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Commodity chemical industry faces price slump and declining demand, posing challenges for key players

The commodity chemical industry has experienced a challenging period during the second quarter of Calendar 2023, with prices of various chemicals witnessing a downward correction. This correction has impacted key players in the market, as demand from Latin America, Europe, and the US has declined, compounded by the concerning trend of China dumping chemicals in these regions.

Ethanol and Acrylonitrile

During Q2CY23, prices of ethanol and acrylonitrile each declined by a significant 16 percent quarter-on-quarter (QoQ). This downward trend can create difficulties for companies heavily reliant on these chemicals for their operations, impacting their profitability and growth prospects.

Phenol/Acetone

Another notable decline was observed in the prices of phenol and acetone, which dropped by 13.3 percent and 14.2 percent month-on-month (MoM), respectively. This dip in prices is particularly relevant for companies like Deepak Nitrite as it is a major product for the company. For Clean Science and Vinati Organics, as these chemicals serve as raw materials for their production processes.

Acetic Acid

Acetic acid prices reached their lowest point since 2021. While this may benefit some manufacturers such as Laxmi Organics, Jubilant Ingrevia, who utilize acetic acid as a raw material or end product, the overall weakness in chemical prices presents challenges for the industry as a whole and would specifically impact GNFC as it is the producer.

TDI – Toluene Spreads

The TDI (Toluene Diisocyanate) – Toluene spreads witnessed a decline of 16.7 percent MoM and 13.9 percent QoQ. This negative trend can adversely impact GNFC.

Caprolactam Benzene:

On a more positive note, caprolactam benzene prices remained relatively stable, with a 3.5 percent increase MoM and no significant change QoQ. This development is encouraging for GSFC, as it indicates a potential advantage for their business operations.

EDC

Prices of ethylene dichloride (EDC) increased by 16 percent QoQ. This rise can have implications for Chemplast Sanmar, a company heavily dependent on EDC as a raw material.

Gujarat Alkalies

Caustic soda prices experienced a decline of 6.2 percent MoM and 25 percent QoQ. Such a downward trend can present challenges for Gujarat Alkalies, which operates in the caustic soda market.

Overall, the weakness in chemical prices has been a significant concern for commodity chemical companies. Lower demand from Latin America, Europe, and the US, coupled with China’s practice of dumping chemicals in these regions, has exacerbated the challenges faced by industry players. This unfavorable market environment puts pressure on profitability, growth prospects, and the overall financial health of the commodity chemical sector.

According to Parthiv Shah of Tracom Stock Brokers, Aarti Industries and the entire chemical space is facing a very tough time. “The outlook is little hazy for the next six months. But I think long-term these are quality companies with quality management, and as and when cycle turns around, the swiftness in the price movement will also be quick to help the investor to exit in a profitable manner,” he said.

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Vinati Organics says second quarter will be weak but expects recovery in most product segments from October

Specialty chemical maker Vinati Organics on August 14 said that customers globally are destocking goods and that ATBS chemical is seeing the biggest impact of inventory destocking. Vinati Organics CEO Vinati Saraf Mutreja is of the view that the second quarter results will be similar to the first quarter as destocking will continue till September.

Most chemical companies globally have announced a soft year going ahead and the firm is seeing softer demand from the US and Europe, she said, noting 70 percent of the company’s sales come from export markets.

“We were well aware in March itself that for the next six months, most of our major customers would be destocking high inventory levels. What had happened last year, in quarter three and quarter four, most customers purchased too much product, in fact, more than we had anticipated, and hence the second half of last year was very good,” she said.

Mutreja also said that in the beginning of this year, they realised they’re sitting on too much inventory, maybe they were scared because of COVID and high costs, which has all come down and everything is normalized. “Expect recovery in most of our product segments starting October onwards,” she added.

Her remarks come after the diversified chemicals manufacturer reported a double-digit fall of 27.6 percent on a year-on-year basis in its consolidated net profit at Rs 83.2 crore in the June ended quarter compared to Rs 115 crore in the same quarter last year. Its revenue from operations declined 14.4 percent YoY to Rs 431 crore in Q1FY24, as opposed to Rs 503.4 crore recorded in the corresponding quarter a year ago.

Vinati Organics Ltd is a specialty chemical company which manufactures and distributes organic intermediates, monomers and polymers. The product portfolio of the company includes aromatics, industrial monomers and industrial polymers.

