Commodity Chemicals - PPT - June2023

May 2023
Research
1
Commodity chemicals
© 2023 CRISIL Ltd. All rights reserved.

Crude oil snapshot
Trend in prices ($/bbl) Trend in supply (mbpd) Trend in demand
2022
2022 2023 2024 2022 2023 2024 2022 2023 2024
93-95 94-96 96-98 98.5-

95-96 97-98
100 75-80 99.5
80-85

Inventory expected to increase further in
Market drivers the US
for 2023 Recessionary concerns expected to Demand for personal mobility improved
impact consumption in key regions, such owing to festive season
January-March as Europe July-September
Recessionary pressures April-June Summer demand in the US and Europe October-December

Lower-than-expected rebound in Chinese Recessionary concerns and trajectory of
demand industrial activity likely to be key
monitorables
2
Despite recessionary fears, Crude oil prices are expected to surge in H2 2023
Easing of geopolitical tensions to result in further price moderation in 2024
Crude oil prices are expected to decline 15-20% on-year in CY 2023 owing to recessionary pressures and stable supply
($/barrel) Russia-Ukraine
Impact of OPEC agreement to increase crude oil Prices to increase marginally
Impact of Covid-19, OPEC+ conflict
140.0 production to off set volume loss from Venezuela, in H2 2023 owing to
fall out and price war
Iran & Libya to restrict price increase production cuts by OPEC+
120.0
between Saudi Arabia and
Russia
100.0

80.0
60.0 Increasing inflationary

Extended production cuts by OPEC+ members in pressures
40.0
addition to voluntary cuts by Saudi Arabia
20.0
0.0
Apr
Apr
Apr
Apr
Apr
Apr
Aug
Nov
Aug
Nov
Aug
Nov
Aug
Nov
Aug
Nov
Aug
Nov
June
June
June
Jan
Mar
May
Mar
May
Mar
may
Jun
Jan
Jun
Jan
Mar
May
Jun
Jan
July
Jan
Mar
may
July
Jan
Mar
may
July
Feb
Jul
Sep
Oct
Feb
Jul
Sep
Oct
Feb
Jul
Sep
Oct
Feb
Sep
Oct
Feb
Sep
Oct
Feb
Sep
Oct
Dec
Dec
Dec
Dec
Dec
Dec
2018 2019 2020 2021 2022 2023
Source: CRISIL Research, Industry
Key Risks/Monitorable
• Crude oil prices to decline 15-20% on-year in 2023 on account of
easing of supply chain tensions coupled with stable supply globally
• The advent of the Russia-Ukraine conflict pushed prices $99 and

3 $113 per bbl in Q1 and Q2 2022, respectively. In 2023, easing of
Increasing Production cuts by Imposition of
tensions have resulted in prices to moderate are range around $ 80-
Recessionary fears OPEC+ incremental trade
85 in first half of the year.
sanctions on
Russia
Chemical prices will continue to moderate in 2023 and 2024
Prices will decline as a result of oversupply and weak demand throughout the value chain
Propylene: Demand-supply imbalance in 2023 owing to eight-year high prices Benzene: Prices to decline in 2023 on account of ample supply
CY21: 28% CY22: (3)% CY23P: (3-8)% 1,302 CY21: 92% CY22: 9% CY23P: (3-5)%
1500 1,398 906 1500
568 371 931
1000 1000
$/tonne
$/tonne
500 500
0 0
Q1 2014
Q3 2014
Q1 2015
Q3 2015
Q1 2016
Q3 2016
Q1 2017
Q3 2017
Q1 2018
Q3 2018
Q1 2019
Q3 2019
Q1 2020
Q3 2020
Q1 2021
Q3 2021
Q1 2022
Q3 2022
Q1 2023
Q1 2014
Q3 2014
Q1 2015
Q3 2015
Q1 2016
Q3 2016
Q1 2017
Q3 2017
Q1 2018
Q3 2018
Q1 2019
Q3 2019
Q1 2020
Q3 2020
Q1 2021
Q3 2021
Q1 2022
Q3 2022
Q1 2023

