Uncertain future for Indian chemical companies as low-cost Chinese imports flood the market

 Uncertain future for Indian chemical companies as low-cost Chinese imports flood the market

Leading local companies, including Alkyl Amines, Aarti Industries, and Balaji Amines, revealed a 20–50% drop in quarterly earnings compared to the same time last year.

At $32 billion in value, the specialized chemicals sector accounts for 22% of India's total chemicals and petrochemicals market.

After releasing disappointing second-quarter results, Indian specialty chemical manufacturers may have a rough ride in the second half of the year. This is because increased competition from Chinese firms reduced domestic players' ability to raise prices, which squeezed margins and left them with a poor outlook for the remainder of the fiscal year.

Leading local companies including Alkyl Amines, Aarti Industries, and Balaji Amines reported a 20–50% drop in quarterly earnings compared to the same time last year. Input costs increased along with industrial overcapacity, particularly for alcohol. These businesses, however, were unable to pass on their increased expenses to the customers.

According to a press release, Managing Director Ram Reddy stated, "In Q2, we faced an unprecedented phase of challenges in the specialty chemical industry, primarily due to an urgent shift in input costs, that culminated in lower landed costs of imported goods from rivals impacting Balaji Amines' ability to determine a fair price for our products."

Organic compounds known as specialty chemicals are used in a variety of common consumer and industrial goods. A KPMG analysis from last year estimated the sector's worth at $32 billion, or 22% of India's total chemicals and petrochemicals market. The industry serves a variety of industries, including those in the food, automotive, real estate, apparel, and cosmetics sectors.

Chinese imports are problematic

Chinese manufacturers are struggling with overcapacity and a lack of domestic demand, which is forcing them to increase exports in an attempt to get out of problems. On the other hand, rivals whose profitability is in jeopardy are finding the circumstances disturbing.

The chairman and managing director of Aarti Industries, Rajendra Gogri, commented on the heightened competition by stating that per kg margins had almost bottomed out in comparison to the first quarter. He noted that there has been more Chinese competition lately.

In the meanwhile, Alkyl Amines said during its analyst call that it is getting ready to file a claim for an anti-dumping duty against Chinese companies for their excessive shipments of ACN, or acetonitrile. Batteries, rubber goods, acrylic nail removers, fragrances, and medications are all made using acetonitrile. Fatty acids from vegetable and animal oils may also be extracted using this method.

"The entire process takes about six months, and we are currently putting the paperwork together to apply for anti-dumping (duty)," said Kirat Patel, executive director of Alkyl Amines. "We aim to maintain capacity utilisation of sixty to sixty-five percent," he said. However, we could have some influence if these prices escalate and continue in this manner."

While Balaji Amines' earnings for the quarter ended September fell 46% to Rs 32.69 crore, Alkyl Amines posted a second-quarter net profit of Rs 27.24 crore last week, down 48% from a year earlier.

Street anxious about the future 

Following the Q2 results, brokerage Motilal Oswal reduced its projections for Alkyl, pointing out concerns about pricing power. "We project AACL to have a revenue CAGR of around 11% between FY23 and FY25, with an accompanying 11% EPS CAGR. Increased competition might be a risk to our forecast because it would reduce AACL's pricing power as rivals affect market prices, the brokerage wrote in a report on November 9.

In response to Deepak Nitrite's quarterly earnings, stockbroker Prabhudas Lilladher noted tight phenolic margins. According to the brokerage, in FY24, EPS (profits per share) will drop to Rs 61.

ongoing inquiry into shipments of chemicals from China 

By submitting petitions to the Directorate General of Trade Remedies (DGTR), local manufacturers are addressing these problems. According to media sources, the DGTR opened several anti-dumping duty investigations into specific chemical imports from China last month as a result of an increase in dumping.