Reflecting on products, Mutreja said, IBB remains a stable business and so do other niche products. “Butyl Phenol is seeing a slight growth, starting now we are able to penetrate better into the market,” she said.

She added that for her firm pricing hasn’t had a big impact. Most raw materials are falling but for Vinati Organics, while some have fallen, some have also remained the same such as Methyl tert-butyl ether (MTBE), which is the biggest raw material from which it makes IB.

“So prices have remained more or less stable. It’s the volume that has dropped. I see similar trends in quarter two. Butyl phenol there is some softening in pricing, but not in other segments like IBB, etc,” she said.

Mutreja also said the Veeral Organics and Vinati Organics merger is awaiting approval from National Company Law Tribunal (NCLT). The company has already gotten shareholders and lenders approval.

Here’s a round-up of what the chemicals and agro-chemicals firms’ management said

Indian chemical and agrochemical firms recorded a mixed performance in the third quarter of the current financial year, with several firms showing signs of recovery while others continue to face challenges. Meanwhile, a concern has been the dumping from China, which continues in some cases due to low demand in the region. However, some say it is close to the bottom and will reduce in the coming quarters.

CNBC-TV18 has curated a list of companies along with what their management has to say about their business outlook going forward:

Firms with a positive outlook

SRF: Anticipated improvement in performance starting from Q4, indicating potential growth opportunities ahead.

Balaji Amines: Reported sequential improvement driven by increased demand, with expectations of continued margin expansion in the upcoming quarters.

Aether Industries: Observed a resurgence in agrochemical demand and suggested that pricing had likely bottomed out, hinting at a favourable market environment.

Sumitomo Chemicals: Expect better traction in both domestic and export markets in FY25, signaling optimism for future growth prospects.

Jubilant Ingrevia: Noted the conclusion of destocking activities and highlighted the growing traction in the pharmaceutical sector, indicating a positive momentum.

Clean Science: Forewarned a slightly better FY25, supported by progressive demand across volumes. Although facing a slowdown in China, the company remained optimistic about its overall performance.

Aarti Industries: Witnessed demand recovery in segments like dyes, pigments, and polymers, with expectations of widespread demand normalization in the coming quarters. Sequential volume improvement and better pricing trends indicated positive momentum.

Firms with a cautious stance

Laxmi Organic: Highlighted ongoing market stabilisation efforts but noted weaker demand persisting in the sector, suggesting challenges ahead.

Sharda Cropchem: Expect an improvement in the situation by FY26, contingent on resolving weather-related and demand issues, indicating a longer path to recovery.

UPL: Projected a recovery from Q2FY25 onwards, with Q4 expected to remain weak, indicating continued challenges in the short term.

Tata Chemicals: Faced weak market demand across key geographies, exacerbated by dumping from Turkish markets. Pricing pressures were evident across regions, posing significant challenges.

PI Industries: Noted elevated inventory levels in the industry for crop agrochemical products, with ongoing price pressure from generics, signaling potential headwinds in the domestic market. However, the export markets continue to do well.

Source : CNBC TV18

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I am so happy, my dear friend, so absorbed in the exquisite sense of mere tranquil existence, that I neglect my talents. I should be incapable of drawing a single stroke at the present moment; and yet I feel that I never was a greater artist than now.

When, while the lovely valley teems with vapor around me, and the meridian sun strikes the upper surface of the impenetrable foliage of my trees, and but a few stray gleams steal into the inner sanctuary, I throw myself down among the tall grass by the trickling stream; and, as I lie close to the earth, a thousand unknown plants are noticed by me: when I hear the buzz of the little world among the stalks, and grow familiar with the countless indescribable forms of the insects and flies, then I feel the presence of the Almighty, who formed us in his own image, and the breath of that universal love which bears and sustains us, as it floats around us in an eternity of bliss; and then, my friend, when darkness overspreads my eyes, and heaven and earth seem to dwell in my soul and absorb its power, like the form of a beloved mistress, then I often think with longing, Oh, would I could describe these conceptions, could impress upon paper all that is living so full and warm within me.

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O my friend — but it is too much for my strength — I sink under the weight of the splendor of these visions! A wonderful serenity has taken possession of my entire soul, like these sweet mornings of spring which I enjoy with my whole heart. I am alone, and feel the charm of existence in this spot, which was created for the bliss of souls like mine.

I am so happy, my dear friend, so absorbed in the exquisite sense of mere tranquil existence, that I neglect my talents. I should be incapable of drawing a single stroke at the present moment; and yet I feel that I never was a greater artist than now.