Phenol: Muted demand and plunge in feedstock crude oil prices to moderate prices in 2023 LAB: Lower input prices to put pressure on prices in 2023
CY21: 50% CY22: 16% CY23P: (22-24)% CY21: 38% CY22: 8% CY23P: (15-20)%
2,000 1,543 2,400
1,068 2,000 1,848 CY21: 38% 1,533
1,500 1,157
$/tonne
692 1,600
$/tonne
1,000 1,200
500 800
400
0 0
Q1 2014
Q3 2014
Q1 2015
Q3 2015
Q1 2016
Q3 2016
Q1 2017
Q3 2017
Q1 2018
Q3 2018
Q1 2019
Q3 2019
Q1 2020
Q3 2020
Q1 2021
Q3 2021
Q1 2022
Q3 2022
Q1 2023
Q1 2014
Q3 2014
Q1 2015
Q3 2015
Q1 2016
Q3 2016
Q1 2017
Q3 2017
Q1 2018
Q3 2018
Q1 2019
Q3 2019
Q1 2020
Q3 2020
Q1 2021
Q3 2021
Q1 2022
Q3 2022
Q1 2023
Methanol: Subdued downstream demand and cheaper imports to further lower prices in 2023 PAN: Domestic capacity addition and decline in feedstock OX prices drag prices in 2024
600 CY21: 100% CY22: (16)% CY23P: (10-15)% 160,000 FY22: 30% FY23: 8-12% FY24P: (5-10)%
500 53,167 118,333
143 321 120,000 133,667
400
$/tonne
Rs/tonne
80,000
200 40,000
0 0
Q1 2014
Q3 2014
Q1 2015
Q3 2015
Q1 2016
Q3 2016
Q1 2017
Q3 2017
Q1 2018
Q3 2018
Q1 2019
Q3 2019
Q1 2020
Q3 2020
Q1 2021
Q3 2021
Q1 2022
Q3 2022
Q1 2023
Q1 2014
Q3 2014
Q1 2015
Q3 2015
Q1 2016
Q3 2016
Q1 2017
Q3 2017
Q1 2018
Q3 2018
Q1 2019
Q3 2019
Q1 2020
Q3 2020
Q1 2021
Q3 2021
Q1 2022
Q3 2022
Q1 2023
P: Projected; OX: Ortho-xylene
Source: Industry, CRISIL MI&A Research
4
5
Domestic scenario

Oversupply and cheaper imports affecting domestic production
Imports from China and Middle East have impacted the margins of players, leading to lower utilization rates
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Key commodity
On-year growth FY23
2022 2022 2022 2022 2022 2022 2022 2022 2022 2023 2023 2023 chemicals
Phthalic anhydride production -3% 14% 14% -19% -2% 4% -8% 0% -13% 2% -14% 5% -14%
Linear alkyl benzene production -11% -16% -33% -23% -31% -32% -2% -3% 3% -6% 7% 2% 10%

Methanol production -59% -47% -92% -79% -88% -89% -86% -80% -72% -11% 15% 11% 262%
Acetic acid production -1% 431% -3% -8% -33% -3% -1% 0% -5% 1% 11% 21% -25% Methanol
Formaldehyde production 3% 18% 5% 8% -13% 6% 4% 12% -5% 12% 34% -27% -2% Methanol
Pesticides production -14% 1% -14% -38% -22% -23% -14% -19% -4% -7% 6% -14% -7% Methanol
Dyes and pigments production -22% -8% -6% -14% -1% -25% -32% -45% -26% -34% -26% -20% -18% PAN
Methanol, phenol,
Chemicals production 7% 4% 24% 15% 8% 6% 6% -3% 6% 3% 4% 7% 7%
PAN
Pharmaceuticals production 1.3% -8% -14% -4% -5% -18% -14% -21% 10% 16% 9% 23% -3% Methanol
Carbon black,
Automobiles production 19% 6% 85% 33% 17% 23% 30% 11% 22% 10% 12% 8% 5%
PAN
Furniture production 20.7% 3% 5% 23% 10% 19% 26% 13% 46% 69% 44% 32% 44% Phenol
Source: Ministry of Statistics and Programme Implementation, CRISIL MI&A Research
6
Commodity chemicals: High dependency on China and Middle East
Capacity addition and government support via ADD and customs duty will support higher operating rates in domestic
market
Import Import Import Key attractiveness / monitorable
dependence dependence dependence
(FY18-FY23) (FY23E) (FY28P)
51% 31%
 53-58%
• Imposition of ADD Limited availability of raw
Phenol • Healthy domestic demand material – propylene

