Indian Organic Chemical Market – An Overview FY09 FY10 FY11 FY12 FY13 0 1000 2000 3000 4000 0% 20% 40% 60% 80% 100% 2870 2730 2864 3331 3564 1314 1325 1412 1464 1484 Supply Demand Scenario of Organic Chemicals in India Demand Supply Utilization Rate ‘000 Tons Deman d & Suppl y Utiliza tion Rate • Organic chemicals are an important part of the Indian export basket – HS 29 is among the top 20 product groups in India’s exports of manufactured intermediates to the world • Production of major organic chemicals has shown a significant decline due to large volume imports taking place from countries like China, resulting in low utilization rates of ~ 60%. • Being an intermediate for a host of industries, demand for organic chemicals is related to the demand growth in the end user industries such as PTA, textile, pharmaceuticals, fertilizers, dyes and paints, paper, resins etc. Feedstock (Natural Gas/Napththa) Basic Value Chain – Select Organic Chemicals Methanol Benzene Acetic Acid Formaldehyde Cumene Pheno1 Phenol Formaldehyde Urea Formaldehyde 2% 7% 16 % 1% 74 % Production shares of Major Chemicals (2013) Dye and Dye Stuffs Inorganic Chemicals Organic Chemicals Pesticides Alkali Chemicals 70% 11% 10% 9% Indian Chemicals Export Split (2013) Organic Chemicals Dyes & Dyestuffs Pesticides Inorganic Chemicals
Transcript
Indian Organic Chemical Market – An Overview
FY09 FY10 FY11 FY12 FY130
500
1000
1500
2000
2500
3000
3500
4000
0%10%20%30%40%50%60%70%80%90%100%
2870 2730 2864
33313564
1314 1325 1412 1464 1484
Supply Demand Scenario of Organic Chemicals in India
Demand Supply Utilization Rate
‘000
Ton
s
Demand &
Supply
Utilization Rate
• Organic chemicals are an important part of the Indian export basket – HS 29 is among the top 20 product groups in India’s exports of manufactured intermediates to the world
• Production of major organic chemicals has shown a significant decline due to large volume imports taking place from countries like China, resulting in low utilization rates of ~ 60%.
• Being an intermediate for a host of industries, demand for organic chemicals is related to the demand growth in the end user industries such as PTA, textile, pharmaceuticals, fertilizers, dyes and paints, paper, resins etc.
Feedstock (Natural Gas/Napththa)Basic Value Chain – Select Organic Chemicals
Methanol Benzene
Acetic Acid FormaldehydeCumene
Pheno1Phenol Formaldehyde
Urea Formaldehyde
2% 7%
16%
1%
74%
Production shares of Major Chem-icals (2013)
Dye and Dye StuffsInorganic Chem-icalsOrganic Chem-icalsPesticidesAlkali Chemicals
Key Trends & Growth Drivers – Indian Organic Chemicals
•Focus has moved from west to east. There is an increase in M&A activities and setting up of new plants in China, Middle East and Russia. The latter two being rich in feedstock and the former being the driver of demand. •Demand for methanol based MTBE manufacturing has been declining due to environmental concerns. In the US, MTBE is getting phased-out leading to fall in methanol demand by 3 Mn tons. •Demand from new applications such as DME and bio-diesel is on the rise
•Increased acceptance of methanol over olefins and over propylene technologies
•Government of India continues to provide duty protection to domestic manufacturers. For example, in case of methanol, the custom duty of 7.7% was maintained in Union Budget 2011-12 as was the excise duty at 10%. Along with the additional cess of 3.0 %, the effective duty protection stands at around 18 %.
Key Trends Growth Drivers
Market Trends Technology Trends Regulatory Trends
100% FDI approval for
most of chemical items via
automatic route
Rise in methanol & Phenol Demand
Low per capita demand
currently, rise in polymer
demand, rise in PCPIRs
SWOT Analysis
Since most of the Indian manufacturers operate on a small scale compared to global peers, there is a room for consolidation in Indian organic chemicals industry. Domestic players can take advantage of economies of scale arising from consolidation and become more competitive thereby preventing cheaper global imports.
