In 2020, the size of the global chemical market was estimated to be around $4 tn. Nearly 80% of this market is constituted by commodity chemicals, which are high volume, high capex and low margin products. The remaining ~20% is attributed to specialty and fine chemicals which is a ~$800 bn market. The global specialty chemical market has grown at a ~6% CAGR from 2014-2020 and is projected to grow at a 6.5% CAGR over the next 5 years.
India currently ranks as the 6th largest chemical production hub, its overall chemical industry is estimated to be around $180 bn. The specialty chemical segment in India constitutes nearly ~$32 bn which is ~4% of the global specialty market. Indian specialty chemical sector in the recent years has outperformed the overall chemical market, growing at a CAGR of 11.7% from 2014-2019 and is projected to continue its double digit growth in the next decade. Overall the entire chemical industry in India is projected to grow at a 9-10% CAGR and its share of global market is projected to grow 3-4x from 3% to 10-12% by 2040. The chemical industry accounts for nearly
Source: McKinsey and Company
India is a net importer of chemicals with a trade deficit of $9-$10 bn in 2021. This is because India relies on imports for raw materials and feedstock of its upstream chemical requirements. However, India is a net-exporter when it comes to specialty chemicals which are a closer to the end-product in chemical value-chain. In 2021, specialty chemical segment had a net export value of $2 bn which has potential to go up to $20 bn by 2040 as per McKinsey. This means, from the govt.’s POV specialty chemicals have an important role in bringing down the trade deficit for India’s chemical industry and puts it in a unique position that allows for growth of export oriented businesses
Next we look at the different segments in the chemical industry in order to better understand the value-chain of chemical industry. Commercial chemicals are largely grouped in 3 categories:
| Commodity/bulk | Specialty | Fine | |
|---|---|---|---|
| Description | single-pure substances produced in dedicated manufacturing units | mixture of several commodity chemicals, different formulation result in different products | single pure substances produced in low volume for niche use cases |
| Usage | have wide-spread uses and are upstream RM for many industrial products | specific use-case that depends on the formulation | use cases can range from pharma, research, formulation |
| Production | bulk production requires high capex | batch production, can sometimes be produced with little capex | low production, high costs due to R&D and process engineering |
| Products | eg. benzene, toluene, acetic acid, TiO2 | eg. dyes, pesticides, paints, inks | eg. denaturants, catalysts, pharma molecules, peptides |
| Manufacturer Margins | varies greatly depending on feedstock supply, specific chemical and market supply/demand | 1-5%, low-value add formulations | |
| 5-50%, specialised+branded formulations | 50-1000%, depends on process specialization, and molecule rarity | ||
| Distributor margins | 0-5% | 1%-15% | 10-100% |
| Market structure (India) | dominated by large players, refineries and large MNC players | few scaled players in each segment, 30-60% smaller unorganized players | heavily dominated by large specialized players |
Key insights: