support the transformation of the existing business to absorb newer capabilities, platforms, gain insights using data analytics and make timely changes in business decisions to optimize the existing operating model and maximize efficiency and profits. New development processes, including rapid prototyping and parallel experimentation supported by data analytics, can help companies respond faster. There is a potential for a 3-5% improvement in return on sales through digital deployment in production operations. Digital-enabled initiatives in marketing and sales could further improve the industry’s average ROS by 2-4%. 

Combining a digital channel with process digitisation will create an improved customer experience, while lowering the cost to serve. Digitisation can also improve safe operations by ensuring compliance, creating digital workflows, facilitating critical communications, keeping track of key performance indicators, etc. 

Yet another area of impact would be traceability of products and solutions globally. This would enable assurance to user industry segments on quality and specifications of chemicals and materials when being used in critical manufacturing and products with high sensitivity. This can be extended even for end consumers, in areas such as food, fabrics, and construction materials. 

Global specialty chemical companies have already started investing significantly in digitization, e.g., a European specialty chemical major invested Euro ~100 million in digitalization as early as 5 years ago. Another major specialty chemical major has implemented an integrated approach to digitizing R&D with focus on data science and connected knowledge systems. 

Companies need to have a clear roadmap to establish an accommodating culture that promotes flexibility and learning. There is a need to develop a complete ecosystem for the adoption of digitalization.  

Looking beyond China 

The global pandemic and the subsequent disruptive impact have encouraged many companies to de-risk their supply chains. Increased dependence on a single manufacturing source, rising costs in China and growing US–China competition, stringent environment, and compliance costs, etc. have created vulnerabilities which have driven firms to diversify supply chains outside of China.

India is uniquely positioned to benefit as MNCs increasingly adopt the 'China+1' strategy owing to its competitive cost advantage, focus on quality and sustainability, conducive business environment led by reforms and incentivized government policies. Today, the Indian Government allows 100% FDI in chemicals, and has plans for Production Linked Incentive schemes in the Chemicals sector.  

With this shift from manufacturing out of China, India is already becoming a preferred manufacturing hub for many specialty chemicals segments e.g. agrochemicals and its intermediates (also supported by domestic consumption growth).  India has already witnessed modest benefits from the trade diversification with sectors such as textile, specialty chemicals, and electronics that have been tipped to register significant growth. 

Additionally, the concept of distributed manufacturing systems is increasingly becoming attractive for manufacturers. Moving from a single-country dominant manufacturing set up to a multi-country operation is being looked upon as a way of mitigating risks associated with global supply chain disruptions and political headwinds. This of course is a business choice more complex than a mere manufacturing set-up as it’s a tradeoff between a reliable supply chain versus scale benefits. For the Indian specialty chemicals player with global aspirations, this can be the potential way forward.

The road ahead

A consistent value creator, India’s chemical sector remains an attractive hub of opportunities. The sector has created great wealth for investors in the past and stocks of many specialty companies have risen manifold. Robust demand across end-user industries led by rising domestic consumption, strong export growth and rising import substitution are expected to be primary growth drivers for the chemical sector.

Several factors will play a significant role in India’s growth story. With global oil and gas majors looking for downstream chemical opportunities, it could increase the focus on petrochemicals leading to higher investment in the sector which could ease feedstock challenges and boost self-sufficiency. 

The demand environment is also expected to be favourable, with volume uptick across end-user industries led by rising domestic consumption, the push for self-sufficiency leading to potential import substitution and higher exports. Growing strong domestic demand and increased exports will continue to fuel the growth of the Indian specialty chemicals industry. The robust performance of the sector is prompting specialty chemical manufacturers to ramp up their production capacity to meet the demand.  

To sum up, the fast paced growth of the Indian Specialty Chemical industry is inevitable. This growth trajectory will witness a transition to specialty materials as user industries evolve. The specialty chemicals are reshaping the future of India’s economic landscape with a renewed approach to products and solutions, and if India’s demands and megatrends emerge, the specialty chemicals industry will need to further gear up, maybe faster than we would imagine.

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