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TRANSCRIPT
Page 1
Downstream Industry
Session 5 : 11:45-13:15
12 Nov 2019
-Presentation byDevinder ChawlaPartner, National Head-Chemicals, Ernst & Young
Page 2
The projected growth in Indian economy would lead to a significant increased requirements of downstream and specialty chemicals
Most consumer facing industries have a very high dependence on downstream and specialty chemicals
1.9
2.8
5
FY 14 FY 19 FY 24
Indian economy (USD tn)
FMCG
Construction
Automotive
Agriculture
Healthcare Logistics
Mining
Packaging
Chemicals
Textile
► The per capita consumption of chemicals in India
compared to global average is significantly low vis-à-
vis other industries ( Chemicals 1: 10x, FMCG 1:4x,
Paints 1:3.8x, Plastic 1:2.8x)
► Chemicals constitute 30% to 60% of the consumer
facing industries value
Page 3
For the Indian downstream sector to grow, key gaps/challenges need to be addressed
InfrastructureFeedstock
► Availability
► Volatility
► Quality
► Logistics network across
modes and cost
► Factor availability and cost
► Common effluent treatment
plant
► Labour count and skills
Investments Technology
► Investment for setting up
world class and world scale
plants
► FDI in India has not kept
pace with the industry
Policy and Regulation
► Ease of doing business
► Duties and Taxes which
are conducive to
investments and R&D
► Export promotion
► Land acquisition
Lack of awareness and
reach
► Technology adoption rate
and investment across
manufacturing, supply
chain and sales
► Investment in clean
technology
► Low per capita
consumption for key
chemicals categories
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The downstream chemicals industry in India is largely dependent on imports for key building blocks and intermediate chemicals
► Naphtha
Feedstock Building blocks Intermediates
► Natural Gas
► Methanol
► Ethylene, Propylene,
Butadiene, Benzene
► Styrene
► EDC, VCM
► Xylenes
► Polymers
► PVC
► Soda Ash
► ACN
► MEG
► PTA
Low import dependence
High import dependence
Medium import dependence
► Performance
Plastics
► Toluene, Aniline
► Ethylene
Dichloride
► Polyol
► Polycarbonate
► Calcium
Carbonate
► India has managed to bridge the gap in
demand supply of key chemicals such as
ethylene, propylene, butadiene with
investment in new capacities
India needs to develop world scale plants with leading technology and quality for them to be
globally competitive
► India’s net imports* of plastics, inorganic and
organic chemicals stood at USD -17 bn in 2018
► The demand supply gap for key intermediates is in
excess of 8-12 MMTPA
*Net imports= Exports-Imports
Page 5
The changes in China-shift to consumption led model and focus on environment -present both challenges and opportunities for the Indian chemical industry
► Shift to consumption led model
► Stricter adherence to
environment norms leading to
penalty on/closing/shifting of
chemical companies
► Erosion of cost competitiveness
compared to India
► US-China trade war
► Slowdown in economy
Changing Scenario in China
► Limited availability and
increase in prices of raw
materials and
intermediates
► Oversupply for certain
products
► Companies need to look
at alternate markets/face
reduction in demand for
certain export products
► Uncertainty on market
outlook for products
► Upgrade product mix
Challenges
► India can outperform China’s
chemical industry growth
and become the global
driver by capitalizing on both
its domestic and exports
demand
► Develop stewardship and
partnerships in other
countries
► Increase cost
competitiveness
► Improve exports, enhance
customer base with global
connections
Opportunities
Story so far► China constitutes ~37% of the global chemicals sales while India accounts
for ~3.5 %
► Over the last decade, chemical industry in China has grown at 16% CAGR,
while India managed a CAGR of 9%
Government and industry needs to act promptly to leverage the opportunity
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In addition to the macros and infrastructure intervention, the industry needs to focus on improving its performance and better integration with global industry
Cost efficiency
01
02
R&D and
Technology
04
Products
05
Digitization
03
► Manufacturing cost
efficiency
► Energy efficiency► Move to
develop a
holistically
greener value
chain with focus
on inputs,
processes,
products and
waste
Performance
improvement
► Leverage data and analytics
driven decision making
► Level of automation is low
across the entire value chain
► Collaboration with research
institutes
► Develop R&D capability
► Leverage digital
technology to
develop new
business models,
explore new
markets and
increase innovation
efficiency
► Focus to improve
supply chain
planning and
performance
► Integration of
supply chain with
customers and
global industry
Supply chain
integration
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The key agenda for the Government and the industry needs to be focused on…
Government
► Development of infrastructure
Industry
Players
► Invest in developing capabilities and
efficiencies
► Develop a growth roadmap for the industry
► Supportive policies for investment, exports
► Better integration across value chain and collaborate within
the group in possible synergy areas such as technology
► Analyse and assess the challenges/ roadblocks for growth and
work with government to resolve them
► Performance improvement
Page 8
Downstream Industry requires ‘ecosystem’ to be well developed
Core Process
60-65% of capital
Non Core Process
35-40% of capital
Power / Steam
Storage
Administration
Effluent
treatment
Backup power
Others
Customer
Logistics
Raw materials
Ancillary
CA / Doctor / etc
Social
infrastructure
Testing
Storage
Fire / security
Financial
Others…
Others
Bigger chunk is outside factoryCapital blocked & inefficient ‘non core’
Page 9
Questions to Panel
► What are the key challenges industry players are facing as they plan
their growth and investment agenda.
