The turmoil in Russia and Ukraine may present an unexpected opportunity for Indian chemical industries. This is because the European chemical industry's performance is being hampered by growing energy costs. The European chemical sector was already battling high energy prices before the Russia-Ukraine conflict.

According to CRISIL, the Indian chemicals industry would outperform its Chinese counterpart, doubling its market share to 6% in fiscal 2026 from 3-4 percent in fiscal 2021.

Strong tailwinds in exports due to a shift in the global supply chain driven by vendors' China+1 policy, and demand recovery in domestic end-user categories will fuel growth.

Due to Russia Ukraine War Demand for Below Companies:

 

Aarti Industries:

Aarti Industries is one of the few companies in the world that is fully integrated into the Benzene value chain. It has achieved a large market share of up to 25-40% globally by applying newer chemistries and adding more value-added products. Due to periodic Nitric Acid shortages, the toluene value chain has been slow to build up. The company is joining the chlorotoluene chain (an opportunity for import substitution) and aims to build a new super multi-purpose plant (to introduce multiple products and multiple chemistries).

 

Ami Organics:

Ami Organics Limited (AOL) is a leading API intermediate and specialty chemical manufacturer with 450+ niche product offerings across 17+ key therapeutic segments, with a focus on high-growth, high-margin therapeutic areas like antiretroviral, anti-inflammatory, antipsychotic, anti-cancer, anti-Parkinson, and anti A depressant/coagulant. AOL is a global leader in the supply of major APIs such as Trazodone, Dolutegravir, and Entacapone. It has 150+ customers worldwide, including India, and is present in 25+ countries, including the US, EU, China, Japan, Israel, the United Kingdom, and Latin America. GOL's acquisition will help the company develop its speciality chemical business into agrochemicals, pigments and dyes, fine chemical industries, and other areas.

Its top three goods account for 35-40% of sales. The leading product for Trazodone is intermediate, which accounts for 20% of income, while Oxcarbazepine and Entacapone each account for 9%. Due to reduced demand, the contribution of its core product intermediate for Dolutegravir fell to 6% of total revenue in 9M'22 (vs. 20% in FY21). Overall, it anticipates its mature product basket to increase at a rate of 10-12 percent per year over the next few years. In the previous two years, major products including Nintedanib, Apixaban, and Darolutamide have witnessed significant growth. More import substitution products are in the works, with a focus on oncology, CNS, anticoagulants, and other areas.

 

Clean Science and Technology:

The HALS project by Clean Science is on track (stabilizer product range). In H2FY23, to commission two new HALS products: (a) #770 – application in masterbatches with a focus on import substitution, as India imports 3-4 thousand tonnes per year. Clean will initially build up a 2k tonne capacity; expecting competitive price compared to global peers, and (b) #701 – application in water purification driven products. Units 1 - 3 are expected to generate Rs 10 billion in income. At the planned Unit 4 facility, the rest of the HALS series would be revealed (initial Capex of Rs 3 bn).

 

It's also working on a different set of goods (about 7-8) with applications in Pharma, Flavor & Fragrances, and other fields. In Q3FY22, it introduced two new products: PBQ (Para Benzoquinone 40 tonnes capacity, aimed at the local market) and TBHQ (capacity of 1,200 tonnes). TBHQ will mostly be sold to existing clients, with the goal of increasing cross-selling and wallet share (focus on the export market).

 

Fine Organic Industries:

Fine Organics has seen significant demand in both domestic and export volumes, thanks to disruptions in the global supply chain, industry consolidation, and ramp-up in existing volumes, as well as top-up from newly approved product sources. Food, Plastics, and Cosmetics all experienced healthy growth, according to management. The current export-domestic revenue split is 60:40. As travel restrictions ease, management anticipates revenue to increase in new product launches.

 

Full capacity utilisation is targeted on March 23 (previous guidance was for March 24). Management will concentrate on expanding capacity through (a) fresh land acquisition (shortlisted Gujarat), and (b) a Thailand JV with a local partner (45 percent equity) to meet increased demand in Europe and Southeast Asia. It is also open to inorganic acquisitions, which might help it develop more quickly.

 

Due to supply chain disruption caused by the Russia-Ukraine conflict (sunflower oil pricing) and crop diversion to ethanol production, edible oil prices and derivatives have continued to rise. The company is looking at alternative sourcing for some raw materials and has been passing on raw material inflation with a 3-4 month lag, depending on customer contracts.

 

GMM Pfaudler:

GMM Pfaudler Ltd (GMM) is a global leader in the design and manufacture of engineered equipment and systems for essential applications in the chemical and pharmaceutical industries. It has 13 manufacturing locations and a product line that includes fluoropolymers, filtering and drying, designed column systems, lab and process glass, sealing technologies, and glass-lined and alloy systems. The company's revenue mix has shifted from 60% pharmaceuticals and 40% chemicals to 60% chemicals and 40% pharmaceuticals.

 

It is receiving a lot of orders from India and other countries. Orders in Europe and the United States are being held for 9-12 months, with some units being held for up to 18 months. Overall, worldwide business has grown by 20%, but management has been choosy in accepting orders in India as it attempts to control costs, increase manufacturing efficiencies, inventory days, and process improvement in the country. Due to an increase in energy prices in Europe, the firm expects margin pressure for the next 2-3 months; but, as the market leader, it is in a better position.

 

Demand for Steel Industries:

According to Amit Dixit, Director, Institutional Equities at Edelweiss Financial Services Ltd, a Mumbai-based financial services firm, the increase in steel prices could be advantageous to India. "Ukraine and Russia account for about 11% of worldwide seaborne steel shipments," he says. "The majority of it is destined for Southeast Asia, and the turmoil will cause supply disruptions." This could be a good opportunity for Indian steel producers to break into that market."

 

A different issue arises with aluminium. Because of its high energy intensity—in India, coal (as a source of energy) accounts for 40% of the cost of production—coal is a difficulty for reaching net zero carbon, as stated in the climate change accords. A campaign for recycling has been made. According to the International Energy Agency, 34% of metal used in 2020 will be recycled. "However, there is a 2 million-tonne shortfall in a market where demand is 69 million tonnes yearly," Dixit notes. As a result, prices will rise. Russia is a major producer of aluminium, accounting for 4-6 percent of worldwide output and being one of the most cost-effective producers in the world. Sanctions exacerbate the supply scarcity. However, India is unlikely to suffer supply shortages. Domestic demand can be met by Hindalco, Vedanta, and Nalco. However, because the metal's prices are set on the London Metal Exchange rather than in India, they are expected to remain high.