If we have a close look at the yearly review of 2023, in the middle of challenging the chemical sector’s sentiments, various Indian chemical stocks such as Himadri Special, Prem. Explosives, Tanfac Inds., Chembond Chem., and Foseco India showcased appreciable resilience and awesome performance. Keep in mind that these companies weathered tough market conditions and came across as the epitome of success, showcasing resilience in a challenging landscape for the chemical industry.
In 2024, the global chemical sector is likely to deal with a challenging market landscape and this will ultimately be reflected in chemical prices. The landscape will be characterized by factors like abundant supply and weak demand which will impact market dynamics adversely. The industry is estimated to grapple with constrained margins and volumes, with little or no recovery. A high uncertainty level makes the sector’s trajectory a bit complex. This, in turn, sets the stage for nuanced dynamics.
As per MarketsandMarkets, the top 7 chemical sub-sectors are estimated to grow from $2411 billion by the end of 2024 marking an increase of 8% Year-on-Year basis.
China’s slower-than-a-turtle post-lockdown demand recovery adds up to the deflation of global margins and prices. This can be detrimental since China is a key player. As far as North America, the Middle East, and Asia are concerned, surplus capacity boasts abysmally lower production charges. This, in turn, leads to significant import quantities into regions that have weaker rate positions such as Latin America and Europe.
The rate of inflation and the interest rate impact the demand scenario to a greater extent. The ongoing high rate of inflation as well as high interest charges are likely to continue curbing the demand in the year 2024, specifically in Europe and the US, as weak growth expectations are prevailing in the region. For the chemical sector, the construction sector being an important end-market is all set to be at the forefront of these constraints. All thanks to its sensitivity to high-interest charges as well as government stimulus.
Country-wise Market Outlook
Let’s have a look at the country-wise market outlook for the CY 2024:
1. Industry Transition In the US: With economic downturn fears subsiding, economic growth is forecasted to slow its pace. As per the market analysts, a modest production rebound, with destocking’s journey to restocking on the cards. With that said, the underlying weak demand and overcapacity for specific products are likely to persist. Chemical corporations are locking their focus on decreased production costs and efficiency improvement to compensate for the reduced output.
2. Saudi Arabia: The head of Saudi Arabia’s biggest chemical producer- Sabic, anticipates 2024 as yet another challenging year. The relatively weak global economic outlook will affect the chemical demand. Broadly, industry challenges are reflected in the decline in Sabic’s profit over the last five quarters. A potential pickup in 2024 is highly unlikely.
When it comes to chemical prices, they are likely to be on the higher side as well.
3. India Vs. Global Dynamics: Concerns fire up for Indian chemical firms, all thanks to the sluggish demand and capacity additions. The demand is having a tough time reviving, and China’s capacity expansion comes with a long-term threat. The global surplus capacity scenario coupled with weak demand multiplies the challenges posed to Indian chemical companies.
The cut-throat competitive chemical sector landscape is ever-evolving and is loaded with challenges as well as opportunities. Let’s have a look at both:
· The chemical industry was engulfed with significant obstacles in the year half regardless of the expectations for a slight production rebound in the year 2023. Key factors such as and a smaller-than-expected Chinese demand rebound, recession in Europe, inflation in America added to the downturn woes.
· Constant pressure from stakeholders, as well as government policies, are attracting investments in the energy transition. This, in turn, leads to a convergence of various sectors. There are some oil and gas firms that are starting into critical minerals processing, mining as well as agriculture, and chemicals sectors.
Similarly, some chemical companies are looking out for potential opportunities in battery manufacturing, clean ammonia, and lithium processing. While these changes present opportunities at the forefront, they also expose competition from different sectors having immense cash flows.
The chemical sector’s outlook for the year 2024 strikes a balance between potential opportunities and challenges. Global dynamics including strong supply, weak demand, and changing competitive landscapes pose hurdles. Companies willing to get over these complexities must focus on cost reduction, efficiency improvement, and strategic investments to position themselves for success in a rapidly evolving environment.
As far as the prices are concerned, chemical prices vary from one place to another and one chemical to another. For instance, methanol prices today will be different from one location to the other reflecting the various market forces at play.
