Chemical Industry in India

October 25, 2013 October 25, 2013

Chemical industry is one of the oldest industries in India, which contributes significantly towards industrial and economic growth of the nation. Since this industry has numerous forward and backward linkages, it is called the backbone of the industrial and agricultural development of the country and provides building blocks for many downstream industries.

The Chemical Industry of India ranks 6th in world and 3rd in Asia after Japan and China. In terms of global shipments of chemicals, India ranks 10th in the world.

The Chemical industry provides valuable inputs for other industries such as textiles, paper, paints and varnishes, leather etc., which are required in almost all walks of life. The Indian Chemical Industry has small, medium as well as large-scale units. The fiscal concessions granted to the small-scale sector in mid-eighties led to establishment of a large number of units in the Small Scale Industries (SSI) sector. India enjoys an abundant supply of basic raw materials, however lags behind in terms of technical and marketing capabilities.

The most important sectors of India’s Chemical Industry are Alkali Chemicals, Inorganic Chemicals, Organic Chemicals, Pesticides and Dyes & Dyestuffs, with their respective production quantity in same order.
India is also a major exporter of pesticides and agrochemicals. India is one of the most dynamic generic pesticide manufacturers in the world.
In the Chemical Sector, 100 percent FDI is permissible except for some hazardous chemicals.
Manufacture of most chemical products covering organic/ inorganic, dyestuffs and pesticides is delicensed.

Sub-segments of Chemical Industry

There are six segments of the Chemical Industry in India viz. Basic Organic Chemicals, Speciality Chemicals, Chlor-alkali, Pesticides, Dyestuff and alcohol based chemicals.

Basic Organic Chemicals

The major organic chemicals produced in India are methanol, acetic acid, formaldehyde, pyridines, phenol, alkyl amines, ethyl acetate and acetic anhydride.

Formaldehyde and acetic acid are important methanol derivatives and are used in numerous industrial applications.
Phenol is an aromatic compound and derived from cumene, benzene and propylene derivatives.
Alkyl amines are used in the manufacture of surfactants.
Pyridine derivatives are used in the manufacture of pharmaceuticals.
Ethyl acetate is the ester of ethanol and acetic acid and is manufactured for use as a solvent.
Acetic anhydride is widely used as a reagent.

For this segment of chemical industry, the Natural gas/ naphtha are mainly used as feedstock for the manufacture of these organic chemicals. Alcohol is also an important feedstock for the industry, with sizable production of acetic acid and entire production of ethyl acetate being based on alcohol. Global production of organic chemicals was around 400 million tonnes during 2010-11. Major producers of organic chemicals are USA, Germany, U.K, Japan, China and India.

Methanol

Methanol is a very versatile chemical primarily produced in India from natural gas and naphtha. Alternative routes for production of methanol are coal and petcoke. Coal and petcoke route is however not yet commercialized.
The two major end-use segments for methanol are chemical and energy.
- In the chemical segment, methanol is used for production of formaldehyde, acetic acid, di-methyl terephthalate (DMT) and a range of solvents.
- The consumption of methanol in the energy segment is substantial as blending component for petrol and methyl tertiary butyl ether (MTBE), tertiary amyl methyl ether (TAME) and di-methyl ether (DME).

India is a large importer of methanol. Due to insufficient domestic production, in FY09 the net import of methanol was 1.06 million tonnes i.e. more than 4 times the domestic production of 0.24 million tonnes.

Acetic Acid

Acetic Acid is primarily used for production of purified terephthalic acid (PTA), vinyl acetate monomer (VAM), acetic anhydride and acetate esters, all of them being important polymers. In India, production of acetic acid is primarily based on alcohol.

Its demand has increased in 11th plan by 10% per annum mainly because of the PTA, which is basic raw material for polyester and fiber.
Acetic acid is primarily produced through alcohol or methanol route. Alcohol route in Indian context is gradually becoming unviable due to high prices and limited availability of this feedstock. At present bulk of acetic acid is imported with domestic production accounting for less than 30% of demand.

Speciality Chemicals

Specialty chemicals are the relatively high value, low volume chemicals known for their end use applications and/ or performance enhancing properties.”

In contrast to base or commodity chemicals, specialty chemicals are recognized for ‘what they do’ and not ‘what they are’.

