Why specialty chemicals could be the next big stock market story
Between 2014 and 2019 a rather small company called Aarti Industries zoomed by 1700% from a price of Rs.95 to Rs.1720. The unique feature about Aarti Industries was that it derived 78% of its revenues from the specialty chemicals business and was seeing unprecedented growth in the last five years. What exactly is this story all about?
Why specialty chemicals?
Specialty chemicals are niche products with very specific uses in industries. Some of the examples of specialty chemicals include products like carbon products, coal tar pitch, carbon black, specialty oil etc. Specialty chemicals are inputs for key high growth industries like electronics, paints, coatings, plastics, aluminum and automobiles. The opportunity is huge. The global specialty chemicals industry is worth nearly $770 billion and India currently accounts for less than 1.5% of the global market. In the last few years, there have been massive investments made by Indian specialty chemicals players like Himadri, Navin Fluorine, Aarti Industries, and Vinati Organics in expanding capacity to global standards. What is more important for India is that it has an established ecosystem for basic chemicals which are an important input for specialty chemicals making the scaling up more feasible. Since the industry is highly skilled, there is limited competition from informal sector, unlike in the case of basic chemicals.
China makes room
It must be said that to a large extent the India edge came from China. By 2010, China had already emerged as the world’s largest manufacturer of specialty chemicals, taking over from the US in terms of scale. China is still the world leader by a margin but there have been serious environmental concerns raised. Hence China has been crimping its specialty chemicals output sharply to ensure that its factories are in line with the environmental safety norms. This has led to a sharp fall in production in China and India has been the obvious beneficiary of that trend. In fact, a lot of the growth in last 3 years has come to India largely by the room vacated by this environment decision taken by China. This comes at a time when global agrochemical producers are also looking to outsource specialty chemicals due to the high compliance costs. It is surely advantage India on this front!
A huge trade war boost
The trade war has put nearly $15 billion worth of Chinese chemical output at global risk and India has the opening to move in. In addition, Chinese producers themselves are seeking to outsource the manufacture of specialty chemicals to India to get around the trade war norms and that could be another big market for India to tap. With its edge on input procurement and a huge market, this could be the next big story!