• Capacity additions by domestic players

Competition in export market
• Healthy demand from downstream
4% 12% 0% with US, China, Germany and
Carbon black industries
Russia
• Increase in customs duty
Phthalic anhydride
25% 19%
 3-8%
• Capacity additions by domestic players
• Imposition of CVD and ADD
Cheap imports from South
Korea and Belgium
LAB
37% 45%
 40-45%
• Good domestic demand
• BIS standards put on LAB imports
ADD removed in April 2022
Cheaper imports from Iran
Methanol 92% 99%

 90-95%
• Healthy domestic demand from
downstream industries
Cheap imports from Middle East
E: Estimated; P: Projected; ADD: Anti-dumping duty; CVD: Countervailing duty
7
Phthalic anhydride
Carbon black
Methanol

Phenol
Linear alkyl benzene
8
Phthalic anhydride – An introduction
Domestic industry is producing PAN from OX rather than naphthalene due to higher toxicity levels via naphthalene route
Key inputs for PAN production Break-up of end-use consumption of PAN
FY23 Speciality & Specialit FY28P
UPR,
others, 1% y&
6% Plasticisers,
others,
40%
Plasticisers UPR, 6% 2%
, 38%

OX PAN
(1 tonne) (1 tonne) Alkyd
resins &
paints,
Alkyd resins 25%
& paints,
25% CPC pigments, CPC pigments,
30% 27%
Segment wise usage

Downstream segments Usage Sectors
Plasticisers Used to impart plasticity in flexible PVC Automotives, construction
Pigments Used as colouring agent in all types of materials Paper, inks, textiles
Alkyd resins Used in oil-based paints Construction and automotives
UPR is used in fiberglass reinforced plastic (construction
UPR and others industry); other user industries are insecticides, pesticides, Automotives, polymer composites
fire retardants, etc
P: Projected; PAN: Phthalic anhydride; OX: Ortho-xylene; UPR: Unsaturated polyester resins
Source: CRISIL MI&A Research
9
Plasticisers and alkyd resins to propel PAN demand in medium term
Construction, auto sector expected to drive PVC and protective coatings segments, thereby increasing demand for
plasticisers and alkyl resins
FY 18-23 FY22 FY23E FY24P FY23-FY28P
Share in Long-term outlook
demand
Demand to be driven by increase in construction
Plasticizers 38% 3% 7% 0-2% 12-14% 9-11% investments. Also, capacity additions by downstream
players to support demand.
CPC pigments 27% 2% 16% (8-10)% 6-8% 5-7% Increasing demand for paints in automotive and

