Fine and Specialty Chemicals Industry
21 May 2018
No economy can achieve growth without the chemical industry. A large number of industries are dependent on the chemical industry for their growth. The chemicals produced by the industries are used as raw materials across various sectors in the country. Fine and specialty chemicals are a high end version in the supply chain or chemicals. It is used in smaller proportion and is a niche sector as compared to its counterparts. The markets across the globe look promising for the industry as high growth is projected in the coming years.
The chemical industry can be divided into three broad categories which include commodity chemicals, specialty chemicals and fine chemicals. Commodity chemicals are produced in large quantities and have a low cost. Their applications can be traced back to their chemical structure. Further, specialty chemicals are a mix of different chemical substances which are designed and produced for a specific application. Its formulation is unique and is a result of scientific research. It is ofa higher cost and is produced by batch plant. Lastly, fine chemicals are produced in a small quantity and can be used as components in the formulation of specialty chemicals. Their cost is relatively high.Fine chemicals are high production volume chemicals which are complex and pure chemical substances that are produced in limited quantities. They are described by exacting specifications for further processing within the chemical industry. The cost of production of fine chemicals is high and the global production value is about $85 billion. They are used as starting material for specialty chemicals like agrochemicals, pharmaceuticals and biopharmaceuticals. The industry is fragmented and is dominated by a few large companies. Fine and specialty chemicals have become an important aspect of the chemical industry. The industry is subject to high degree of regulations by the government. Fine chemicals are used as a starting material for specialty chemicals and it accounts for about 4% of the total chemical industry.
Specialty chemicals are used to add value to the finished products and are sold on a business to business basis. They can be divided into various sub segments on the bases of use end application. The chemicals can be divided into ten sub segments which include agrochemicals, paints and coatings, colorants, construction chemicals, textile chemicals, polymer additives, personal care, flavors and fragrance, surfactants, water treatment chemicals and textile chemicals.
Specialty chemicals in India
India has the necessary drivers for specialty and fine chemicals required in the industry. It has domestic availability of material at competitive prices, a strong demand growth in consumer industries and industries that are heavily investing in research and development. India can become the top destination for specialty chemicals. Companies with high focus on research, a diversified product range and an increasing share of revenue from high value products will be attractive in the long run. India’s specialty chemical industry is valued at $25 billion and has shown 13% growth in the last five years mainly led by domestic consumption. India’s market constitutes 3% of the global specialty chemical market and has a potential to grow to 7% by 2023 with the market size reaching a range of $100 billion.
There is an economic slowdown in China which is contributing to the growth of the sector in India. The “Make in India” initiative by the Government is expected to add a push to the emergence of India as a manufacturing hub. It will also encourage foreign direct investment in the country. Global companies are showing interest in the Indian marketing that is driven by consumerism. Although India’s chemical industry’s growth rate was only marginally better than that of China in the last five years, India’s chemical industry is slated to grow by 7% CAGR in the next five years.The Chinese chemical industry has overcapacity in commodity chemicals with high reliance on imported specialty chemicals. With an increased emphasis on environment protection, there has been an increase in exports from India.
Key Industries driving growth in India
Automotive: Earlier Indians used to focus on small cars and this attitude has now changed to midlevel cars, thus increasing its demand. Automotive components form a major segment of user industry which has led to an increase in the demand of specialty chemicals in order to meet the production standards. There is an increased demand for components and coating.
Construction:The construction industry in India is growing at 16% per annum and is estimated to become a $100 bn industry by the end of the next five years. Specialty chemicals account for 1% of total construction spends in developed economies. However, India accounts for only 0.4% of the total spend. This is set to change with developed products and advanced technology being used in the industry.
Water Chemicals: There is an increased demand for water across the country. Chemicals for conserving the resource is on top of the list and water treatment chemicals will be in demand in the coming years.
Personal Care: With an increase in consumerism and spending power, Indians are spending on hygiene and personal care products. The increase in demand for cosmetics, health care products and hygiene products will lead to an increase in the demand of fine chemicals and polymers.
Textile Chemicals:There is a surge in demand on domestic and export market for textiles like dyes and pigments.
India needs to focus on research and development. Only large, dominant companies tend to focus on research and offer a varied range of products. The industry should focus on the development of products and improvement of the product quality in order to gain a competitive edge in the industry. It is also a challenge to adhere to government regulations. Companies need to focus on eco-friendly products and processes that address issues related to air and water pollution. The fragmentation in the industry is also a challenge for companies. The sector is poised for strong growth in the top, middle and bottom level. There is immense opportunity for the Indian chemical sector to expand the reach and increase its exports.
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