The domestic chemicals industry in China is witnessing a slowdown as a result of an overall slower economic growth.
Kolkata: China's loss is India's gain. Atleast, that's what, when it comes to chemicals, especially, specialty chemicals market. The downturn in China's chemicals and specialty chemicals market in the recent years, has come as a boon for the Indian chemicals and specialty chemicals industry, said a recent Crisil Research report.
Traditionally, the European Union (EU) and the US were the key chemical hubs globally. Together they contributed nearly 40 per cent of global chemical sales till 2006. However, the 'Great Recession' of 2008 changed everything. Developing countries started faring better than the relatively mature economies of the West. Over the last decade, the core of the chemical industry has shifted from the West to Asia, with China being the key benefactor. However, China's specialty chemicals market has seen a downturn in recent years, for more reasons than one, most prominent being the introduction of stringent environmental norms, which has led to the shutdown of several chemical plants. The labour cost (hourly cost of compensation) in China was lower than that of India till 2007. However, over 2005-2015, the average labour cost in China increased nearly 19-20 per cent CAGR, against 4-5 per cent CAGR in India. In fact, over the last five years, this cost has more than doubled compared with India, rendering Chinese manufacturers' uncompetitive vis-à-vis India in labour cost.
"The domestic chemicals industry in China is witnessing a slowdown as a result of an overall slower economic growth. Over the next 2-3 years, China's GDP is projected to grow at 6-6.5 per cent, against 8-10 per cent witnessed over the last decade (2009-2018). This slowdown would translate into lower off-take of specialty chemicals from large segments such as construction, automobiles, textiles and consumer durables. Thanks to shutdowns in China and lack of capacity additions in other developed countries, India stands to benefit in the export market. Also supporting the growth in India is its ability to manufacture at a lower price compared with its western counterparts. This along with the emergence of established players bodes well for Indian manufacturers," said the report.
Interestingly, India also faces threat from environmental concerns. However, the threat is limited only to smaller players and shall serve as an opportunity for larger players.