Specialty chemicals provide the required ‘solution’ to meet the customer application needs.
It is a highly knowledge driven industry with raw materials cost (measured as percentage of net sales) much lower than for commodity chemicals.
Specialty chemical industry growth typically follows the growth of major key end markets.
For example, an increasingly urbanized India will double the requirement for clean municipal water by 2020, and therefore significantly increase municipalities’ usage of water treatment chemicals to treat/ recycle waste water. Similarly, increased infrastructure spending by the government accompanied by growth in the real-estate industry, could result in high growth in the construction chemicals and coatings segment

Key driving industries for growth of Specialty Chemicals

Automotive Sector – Plastics, Paints and Coatings
Construction industry – Ceiling, coating materials and reinforcing fibers such as polyurethane base coating, silicone base and polymer base re-enforcing material.
Water – Water treatment chemicals for a wide range of industrial and in-process applications such as reducing effluent toxicity, controlling Biological Oxygen Demand (BOD) & Chemical Oxygen Demand (COD) and disinfecting water for potable purpose.
Textile Industry – Processing aids, dyes & pigments
Personal Care – Hygiene and personal care products.

Chlor-Alkali

The chlor-alkali industry is the oldest and largest segment of the inorganic chemical industry. It comprises of caustic soda, liquid chlorine and soda ash. Globally the size of the chlor-alkali industry is 170 million tonnes ($70 billion). The size of the Indian chlor-alkali sector at 7 million tonnes is 4% of world market. Raw material is common salt and limestone.

Caustic Soda Industry

China has the highest caustic soda capacity at 27 million tonnes, accounting for 34% of world capacity. Current global consumption of caustic soda is estimated at 65 million tonnes.
Asia is the largest consumer of caustic soda and is expected to remain the same in near future.
Demand from alumina, paper and textiles drives caustic soda industry; these 3 industries alone constitute ~ 60% of total demand.
Gujarat is the largest caustic soda producing state with 1.6 million tonnes capacities.
Caustic soda manufacturing is highly energy consuming process & consumes 2.5 MW per MT of caustic soda

Liquid Chlorine Industry

Global consumption of chlorine in 2009 is estimated at 55.4 million tonnes. Chlorine is used in manufacture of paper and pulp, ethylene dichloride (EDC), which is used for producing polyvinyl chloride (PVC), manufacture of chlorinated paraffin wax, fertilizers and pesticides.

India has more than adequate capacity to meet domestic demand of both caustic soda & chlorine.

Soda Ash Industry

Soda Ash is used as a raw material for a vast number of key downstream industries such as soaps, detergents, glass, silicate, specialty chemicals. Increasingly it is being applied for climate change mitigation and environmental management applications such as flue-gas desulphurization and mitigating the impact of acid rain on inland water bodies.
Worldwide consumption of soda ash is estimated at 48 million tonnes. Soda ash is produced through Solvey Process and also available naturally in mines. Natural and synthetic are two methods of soda ash production. Of the total production, natural soda ash accounted for 11.7 million tonnes.
The US accounts for over 92.3% of global natural soda ash production of 11.7 million tonnes. The country has world’s largest trona deposit in the Green River basin.
China and US are the biggest soda ash producing countries accounting for 40% and 20% of the total global soda ash capacity respectively. With a capacity of 3.16 million tonnes, India accounts for 5.3% of the total global capacity.
Globally, majority of soda ash is used in the glass industry which accounts for 50% of the global soda ash consumption. Chemicals and detergents are other major end uses, accounting for 10% and 15% of global soda ash consumption respectively.
Soda ash can also replace caustic soda in certain industries like pulp and paper, water treatment and certain sectors in chemicals.
There are five manufacturers of soda ash in India, having installed capacity to the extent of 3.16 million tonnes. Of these, four are located in the Saurashtra region of Gujarat. Only Tuticorin Alkalis and Chemicals (TAC) is located at Tuticorin in Tamil Nadu. The main reason for concentration of soda ash facilities in Gujarat is the availability of key raw materials: salt and limestone.
Two varieties of soda ash are produced in India; light soda ash (used mainly by the detergent industry) and dense soda ash (used mainly in the glass industry).Rising urbanization, increase in per capita income and increased levels of middle class prosperity has fueled the growth of the detergents and glass sectors, thus leading to growth of this sector.
Indian soda ash Industry includes world leaders like Tata Chemicals – world’s 2nd largest producer with 5.5 million tons of capacity spread across India, USA, Kenya & U.K.

Pesticides

Pesticides industry has developed substantially and has contributed significantly towards India’s agriculture and public health. In value terms the size of the Indian pesticide industry is $3.8 billion in the year 2011. India is a predominant exporter of pesticides to USA, Europe and African countries.
India is the 4th largest producer of pesticides after USA, Japan and China. India is the second largest producer of pesticides in Asia.
The Indian pesticides industry has been growing at 8-9% p.a. over the past five years (FY07-FY11).

Players

Three broad categories of companies are present in the industry – Multi-National, Indian including the public sector companies and small sector units. There are about 125 technical grade pesticides manufacturers in the country of which about 60 are in the organized sector, and 10 are, multinationals. There are about 800 pesticides formulators in the country. Most Indian technical manufacturers are focused on off-patent pesticides.

Export Markets

India is a net exporter of pesticides. Exports account for ~50% of the pesticides market.
Export opportunities for Indian companies are immense with key markets being USA, France, Netherlands, South Africa, Bangladesh. With the advent of the integrated pest management (IPM) technique, the use of bio pesticides and genetically modified (GM) seeds has increased globally.
The key export destination markets are USA, France, Netherlands, Belgium, Spain, South Africa, Bangladesh, Malaysia and Singapore.
Some of the agro-chemicals exported over the years include Isoproturon, Endosulphan, Aluminium Phosphide, Mancozeb, Cypermethrin, Thiomethaxam, Imidacloprid etc.

Problems

The Indian pesticides industry is characterized by low capacity utilization. The present total installed capacity is 146,000 tonnes and has a low capacity utilization of <60%.
The industry suffers from high inventory owing to seasonal and irregular demand on account of monsoons. The consumption of pesticides in India is low in comparison to other countries.

Consumption Pattern

There is a marked difference in the consumption pattern of pesticides in India vis-à-vis the rest of the world. Insecticides account for 76% of the total domestic market. On the other hand, herbicides and fungicides have a significantly higher share in the global market.
Crops like cotton, wheat and rice together account for 70% of total agrochemical consumption.

Dyestuffs

Color has an inherent element of value addition to a wide variety of products like textiles, leather, paper, food products, cosmetics, plastics, paints, inks and high-tech applications like optical data storage (CDs, DVDs), solar cells, medical diagnostics (CT Scan, angiography), security inks, lasers, photo dynamics etc.
The basic raw materials used for the manufacture of dyestuffs are benzene, toluene, xylene and naphthalene altogether called BTXN.
The world market for colorants comprising dyes, pigments and intermediates is presently estimated at approximate value of $27 billion. India accounts for 12.5% of this.
There has been a notable transition in the global arena during the last 2-3 decades in the manufacturing base of colorants, with a shift in production from Europe, USA and Japan to Asia viz. China, India, Taiwan, Thailand and Indonesia etc.
Today, Indian dyestuffs industry comprises about 950 units (50 in large and organized sector and 900 units under Small & Medium Enterprises (SME) Sector.
With the ever increasing standards of quality and reliability, Indian dyestuffs industry meets. More than 95% of the domestic requirement, out of which textile industry consumes nearly 60% and the remaining is shared by paper, leather & other consumer industries.
The per capita consumption of dyes in India is 50 gms as compared to 400 gms in Europe, 300 gms in Japan which shows that there is tremendous potential for the Indian market to absorb additional production.
The main consumer industries are printing inks, paints, plastics, rubber, etc., accounting for 70% of the end use.