Petrochemical companies producing benzene and propylene can look for forward integration opportunity given the demand-supply deficit in phenol market. Similarly, an opportunity exists for companies with better access to natural gas supply to venture into the methanol market facing continuous supply deficit.
Commodity chemicals companies can improve their product portfolio by adding specialty chemicals such as polymers additives, water treatment chemicals, lubricating additives, etc. This will help in improving their margins but requires significant R&D efforts.
Even successful companies from west are shifting their base to resource rich nations like Saudi Arabia, Qatar, Russia, etc. Indian organic chemical companies may also explore opportunities outside the country either through greenfield or brownfield projects.
Domestic organic chemicals players don't have the advantages of backward integration and hence, they lack pricing flexibility. However, given the new finds of natural gas reserves in the country, domestic manufacturers will be able to get supply of feedstock at stable prices.
Strengths
Weakness
Opportunities
The Indian chemical industry has skilled labor and good R&D base, with a large domestic market, alongside vibrant downside industry, catering to multiple segments
The Indian organic chemical industry comprises many players with small capacities, resulting in losses of economy of scale. The largest player in India has a capacity smaller than China’s fourth largest player.
Consolidation
Wider Product Portfolio
Forward Integration
Outbound Approach
Improved Feedstock
Supply
SWOT Analysis – Threats
Lack of Cheaper
Raw Material
Availability
No Domestic
Price Discovery
Low Capacity
Utilizations
Large Global
Capacity Additions
• Feedstock (naphtha and natural gas)and power are critical inputs for organic chemicals industry. Costs of these raw materials are high in India compared to countries like China, Middle East and other South East Asian countries such as Thailand and Indonesia. Given the poor infrastructure with lack of adequate facilities at ports and railway terminals and poor pipeline connectivity, domestic manufacturers will continue facing difficulty in procuring raw materials at a cost competitive with the global peers.
• Apart from the current oversupply in global markets, there is another cause of concern for domestic manufacturers, with•further large capacity additions happening in global markets. For example, globally, methanol industry is expected to witness excess capacity in the future due to a spate of capacity additions in gas rich countries such as Middle East and Russia.
•Due to oversupply in global markets, prices of major organic chemicals have taken a steep decline, thereby forcing the domestic companies to underutilize their plants operating levels. The average capacity utilization has fallen from > 90% in FY04 to ~60% in FY11.
•Domestic prices of organic chemicals are highly correlated with international prices. Given the small scale of domestic operations, local manufacturers are more influenced by global demand and supply forces.
Power
Logistics Issues
Threats
•In India, power supply has not increased at the same rate as demand, leading to interruption in the supply
• Indian bulk chemical industry is mainly concentrated in the•west in Gujarat. Though the manufacturers enjoy easy access to raw materials, they face difficulty in supplying to end-use industries which are located in southern & eastern regions
Porter’s Five Force Analysis
• A vast majority of organic chemicals are critically dependent on natural gas/naphtha, a resource that India imports. Supplier power could thus be interpreted to be high. Supplier
Power
• Organic chemicals, as an industry cannot find easy substitutes, since they have diverse end use segments. Substituting the organic chemical industry, as a threat, thus, doesn’t manifest as high.
• The Indian organic chemical industry is fragmented, with few players. There are several small players, thus rendering the intensity of rivalry medium-high.
Threat ofSubstitutes
Barriers toNew
Entrants
Buyer Power
Intensity ofRivalry
Low
High
• Given the capital intensive nature of the set up and tariff barriers, new entrants and small and medium size companies are prohibited from easily entering into the market.
• However, with the government approving 100% FDI through the automatic route, the industry could witness international entrants
• Organic chemicals have end use in multiple sectors, being an intermediate for a host of industries such as PTA, textile, pharmaceuticals, fertilisers, dyes and paints, paper, resins etc. As a result, the buyer power could be termed high.
