After speaking with a chemical expert to gain insight into the current situation, the brokerage summarised some of the most significant takeaways learned, including the fact that inventory destocking is still ongoing and might pick up speed in Q3FY24 as major companies in the global market concentrate on year-end balance sheets.

The last two to three years have seen an increase in Chinese chemical industry capacities, but the current aggressive price scenario may not remain. In the long run, India may continue to gain market share from inventors and new molecules, while generic chemicals and intermediate manufacturers may continue to face pressure.

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The brokerage stated that the chemical industry has encountered primary challenges as a result of the high global interest rates, which have increased from the usual 2-2.5% to 6-7%. These factors have caused participants to express concern about the increased cost of carrying inventory.

Furthermore, Q3FY24 may be worse as global players try to cut purchases and trim inventories for a healthier year-end balance sheet (CY23). Channel inventory is currently at seven-eight months, slightly down from eight-nine months. On the other hand, with inventory replenishing and the US season commencing, Q4FY24 might witness a notable upturn, according to the brokerage.

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“Chinese dumping pressurises product prices, especially for generic players, risking unfavourable prices in China. Despite this, demand from farmers remains robust, with the main challenge arising from high channel inventory. In the medium term,Indian players can seize business opportunities from European outsourcing and the launch of complex molecules that require higher number of stages,” Nuvama explained.

Additionally, the brokerage noted in its study that all players are likely to face earnings risk, with the exception of PI and FMCG companies.

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“Players dependent on agrochem like SRF, Anupam Rasayan, Aether Industries, etc, may suffer in the near term while fluoropolymers players like GFL, Navin Fluorine, etc, may see lower demand and margin pressure. 

However, PI is likely to witness continued volume growth led by its key molecule – “Pyroxasulfone” that is still under patent protection. Niche players such as Galaxy Surfactant and Fine Organics may see stable growth,” the brokerage said in its report.

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Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.

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Updated: 16 Oct 2023, 01:34 PM IST