India's specialty chemicals market to grow to $40 bn by 2025: McKinsey

Mumbai: India’s specialty chemicals market is expected to grow to $40 bln by 2025 from $28 bln in 2018, according to a study by McKinsey & Company. The country is the fastest growing major specialty chemicals market in the world.

Asia is expected to drive 70% of the incremental specialty chemicals demand till FY25, primarily fueled by disproportionate growth in China, and India, thereby laying an imperative for players to make bold moves, according to the report titled ‘Building an at-scale Speciality Chemicals Business in Asia’.

“While Asia promises to be an attractive market for specialty chemicals globally, India presents a growing opportunity for local players. Indian companies need to ramp up readiness to realize maximum advantage from the specialty chemical sector’s growth potential,” the report said, adding that market in specialty chemicals is moving to Asia with strong tailwinds providing growth momentum across the 40 segments that make up the market.

While granular assessment reveals that each of the 40 segments have attractive value pools and pockets of growth, combining the historical performance, impact of trends and potential to create value, 12 segments emerge as relatively more attractive for Asia.

Within the specialty chemical segments in India, agrochemicals, surfactants, specialty polymers and textile chemicals and dyes are among the top segments expected to maintain their relative leadership and further grow in line with market demand.

Cosmetic chemicals, adhesives and sealants, flavors and fragrances, printing inks, food additives and water management chemicals are a few emerging segments expected to grow fast and improve their relative positions amidst the 40 specialty chemical segments in India.

Between 2015 and 2018, specialty chemical companies in Asia recorded higher economic profits of around $17.4 mln, compared to commodity chemical ($5.4 mln) or diversified chemical companies ($12.6 mln). Japanese specialty chemical companies led this performance, with the highest positive economic profit of $45.3 mln in 2018. In the medium to low range of economic profit are countries such as China ($21.3 mn) and India ($6.5 mn). Korean specialty chemical companies, on the other hand, reported a negative economic profit of $1.5 mn.

In 2018, specialty chemicals were an approximately $710 bln market worldwide. Between 2012 and 2018, a revenue pool of around $60 bln to 70 bln in the specialty chemicals sector moved to Asia.

This shift stemmed from a marked increase in discretionary and fundamental consumption among the burgeoning populations of Asian countries.

“Today, owing to the Covid-19 crisis, the specialty chemicals market is expected to shrink by 5–8% against FY19. However, given strong fundamentals the market is expected to recover between 2021-22. Overall, there could be a delay of 1–2 years, with market expected to grow by $110-130 billion between FY18–25,” the report says.

Nearly 65% of this incremental revenue pool is likely to come from Asia, powered primarily by disproportionate GDP growth in China and India (over 5% CAGR). Asia’s share in the total demand for specialty chemicals could grow from around 47% in 2018 to 50% by 2025.

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