India: An emerging giant?
Some see India as a major force of the future in speciality chemicals, but do the numbers add up?
The specialty chemicals giants of the Western world are piling into India at the moment. Lanxess India, for instance, has started regular production of ion exchange resins for water treatment from its new production plant at Jhagadia in Gujarat state. The new facility, set up with an investment of €60 million, boasts capacity of 35,000 tonnes/year.
From this unit, Lanxess develops products that can be used in large-scale water purification. Ion exchange resins are widely used in processes that separate, decontaminate and purify water for use in such fields as power generation, microelectronics, and drinking water. The company also manufactures speciality chemicals for industrial water treatment for the semiconductor and pharmaceuticals industries.
Lanxess, which also produces Lewatit ion exchange resins at its German plants, has also decided to invest to increase production of thionyl chloride by 20% at its plant in Nagda, Madhya Pradesh state, with a single digit million Euro investment. Other key products manufactured at Nagda are benzyl chloride, benzyl alcohol, benzaldehyde, benzo trichloride, benzyl acetate, cinnamic aldehyde, benzyl benzoate, thionyl chloride, sulphuryl chloride and sulphur dichloride. Nearly 50% of the production from the site is exported.
Similarly, US-based Chemtura is set to invest $100-150 million by 2015 to expand its business in India. Chemtura manufactures speciality chemicals used in automobiles, agriculture and industrial chemicals. Its subsidiary in Uttar Pradesh makes active ingredients like clodinafop. Company director Bharat K. Pandey said that it aims for revenues of $500 million from India by 2015, of which $100 million will come from crop protection.
In crop protection chemicals, including the use of surfactants and adjuvants, the Bayer Group is also keen to cash in on the India opportunity. The Bayer Group plans to invest at least €1.8 billion in Asia over the next three years and to double its Indian revenue to €1 billion by 2015.
AkzoNobel has also set its sights on becoming a €1 billion entity in India by 2015. It is to invest $47 million to set up a new manufacturing plant in Madhya Pradesh. The company has decided to invest more in India as part of its general growth strategy, seeing India is one of the key high growth markets. At present, AkzoNobel has five plants across India.
Similarly, BASF saw the growth potential of the Indian chemicals industry and embarked on its plan to be a big player in the growing market. The company's Construction Chemicals division, which offers concrete admixtures for self-compacting concrete, alkali-free accelerators for sprayed concrete and polyurethane concrete floors, now operates across India and has decided to tap local experience with global expertise. It is now looking to introduce a slew of speciality chemicals from its parent's portfolio.
Lanxess opened its ion exchange resins facility in India in late 2010
Clearly, India is the flavour of the season. Although the major regions accounting for speciality chemicals continue to be Europe and the USA, Asia is the only region where sales grew overall in the year 2009. Asia saw 5.7% growth in chemical sales that year, while the EU region and the USA slipped by 12.5% and 6.1% respectively during the same period.
"Earlier, China was ahead of India. Now, India has surged ahead with its growth in speciality chemicals," said Kishore M Shah, chairman of Sauradip Chemicals Industries and president of the Indian Speciality Chemical Manufacturers' Association (ISCMA). He adds that, since speciality chemicals are now finding more applications in the construction, automotive, electronic and water treatment segments, these are most likely to drive the growth of the Indian market over the next five years.
Underscoring the growth in the construction sector, Deepak Bhimani, managing director of Navdeep Chemicals, which makes fine and speciality chemicals like sulphonic acids, paratoluene sulphonic acid, corrosion inhibitors and oilfield chemicals, notes that the anti-corrosion coating industry has been developing rapidly. Producers number over 250 and the products are becoming more multi-functional.
More generally, he adds, major commodity chemical manufacturers have also migrated to speciality chemicals, since it provides higher profitability and low investment at lower margins. Others see similar things happening in different fields.
"Most of the erstwhile textile auxiliary manufacturers have now started synthesising exotic molecules, thus emerging as speciality chemical manufacturers," says P. Rajan of Sudarshan Chemical Industries. Although it is an agrochemicals major, the company offers customised service related to research, development and manufacturing of speciality chemicals and intermediates from pilot plant to commercial quantities.
Among the Western majors, Bayer sees India, along with China, as a global outsourcing hub. Meanwhile, Evonik established an R&D lab near Mumbai, to conduct contract research and develop syntheses and processes for its global business and pigment maker Heubach, set up a plant in Ankleshwar, Gujarat state that meets the requirements of its global operations. Even Clariant India's plant at Thane is one of its parent firm's three global sourcing centres.