When, while the lovely valley teems with vapor around me, and the meridian sun strikes the upper surface of the impenetrable foliage of my trees, and but a few stray gleams steal into the inner sanctuary, I throw myself down among the tall grass by the trickling stream; and, as I lie close to the earth, a thousand unknown plants are noticed by me: when I hear the buzz of the little world among the stalks, and grow familiar with the countless indescribable forms of the insects and flies, then I feel the presence of the Almighty, who formed us in his own image, and the breath of that universal love which bears and sustains us, as it floats around us in an eternity of bliss; and then, my friend, when darkness overspreads my eyes, and heaven and earth seem to dwell in my soul and absorb its power, like the form of a beloved mistress, then I often think with longing, Oh, would I could describe these conceptions, could impress upon paper all that is living so full and warm within me.

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I am so happy, my dear friend, so absorbed in the exquisite sense of mere tranquil existence, that I neglect my talents. I should be incapable of drawing a single stroke at the present moment; and yet I feel that I never was a greater artist than now.

When, while the lovely valley teems with vapor around me, and the meridian sun strikes the upper surface of the impenetrable foliage of my trees, and but a few stray gleams steal into the inner sanctuary, I throw myself down among the tall grass by the trickling stream; and, as I lie close to the earth, a thousand unknown plants are noticed by me: when I hear the buzz of the little world among the stalks, and grow familiar with the countless indescribable forms of the insects and flies, then I feel the presence of the Almighty, who formed us in his own image, and the breath of that universal love which bears and sustains us, as it floats around us in an eternity of bliss; and then, my friend, when darkness overspreads my eyes, and heaven and earth seem to dwell in my soul and absorb its power, like the form of a beloved mistress, then I often think with longing, Oh, would I could describe these conceptions, could impress upon paper all that is living so full and warm within me.

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O my friend — but it is too much for my strength — I sink under the weight of the splendor of these visions! A wonderful serenity has taken possession of my entire soul, like these sweet mornings of spring which I enjoy with my whole heart. I am alone, and feel the charm of existence in this spot, which was created for the bliss of souls like mine.

I am so happy, my dear friend, so absorbed in the exquisite sense of mere tranquil existence, that I neglect my talents. I should be incapable of drawing a single stroke at the present moment; and yet I feel that I never was a greater artist than now.

When, while the lovely valley teems with vapor around me, and the meridian sun strikes the upper surface of the impenetrable foliage of my trees, and but a few stray gleams steal into the inner sanctuary, I throw myself down among the tall grass by the trickling stream; and, as I lie close to the earth, a thousand unknown plants are noticed by me: when I hear the buzz of the little world among the stalks, and grow familiar with the countless indescribable forms of the insects and flies, then I feel the presence of the Almighty, who formed us in his own image, and the breath of that universal love which bears and sustains us, as it floats around us in an eternity of bliss; and then, my friend, when darkness overspreads my eyes, and heaven and earth seem to dwell in my soul and absorb its power, like the form of a beloved mistress, then I often think with longing, Oh, would I could describe these conceptions, could impress upon paper all that is living so full and warm within me.

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O my friend — but it is too much for my strength — I sink under the weight of the splendor of these visions! A wonderful serenity has taken possession of my entire soul, like these sweet mornings of spring which I enjoy with my whole heart. I am alone, and feel the charm of existence in this spot, which was created for the bliss of souls like mine.

I am so happy, my dear friend, so absorbed in the exquisite sense of mere tranquil existence, that I neglect my talents. I should be incapable of drawing a single stroke at the present moment; and yet I feel that I never was a greater artist than now.

When, while the lovely valley teems with vapor around me, and the meridian sun strikes the upper surface of the impenetrable foliage of my trees, and but a few stray gleams steal into the inner sanctuary, I throw myself down among the tall grass by the trickling stream; and, as I lie close to the earth, a thousand unknown plants are noticed by me: when I hear the buzz of the little world among the stalks, and grow familiar with the countless indescribable forms of the insects and flies, then I feel the presence of the Almighty, who formed us in his own image, and the breath of that universal love which bears and sustains us, as it floats around us in an eternity of bliss; and then, my friend, when darkness overspreads my eyes, and heaven and earth seem to dwell in my soul and absorb its power, like the form of a beloved mistress, then I often think with longing, Oh, would I could describe these conceptions, could impress upon paper all that is living so full and warm within me.