► What are your expectations from the government to enable investment
and industry growth
► In your view, what can industry players do to propel India as a as a key
player/ source for downstream and specialty chemicals
► How can industry leverage digital, integrated supply chain, portfolio
improvement, etc
► How can industry become more cost efficient
Page 10
Thank you
Page 11
Annexure
Page 12
China, despite facing similar feedstock constraints as India, has managed to grow at ~2x the CAGR of India
Source: Cefic
EU, -28%
NAFTA, -24%
China, -15%
Rest of Asia, -12%
Japan, -7%
South Korea, -
3%
India, -2%
China, 37%
EU, 16%
NAFTA, 15%
Rest of Asia, 14%
Japan, 4%
South Korea, 4%
India, 3%
World Chemical sales by region (% share)
Year 2007(Total sales: 1,909 Euro bn)
Year 2017(Total sales: 3,475 Euro bn)
9%
7%
1%
8%
1%
0%
16%
► Stricter adherence to environment norms leading to penalty on/closing/shifting of chemical companies
► Erosion of cost competitiveness compared to India
► US-China trade war
► Slowdown in economy
CAGR
The story so far… Changing Scenario in China
Opportunities for India
► Step up to become the new manufacturing hub and driver of global CPC industry
6%
Page 13
Key trends in India CPC industry
Investment scenarioKey trends dominating the chemicals industry landscape
Mirroring patterns in end-user industries, chemical manufacturing is shifting to the emerging economies of Asia Pacific, with China as the key destination.
Chemical companies are being drawn to the Asia Pacific region due to lower costs, rising demand and a larger local workforce.
Chemical industry is gradually moving towards developing a circular economy, as economies become more concerned about environmental sustainability.
Companies are opting for innovative ways and partnering with green chemical/technology providers to reduce the environmental impact of their operations.
M&A activity is shifting from megadeal-oriented to optimization of portfolios.
Some transactions involve activist investors seeking a stronger focus on core operations. Asia Pacific has accounted for more than one-third of global deal volume in 2018. Commodity chemicals are witnessing high deal activity driven by portfolio optimization and cost synergies.
Chemical companies are investing in R&D to drive growth via innovation.
Players are enhancing digital capabilities through in-house development and in collaboration with clients, peers and, technology players, investing in developing eco-friendly production and opening key R&D centres in the emerging economies to move closer to the customer.
Chemical companies are moving towards a more smarter and integrated supply chain as a result of digitization. They are integrating customers and suppliers into R&D, raw material sourcing and package sizing, digitizing operations, and building dynamic R&D teams.
Companies are deploying digital technology to respond to growing complexities in the business environment, including rising operating costs and changes in the regulatory environment.
They are investing in technologies such as IOT, RPA, AI and machine learning for innovative plant solutions, smart machines etc.
Chemicals industry
Manufacturing shift
Innovation
Integrated supply chain
Portfolio restructuring
Circular Economy
Digitization
Page 14
India’s net imports for CPC segment in 2018 was ~INR 1.20 lakh cr. growing at a CAGR of 9% between 2015-18
-13 -12
-14
-17
2015 2016 2017 2018
India Net import# for Chemicals and Petrochemicals* (USD bn)
# Net Import= Export - Import* HS codes considered are 28, 29, 32, 38, 39, 4002, 54, 55 (Excludes Pharmaceuticals and Fertilizers)
► CPC net imports contributed 9% to India’s overall net imports in 2018
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Sub-category wise India Net import# for CPC* (USD bn) in 2018
CAGR (2015-18)
5% 11% 2% 6%15% 10% -2% -12%
Source: TradeMap
► In 25% of 4 digit HS codes for CPC, the net import gap is lower than INR -1000 cr, while only in 8% cases, it is higher than + INR 1000 cr
► PVC, Phosphoric products, Acyclic alcohols and their derivatives and ethylene and its polymers are the key import groups
► Colorants, pesticides and cyclic hydrocarbons are the key export groups