Specialty Chemicals Companies to Hike CAPEX by 50% in FY-22

After a lull in capital spending in the midst of the pandemic in 2020, specialty chemical companies will see capital expenditure (capex) rising by 50% yoy to Rs.6,200 crore in FY22. This takes the capex of specialty chemical companies back to pre-COVID levels. Specialty chemicals are specialized chemicals that go into a number of user industries like pharmaceuticals, paints, petrochemicals, metal products etc.

Specialty chemicals companies are seeing solid traction from domestic and export demand. Domestic demand has been rising with revival in most of the user industries back to normal levels of output. The latest IIP numbers reflect that Indian economy is back to pre-COVID levels of output. In the Indian markets, specialty chemical companies have gained from higher demand and better price realizations.

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The big shift has happened on the exports front. In last 2 years, the Chinese government clamped down heavily on the Chinese chemical companies that did not comply with environment norms. That drastically reduced the chemical output from China in the global export market. 

Additionally, the pandemic highlighted the risks of depending too much on China for the supply chain. Till 2019, most countries relied on China to supply specialty chemicals for various applications. However, the pandemic led to severe supply chain embarrassments forcing global companies to look at India as an alternative. 

There were other factors favouring Indian companies. Lower supplies from American hubs due to hurricanes and blockade of Suez Canal impacted global supply chains of specialty chemicals. Since demand was robust, specialty chemical companies could easily pass on higher crude costs via higher prices. This has encouraged a surge in capex this year.

Last year, revenue growth for specialty chemical companies fell to 10% and is expected to revive to 20% in FY22. Apart from the China factors, Western nations are increasingly looking at India, which is already among the top-3 specialty chemicals manufacturers in the world. Higher capacities will just underscore that advantage.