Recommendations
Speeding up of PCPIR setup
Recommendations
There is an urgent need to build better infrastructure and provide adequate power/ water to support industrial growth of chemicals. Infrastructure is inadequate with respect to safe transportation of products as well as proper goods storage and exports. Significant investments are needed in roads, railways, waterways, ports, warehouses etc. to support the overall industrial growth in India.
Various levers could be explored to provide adequate infrastructure to the chemical industry :a. PPP model for building necessary infrastructure, especially for ports and roads b. Availability of finance to improve infrastructural facilities for SMEs. c. large scale infrastructure projects, especially those involving multiple states d. Pooling of common infrastructure at existing clusters
Improvement of Infrastructure
Ensure Feed Stock Availability
There is an urgent need to build better infrastructure and provide adequate power/ water to support industrial growth of chemicals. Infrastructure is inadequate with respect to safe transportation of products as well as proper goods storage and exports. Significant investments are needed in roads, railways, waterways, ports, warehouses etc. to support the overall industrial growth in India.
Various levers could be explored to provide adequate infrastructure to the chemical industry :a. PPP model for building necessary infrastructure, especially for ports and roads b. Availability of finance to improve infrastructural facilities for SMEs. c. large scale infrastructure projects, especially those involving multiple states d. Pooling of common infrastructure at existing clusters
United States of America China Belgium Germany Ireland Japan0
Imported value in 2010 Imported value in 2011 Imported value in 2012 Imported value in 2013
China and India remain the highest importers of Organic Chemicals , implying existence of Intra Industry Trade
United States of America China Belgium Germany Ireland Japan0
50
100
150
200
250
300
350
400
450
Relative Comparative Advantage in Organic Chemicals
2010 2011 2012 2013
Key Insight: Ireland Has had the highest RCA. However, all countries are losing their comparative advantage,which shows growth of new entrants in the industry
Bilateral trade between India and Saudi Arabia in 2013Product: 29 Organic chemicals
Cyclic
hydro
carb
ons
Heterocy
clic c
ompounds with
nitrogen hetero
-atom; nucle
ic acid
s & th
ei
Halogenated derivative
s of h
ydro
carb
ons
Satura
ted acycli
c monoca
rboxy
lic acid
s & th
eir deriv
atives
Amine-functi
on compounds
Acycli
c alco
hols and th
eir deriv
atives
Phenols; phenol-a
lcohols
Organo-su
lphur compounds
Unsatura
ted acycli
c & cy
clic m
onocarb
oxylic
acid &
anhydrid
es, halid
es
-50
0
50
100
150
200
5
63
5
-5
6450 44
162
3520
56
172
78 81 7860
143
70
Demand and Supply Differential in Organic Chemicals, 2009-13
Key Insight :Saudi’s demand growth in majority Organic chemicals far exceeds India’sSupply.