Officials at these firms point out that a combination of factors makes India an attractive base for speciality chemicals. Cost is obviously a prime driver. An official of Clariant India calls the chemical engineering industry in India "both strong and cost-effective". For instance, a drier - which Clariant makes - can cost 20% of its international price in India. Similarly, Bayer has worked out that production in India offers a 5-8% cost advantage over units in Europe and the US.
BASF's Construction Chemicals division has invested heavily in India of late
The fact that India has slowly becoming a significant player in the international chemicals market with many companies intent on sourcing from here is amplified by another emerging trend - growing equity participation by multinationals in their Indian arms. As India's edge in speciality chemicals is more and more visible, M&A is likely to grow. And it is not just multinationals that are ramping up their sourcing plans from India; even home-grown firms are creating new capacity, increasing productivity and going in for acquisitions.
Take Dorf Ketal, which is vying to emerge as the largest research-based Indian speciality chemicals firm. The firm is currently engaged in an intense bidding process for US-based oilfield chemicals producer MultiChem, with valuations set to top $500 million. The acquisition makes strategic sense for Dorf Ketal, which has a global presence and wants to expand its market share in speciality chemicals for the treatment of refineries, petrochemical plants and ancillary units.
Delhi-based Cico Technologies, a manufacturer of speciality chemicals for the construction sector, has also planned a major expansion in the Gulf. The company, in which the British government's Commonwealth Development Corporation had a 40% stake, is setting up a joint venture with Aljabor Trading of Qatar for a manufacturing unit in Doha, Qatar.
Galaxy Surfactants, which makes surfactants and speciality chemicals, has implemented an expansion programme at its Jhaghadia unit in Gujarat and plans to invest around $67 million in its business by the 2013 fiscal year. The firm is expanding its three units in Taloja, Maharashtra, which was due for completion by December.
The company's revenues grew at a compound annual growth rate (CAGR) of 24.3% in the fiscal years 2006-10, while its net profit increased at 58%/year. It has 66 products in its portfolio mostly speciality chemicals for home care and personal care industry and exports to over 70 countries, according to Sunil Jain, an analyst with broking firm ILFS in Mumbai.
Stating that India is expected to drive growth in the $650 billion global speciality chemicals market, Jain noted that the increase in the usage of some speciality chemicals has led to a high level of commoditisation, leading to global manufacturers focusing more on cost reduction. As a result global players are looking at shifting their divisions to India, he said.
"India's speciality chemicals industry is expected to grow at a CAGR of 15% - almost double the growth of the global industry. Exports of speciality chemicals from India are poised to grow from $4 billion in 2007 to $13 billion in 2013, representing a CAGR of 22%," says Shah of the ISCMA.
Construction and automotive are two of the booming sectors for speciality chemicals
To overcome the volatility in demand, many players are now focusing on expanding and maintaining a broader portfolio of products. One example is Reliance Industries, India's largest private sector company, which is said to be interested in acquiring a controlling interest in Haldia Petrochemicals, a maker of polyolefins and speciality chemicals.
Shah adds that competition in the speciality segment is not on price or raw materials but on product technology and innovation. "Many companies in the Indian speciality chemicals industry have decided to leverage the lower R&D costs in India, as compared to Europe and the US, to undertake intensive research for developing value added products. The growth of the Indian speciality chemicals industry is driven largely by robust domestic demand, with exports based growth in select segments," he says.
Emerging customer needs across consumer industries have called for products with higher quality and increased performance, Shah continues. Examples include wrinkle-free textiles, reflective glass and cement admixtures, among others. "India's strengths, such as its large market size, knowledge of unique customer needs, strong R&D capabilities and process capabilities are aligned to achieve success in the speciality chemicals industry."
Ganesan Shunmugam, chairman of the International Treaties Expert Committee of the Indian Chemical Council (ICC), however, has an opposing view. `"Some experts would like to believe that India has achieved great strides. But India is more an innovation hub, not an invention hub. The numbers don't actually add up," he says.
Relating to the recently released WTO figures, Shunmugam said chemicals was the second largest traded exported commodity in the world, with exports at a staggering $1,705 billion. The global market as a whole is put at $3,200 billion, following 5% CAGR since 2006.
"The largest exporter of chemicals in the world is still Europe with $955 billion The EU still accounts for 90% of total chemical exports. They are the world leaders not just in production, but also the largest exporters. The second largest is the USA with $180 billion. WTO figures show that India exported just $24 billion. How insignificant is that?" Shunmugam asks.
India has improved from its export figure of $22 billion two years ago, but China had clocked chemical exports worth $88 billion, he adds. "We are not the leaders in chemicals. Even Japan had $78 billion worth of exports. Though India's growth is good as compared to the past, even fantastic, it is rather small if one compares it to her neighbours."
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