construction industries expected to promote alkyd resins
Alkyd resins and paints 25% 8% 28% 9-11% 10-12% 6-8% Rising popularity of lightweight automotive parts in
vehicles to improve fuel economy expected to promote
growth of UPR
UPR 5% (-2)% 1% 10-12% 10-12% 8-10%
Healthy demand for exports and capacity additions in the
domestic market to support segment demand
Others (dyes and agro-
4% (29)% (30)% (70-80)% 15-25% 11-13%
chemicals) Emerging PAN applications, such as flame retardants,
are expected to fuel demand from automotive, home
Overall PAN demand 100% 0.1% 4% (10-12)% 10-12% 7-9% furnishing, and electrical and electronics industries,
thereby spurring growth of the PAN market
• CRISIL MI&A Research expects PAN demand to rise 10-12% on-year in fiscal 2024 with steady GDP growth driving key end-use industries
‒ Demand for plasticizers, which accounted for 38% of overall demand in fiscal 2022, is expected to grow 12-14% on-year, owing to pick up in demand from the
automobiles and construction segments, which are expected to log double-digit growth in the fiscal
• Between fiscals 2023 and 2028, CRISIL MI&A Research forecasts domestic PAN demand to grow at 7-9% CAGR vis-à-vis a relatively flat fiscal 2018 to 2023, primarily
driven by capacity additions in downstream segments
• Demand for PAN declined last fiscal because of dumping of cheaper PVC inventory by Chinese players owing to fallout from Covid-19 lockdown in the country, ADD on
CPC pigments by China, as well as 400% ADD on UPR exports to the US in October 2022, which was subsequently withdrawn in December 2022
E: Estimated; P: Projected; ADD: Anti-dumping duty; CPC: Copper phthalocyanine; PAN: Phthalic anhydride; UPR: Unsaturated polyester resins
10
Specialty chemicals’ demand share expected to rise over medium term
PAN is an intermediate for specialty chemicals such as agrochemicals and dyes; export volume of specialty chemicals
expected to increase owing to ongoing supply-chain de-risking strategy
700 KT Demand declined to 381 KT in FY23 due Demand was ~563 KT in
to dumping of Chinese inventories FY28, led by PVC production
600 Demand was ~383 KT in FY18
because of zero Covid-19 policy in China
500
400

300
200
100
0
FY18 FY19 FY20 FY21 FY22 FY23 FY24P FY25P FY26P FY27P FY28P
Plasticizers CPC pigments Alkyd resins and paints UPR Specialty chemicals
P: Projected
• In fiscal 2024, volume for two-wheelers and passenger vehicles are expected to rise because of rising incomes, which will be further supported by better rural
connectivity and rising urban demand
• To meet the country’s carbon neutrality goals, apart from electric vehicles, requirement will also be for fuel-efficient vehicles, which will require better strength-to-weight
ratio. This will increase the demand for polymer and UPR, as well as plasticizers
• Growth in the construction sector over the medium-to-long-term will be propelled by the infrastructure segment, which will increase demand for PVC pipes and wires,
along with phthalate-based plasticizers. The building construction and industrial sectors, though, are expected to post double-digits growth rates
11
PAN domestic market mainly dominated by two players
KLJ Plasticizers commissioning a PAN plant this fiscal for backward-integration production of plasticizers
Capacity (in TPA) FY23E FY28P Capacity additions over the next eight years
IG Petrochemicals 222,110 275,110
Cumulative
Thirumalai Chemicals 193,000 194,000 capacity
77 124 53 100

KTPA KTPA KTPA KTPA addition
Herdilia Chemicals 10,800 10,800 FY23-FY28
FY21 FY23 FY24P FY25P ~277 KTPA
349 679
KLJ Plasticizers 100,000 100,000 KTPA (~5.2%
KTPA
CAGR)
TCL Intermediates - 100,000 FY20 FY28P
Net capacity Capacity additions
Total 525,910 678,910
• In fiscal 2023, the total domestic PAN demand is estimated to have been around ~381 KT as compared to ~383 KT in fiscal 2018
• Around ~277 KTPA is expected to be fully commissioned in the next five years
• Overall domestic PAN capacity is estimated at ~679 KTPA by fiscal 2028, as against ~526 KTPA in fiscal 2023
• KLJ Plasticizers Ltd has set up a PAN plant that is expected to be fully commissioned this fiscal for backward-integration production of
plasticizers. TCL Intermediates is also planning to add 100 KTPA capacity, which is expected to be fully commissioned by the end of fiscal 2025
• India is expected to become self-reliant in PAN production in the medium term
Source: Company reports, CRISIL MI&A Research
12
India expected to add ~30% of current PAN capacity in medium term
Higher per capita consumption, income and government spending will help maintain operating rates at pre-Covid levels
Share of imports to decrease in the medium term China’s share almost doubled in FY23 from
(KTPA) (%)
14% in FY22
800 83% 85% 65-70% 90%
79% 77% 60-65% 65-70% Russia UAE US
55-60%
700 73% 80% 5% 2% 0% Others
60-65% 65-70% Japan
600 70% 0%
6%
60%
500 Thailand Taiwan

