India’s chemical sector faces renewed pressure as higher US import tariffs threaten to derail an anticipated recovery in exports and margins, according to a report by India Ratings and Research (Ind-Ra).
The agency warned that a 50 per cent increase in US tariffs could lead to a single-digit decline in revenue for Indian chemical manufacturers, while profitability may fall by up to 15 per cent of EBITDA margins. The US currently accounts for about 15 per cent of India’s chemical exports, of which nearly half are exempt from the new tariff regime that took effect on August 27, 2025.
“Domestic demand is likely to be healthy in FY26, but companies with large exposure to non-exempt products in the US will feel the pinch,” said Siddharth Rego, Associate Director, Ind-Ra. “Firms undergoing major capex or those with limited liquidity, particularly MSMEs, could face short-term challenges.”
After two weak years, the Indian chemical industry had shown signs of stabilisation, with margins improving to 14 per cent in April–June FY26 from an average of 13 per cent in FY25. However, the new tariff structure has disrupted this momentum, clouding the sector’s near-term prospects.
Exports to the US have slowed since September as suppliers and buyers negotiate cost-sharing mechanisms. Although chemicals often form a small part of total product costs, allowing some price pass-through, India’s tariff disadvantage compared to China, Canada, and Mexico could erode its competitiveness.
Ind-Ra noted that organic chemicals and agrochemicals form the bulk of Indian exports to the US, while dyes and inorganic chemicals have limited exposure. A global slowdown in textile demand could further weigh on dye consumption.
While Ind-Ra expects overall revenue loss to remain in the single digits, firms heavily reliant on non-exempt product exports could see declines extending into the low teens. The agency said the profitability impact will depend on how much of the cost increase suppliers can pass on to customers.
China’s share in US chemical imports fell to 10 per cent in 2023–24 from nearly 13 per cent over the previous five years, while India’s share remained stable at around 4 per cent. Although India was expected to gain from China’s retreat, Ind-Ra said the new tariff differential reduces that advantage.
On the positive side, the reversal in tariff differentials with China may also limit the influx of cheaper Chinese chemicals into India, cushioning domestic prices. Steady domestic demand and lower price erosion are expected to support profitability through FY26.
Among product categories, bulk chemicals such as soda ash, caustic soda, and carbon black are likely to perform well, while PVC and phthalic anhydride may face pricing pressure. The agency added that government measures like anti-dumping duties or minimum import prices would be key to maintaining competitiveness amid global headwinds.
Capital expenditure in FY26 is expected to focus on cost optimisation and ongoing projects, with many companies deferring new investments. While reduced shipments may ease working capital pressure, slower orders could prompt some firms to extend credit periods or increase inventories.
Despite the challenges, Ind-Ra said most rated chemical firms continue to maintain comfortable liquidity and moderate leverage, though MSMEs and companies with large ongoing capex may experience financial strain if tariff pressures persist.
“Large corporates are better positioned due to easier access to funding, but smaller entities lack such cushions,” Ind-Ra cautioned, adding that prolonged tariff pressure could gradually weaken the sector’s balance sheet strength.
The agency said it will continue to monitor geopolitical developments and their impact on India’s chemical export outlook.