Alcohol based chemicals Industry

Alcohol is a key feedstock for the manufacture of basic chemicals. Alcohol based chemical industry occupies an important place in the Indian chemical industry and is a key contributor to the growth of the sector. The current size of alcohol based chemical industry is $1.1 billion (Rs. 4,850 crores).
Industrial alcohol in India is produced from sugarcane molasses. Molasses is the by-product of the manufacture of sugar from sugarcane juice. Thus, alcohol production in India is heavily dependent on production of sugar and sugarcane. The major sugarcane producing states in the country are Andhra Pradesh, Gujarat, Karnataka, Maharashtra, Tamil Nadu, Uttar Pradesh, and Uttaranchal.
Alcohol has two major uses – potable use by diluting and blending etc. and industrial use for production of various chemicals. Alcohol is now also used for blending with petrol.
A large number of alcohol based products are manufactured in India. Some of the important alcohol based chemicals are acetic acid, acetic anhydride, acetaldehyde, ethylene glycol, glyoxal, pyridine/ picoline, pentaerythritol, ethylene oxide derivatives etc.
The major user industries of these chemicals include synthetic fibres and synthetic yarn, drugs & pharmaceuticals, agrochemicals, personal care products, dyestuffs, pigments, flavours & fragrances etc. There are about 20 major units engaged in the manufacture of alcohol based chemicals.
Two countries leading ethanol production globally are United States and Brazil, and account for 70% of world production. They are followed by EU, China and India.
There are about 340 distilleries in India with capacity of approximately 3,500 million litres. However, the capacity utilization is low mainly due to non-availability of sufficient molasses.
Though the demand of alcohol is increasing in industrial as well as potable sectors and now even for blending under Ethanol Blending Programme (EBP), the production of alcohol in has been showing a negative growth mainly due to adverse climatic conditions. The demand of alcohol is higher than domestic availability and the gap is met through imports. The present demand of alcohol in the country is about 3,140 million litres.

Performance of Indian Chemical Industry in 11th Plan

Target for chemicals industry growth for XIth five year plan was 7-8%. The performance of the various industry segments during the XIth plan is as follows:

Production of major organic chemicals has shown a significant decline due to large volume imports taking place from countries like China, resulting in low operating rates. Besides cheaper imports, low availability of feedstock was another reason for the de-growth of the Indian organic chemicals industry. Lack of availability of natural gas is a constraint for methanol manufacturers in India. Acetic acid competes with the potable alcohol industry and ethanol blending program for its feedstock (alcohol), which is also in insufficient supply in the country. Owing to poor feedstock availability and cheap imports, production of major inorganic chemicals witnessed a negative growth of 6% vis-à-vis the XIth plan target of 7-8% growth, thus failing to achieve the growth envisaged for the sector in the XIth plan period.
Specialty chemicals segment in India has been growing at a rapid pace owing to growing key end use markets such as automobiles, infrastructure, electronics, textiles etc. The segment witnessed a growth rate of 11-13% p.a. over the XIth plan period surpassing the target of 7-8% growth.
Indian chlor-alkali industry grew at 5% over the XIth five year plan period to keep pace with the demand. The industry fell slightly short of the growth target of 7-8% for the XIth plan period. Production of caustic soda grew from 1.993 mn tons in FY07 to 2.457 mn tons in FY11. Production of chlorine grew from 1.765 mn tons to 2.177 mn tons over the same period. Overall caustic soda and chlorine production grew at 5.4%. Production of soda ash grew from 2.046 mn tons in FY07 to 2.424 mn tons in FY11 leading to a production growth of 4.3%. Production was impacted by imports from China. During 2008-09, India was the third largest destination for Chinese soda ash exports. This led to the Government of India imposing safeguard duty on import of Chinese soda ash.
India is the 4th largest producer of pesticides after USA, Japan and China. India is the second largest producer of pesticides in Asia. The Indian pesticides industry has been growing at 8-9% p.a. over the past five years (FY07-FY11) driven by exports. Industry size is estimated to be $3.8 billion in FY11 with exports accounting for 50% of the market. India is a predominant exporter of pesticides to USA, Europe and African countries. The pesticides segment has thus met the growth target set for the XIth plan period.
The Indian dyestuffs industry has grown at ~10% p.a. between FY06 and FY10 with exports growth at 14.5% p.a. There has been remarkable growth in the exports of colorants during the last 2 decades. From a mere $0.03 billion in 1990, exports reached $2.3 billion in 2009-2010, having surpassed the estimates envisaged in the ten year strategic action plans submitted in 1991 and 2001 with a growth of 14.5% p.a. over the last decade.
Alcohol production has been steadily decreasing from 2,500 million litres in FY07 to 1,824 million litres in FY10 registering a negative growth of 10% p.a. There are about 340 distilleries in the country with capacity of approximately 3,500 million litres. However, the capacity utilization is low mainly due to non-availability of sufficient molasses. Though the demand of alcohol is increasing in industrial as well as potable sectors and now even for blending under Ethanol Blending Programme (EBP), the production of alcohol in has been showing a negative growth mainly due to adverse climatic conditions. ^{(Source: Planning Commission Working Group in Chemical Industry for 12th Plan)}

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