50%
400 10% 31%
35% 40%
30% 29%
300
24% 30%
21%
200 14% 16%
13% 12% 20%
9% 11%
100 10% Korea
0 0% 20%
FY18 FY19 FY20 FY21 FY22 FY23E FY24P FY25P FY26P FY27P FY28P China
Capacity Demand Operating Rates(%) [RHS] Net imports as a % of demand [RHS] 26%
• Utilisation levels are expected to increase 65-70% this fiscal, driven by demand from automotives and
construction sector
‒ Capacity addition by KLJ Plasticizers will keep operation rates lower than pre-Covid levels Country-wise anti-dumping duty
• Going forward, operating rates are expected to decrease further with capacity addition by KLJ Plasticizers
• In August 2021, the Government of India imposed anti-dumping duty on imports from China, Indonesia, Country Duty ($/tonne)
Korea and Thailand for five years. This will support domestic players’ operating rates
• Over FY23-FY28, Indian players are expected to keep their utilisation rates at 60-70%, to prevent Russia 106.3-159.43
oversupply in the market
• Therefore, CRISIL MI&A Research expects the share of imports to remain flattish, substituted by domestic China, Indonesia, Korea and Thailand 40.08-140.17
production
Source: DGFT, DCPC, CRISIL MI&A Research
13
PAN prices expected to moderate this fiscal
Economic uncertainty, moderation in upstream prices, weak demand and supply glut will keep prices down
Prices to decline in fiscal 2024 owing to moderation in input prices
$/tonne ₹/tonnes
1,200 124,708 140,000
104,271
1,000 87,608 75,475 1,137 120,000
68,000 81,500 1050-1150 100,000
800 901 80,000 902
817 112000-118000
80,000

600 748 739
586 60,000
400
40,000
200 20,000
0 0
FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24P
Orthoxylene PAN prices
• PAN can be manufactured by using orthoxylene (OX) or naphthalene. OX is manufactured by cracking crude oil and naphthalene through the
distillation of crude coal tar using coking coal
• CRISIL MI&A Research expects coking coal and crude oil prices to decline 25-30% and 10-15%, respectively, on-year this fiscal as demand from
major economies such as the US and Europe has been subdued owing to fear of recession and inflationary measures
• Oversupply in the market because of capacity addition in both domestic and international markets is expected to pull down prices
• Therefore, PAN prices are expected to decline 5-13% to Rs 112,000-118,000 per tonne this fiscal
14
Phthalic anhydride
Carbon black
Methanol

Phenol
15
Carbon black – An introduction
CBFS and CBO are derived from crude oil and coal tar; major Indian companies produce carbon black via CBFS route
Key inputs for carbon black production Break-up of end use consumption of carbon black
Others, 30%
FY23 FY28P
CBFS Others,
31%
(1.8 tonne)

Carbon black
or
(1 tonne)
CBO Tyre ,
(1.6 tonne) Tyre , 62%
Speciality, 6% 64% Speciality, 7%
Industry-wise usage
Tyres Used as a pigment in tyres to improve durability
All rubber components used in motor vehicles other than tyres, such as belts,
hoses, gaskets, seals, weather stripping, wipers, mats, appearance parts (such as Automotives
Other rubber applications
body moulding) and bumper components used in industrial belts, hoses, specialty
blacks (plastics, toning, inks) etc
Non-rubber applications include demand from coatings, paints, inks, dyes and Automotives, consumer durables,
Non-rubber applications
pigments, etc. Non-rubber carbon mainly comprises the specialty black segment construction
16
Tyre demand to drive moderate growth in carbon black in medium term
Tyre demand to be led by CV and PV segments on account of better economic activity and high infrastructure spending
Demand for carbon black to grow moderately at 6-8% in FY24
KTPA
CAGR 3-5% CAGR 6-8% 1,536
1,198
1,100
1,010
913 925
8-10%