Imported value in 2009 Imported value in 2010 Imported value in 2011 Imported value in 2012 Imported value in 20130
1000000
2000000
3000000
4000000
5000000
6000000
Top 5 countries that India Imported from
China Singapore Korea, Republic of Saudi Arabia United States of America
China Singapore Korea, Republic of
Saudi Arabia United States of America
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
17.32%
31.33%
36.19%
17.93%
12.53%
CAGR
• The import basket of India’s organic chemicals is also somewhat similar with cyclic hydrocarbons again being the top most item of imports,
Reasons for growth in Imports
• Approximately 30% Imports from China alone
• Imports increasing at CAGR of 18.89% from 2009
• Imports from Kuwait and Oman increasing at CAGR of approximately 70% and 100% respectively
India’s Import portfolio
Exported value in 2009 Exported value in 2010 Exported value in 2011 Exported value in 2012 Exported value in 20130
200000
400000
600000
800000
1000000
1200000
1400000
1600000
1800000
2000000
Top 5 countries that India Exported to
United States of America China Malaysia Germany Indonesia
United States of America
China Malaysia Germany Indonesia0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
14.28%
23.05%
36.34%
12.43%
25.70%
CAGR
• Declining inhouse production of Organic Chemical(-2%)• Major organic chemicals produced in India include acetic acid, acetic anhydride, acetone, phenol, etc.• China, Indonesia, Malaysia, Singapore in addition to Brazil are the markets that Indian firms need to focus on
Reasons for growth in Exports
• Approximately 13% Exports to United States of America
• Exports increasing at CAGR of 17.63% from 2009
• Exports CAGR of Malaysia(36.34%), Singapore(33%) and Belgium(29%) relatively on the higher side
India’s Export portfolio
Key Insight:Countries like Saudi Arabia and Pakistan, which have been importing organic chemicals at an aggressive rate should be targeted by India
Shortlisted markets
USA
China
Brazil
Ireland
Saudi Arabia
USA
FTA STATUS US has FTAs with about 20 countries, Mexico being among top 10 importers of organic chemicals
COMPETITORS • US has FTAs with Colombia, Canada, Mexico, Costa Rica and Australia
• New Zealand comes under Trans Pacific Partnership on which negotiations are going on
• US has FTAs with Mexico, Canada and Japan
Trade Agreements
China
FTA STATUS China is negotiating with 14 other regions and nations for rolling out FTAs. It is negotiating with EU for an FTA, Netherlands and France import a major chunk of organic chemicals In EU
COMPETITORS • China has signed FTAs with Pakistan and Chile
Ireland
FTA STATUS Ireland is an active EU member, and thus enjoys wide benefits accruing from FTAs of EU with rest of the World
COMPETITORS Chile, Ukraine, Mexico, Canada. The wide variety of FTAs Ireland has is evidence enough why Ireland tops the chart despite its size compared to the leader – USA.
Brazil
FTA STATUS Brazil has PTAs and FTAs majorly with MERCOSUR (Egypt, Chile, Mexico)
COMPETITORS FTA with Chile and Framework Agreement with Mexico.
Saudi Arabia
FTA STATUS The kingdom of Saudi Arabia has FTas with 8 countries majorly, but Saudi Arabia also enjoys the FTAs signed by GCC block. Major being them are – Italy, Japan, Germany
COMPETITORS • Saudi Arabia has FTA with China and Belgium
Others
United States of America
China
Germany
India; 6.03%Switzerland
MexicoFranceJapan
India's share in Brazil's Import
Others
United States of America
China
Germany
India
Switzerland
Mexico
France
Japan
Others
United States of America
China
Argentina
Trinidad and Tobago
BrazilGermany
India; 3.35%
India’s share in Chile’s ImportOthers
United States of America
China
Argentina
Trinidad and Tobago
Brazil
Germany
India
India; 2.35%
India’s share in Italy’s Import
Others
Belgium
Switzerland
Germany
Netherlands
China
France
India
Others; 42.50%
India; 14.03%
India's share in Saudi's Import
Others
India
Korea, Republic of
China
United States of America
Thailand
India; 12.86%
India's share in Pakistan's Imports
Others
Kuwait
China
Saudi Arabia
India
United Arab Emirates
India; 5.97%
Saudi's Import profile for Heterocyclic
OthersChinaUnited States of AmericaIrelandGermanyJapanIndiaUnited Kingdom
Uses of Heterocyclic CompoundsMedicinal and Pharmaceutical Uses
Pharma and Medical Benefits• Antibiotics• Anti inflammatory drugs• Anti Virals• Anti Depressants• Anti Anxiety• Anti Diabetic• Anti Obesity• Anti Parkinson’s• Therapeutic
Heterocyclic Compounds
Annual Growth in Quantity of 7% in 2013 Annual Growth in Trade of 6% in 2013 Annual trade of $140 mn in 2013
ARTIFICIAL NEURAL NETWORK
TECHNICAL INDICATORS - Mathematical expressions
History repeats itself
If I was afraid then, I would be afraid now, my trading decision would be repeating itself historically
