Stalling global demand and overcapacity in key export markets have caused Indian chemical exports to decline by 4% annually in the last two years. India’s exports of chemicals fell from $36 billion in 2021 to $33 billion in 2023, says a study by McKinsey.
Year-on-year (y-o-y) growth of India’s chemical exports to North America dropped significantly, from 21% (between 2019 and 2021) to 2% (from 2021 to 2023), with petchem and speciality chemicals exports dropping due to supply chain constraints and industry destocking. In 2023, chemical companies carried approximately 75 days of inventory, compared to the pre-pandemic average of 45 days, says the study.
As against this, India’s chemical imports increased by 1% from $61 billion in 2021 to $62 billion in 2023.
Europe and Asia Pacific (APAC), which accounted for about half of India’s chemical exports, also saw steep dips in y-o-y market growth (from 11% to 1% in Europe, and from 10% to 4% in APAC). In Latin America, the growth of imports from India declined from 17% in 2019 to 2021 to minus 4% from 2021 to 2023. Overall, total imports fell by 37% with reducing trade deficits, indicating an increasing reliance on domestic production, says McKinsey.
Additionally, competition with Chinese suppliers leading to price cuts has potentially contributed further to the decrease. Europe and APAC, which constitute nearly 50% of the Indian export market, showed a consumption slump in the period of 2021 to 2023 compared with the preceding two years. In Europe, consumption slowed down from 11% yearly growth to 1%, while APAC experienced a drop from 10% to 4% in this period.
The study says falling demand for European exports means that utilisation across a range of products could dip to under 70% by 2030, an estimate based on existing supply, currently announced capacity additions and forecasted demand projections. European chemical exports are facing headwinds across geographies. In China, the surge in local capacity has led to a nearly 7% year-on-year decline in exports from Europe. Incentives for domestic manufacturers in the US are also potentially impacting demand from Europe.19 In the Middle East, there has been a move towards speciality chemicals, away from upstream crude oil domination, with increasing investments by state-owned players in speciality chemicals in China.
China’s growing capacity is likely to disrupt global markets going forward. The country plans an additional capacity of around 22 million tons for propylene and 30 million tons for ethylene by 2027. This, along with overall demand sluggishness, creates an overcapacity scenario. Around 60% of the confirmed capacity additions for ethylene worldwide are expected from China. From being a net importer of petrochemicals, China is projected to surpass self-sufficiency and become an exporter, says McKinsey.