8-10%
8-9%
FY18 FY21 FY22 FY23 FY24P FY28P

Carbon Black Demand
• Domestic demand for SBR expected to increase 6-8% this fiscal

‒ This will be driven by healthy demand growth from downstream tyre segment, which is expected to grow by 6-8%. Demand from the OEM segment is forecasted to
grow 8-10%. However, the replacement segment is expected to grow at a slower pace of 5-7%
• Demand for carbon black to increase at 6-8% CAGR between fiscals 2023 and 2028, against 3-5% CAGR over the past five years with recovery in economy
‒ Tyre demand – A subsequent decline in fiscals 2020 and 2021 will lead to good demand recovery over the next 3-4 years, resulting in higher growth over the next five
years. Automobile sales are expected to have picked up from fiscal 2023, which would drive demand for tyres, and subsequently, carbon black. At the same time, a
sharp rise in tyre demand would be restricted as higher radialisation is expected to enhance tyre life and elongate the tyre replacement cycle, thereby hampering tyre
replacement demand. Improved road infrastructure increases competitiveness of road freight movement (driving OEM demand), but hampers replacement demand by
enhancing tyre life
‒ Non-tyre applications – Demand from industrial belts and hoses is expected to grow at 8-10% CAGR between fiscals 2023 and 2028
‒ Specialty chemicals applications – The segment is expected to log 7-9% CAGR over the next five years as the use of carbon black in specialty segments has
increased, leading to product diversification by key industry players
17
Tyre growth to rise this fiscal, driven by OEM segment
Weak consumer sentiment to lead to modest growth in replacement segment; new model launches to support OEM sales
Sharp drop in OEM demand estimated to increase share of replacement demand by ~200 bps
FY23 FY24P FY25P FY18-23E FY23-28P
Tonne Growth Tonne Growth Growth CAGR CAGR OEM

Segment 35%
('000) (%) ('000) (%) (%) (%) (%)
OEM demand 812 23-25% 887 8-10% 7-9% 2-4% 8-10%

Replacement demand 1,513 7-9% 1,605 5-7% 1-3% 3-5% 2-4% Replacement
65%
Overall tyre demand 2,325 12% 2,493 6-8% 3-5% 3-5% 4-6%
E:Estimated, P: Projected Source: CRISIL MI&A Research
Source: CRISIL MI&A Research NOTE:- Break-up is for FY23 in tonnage terms
Significant improvement in demand for tractors estimated to have increased its contribution by ~200 bps
FY23 FY24P FY25P FY18-23E FY23-28P Tractors,
12%
Tonne Growth Growth Growth CAGR CAGR
Segment
('000) (%) (%) (%) (%) (%) 2/3
Wheelers, MHCV,
MHCVs 1,157 11% 10-14% 6-10% 3% 4-8% 15% 50%
LCVs 154 14% 9-13% 4-8% 1% 4-8%
Cars & UVs 380 25% 10-14% 9-13% 1% 5-9%
2/3 wheelers 433 7% 8-12% 5-9% 2% 3-7%
Cars &
Tractors 260 5% 2-6% 2-6% 5% 1-5%
Uvs, 17%
Total 2,352 12% 6-8% 3-5% 3-5% 4-6% LCV, 6%
E:Estimated, P: Projected Source: CRISIL MI&A Research
Source: CRISIL MI&A Research NOTE:- Demand break-up is for FY23 in tonnage terms
18
Carbon black manufacturers to add ~ 140 KTPA over next five years
India is expected to become self-reliant in carbon black production in the medium term owing to capacity additions
Capacity in FY23 (in KTPA) Capacity additions over the next five years
Philips Carbon Black 750 Cumulative capacity

addition
Birla Carbon and Ralson India FY23-FY28
389
Limited 140 KTPA
(~1.5% CAGR)

Himadri 180 140
KTPA Madura Carbon is
Continental Carbon (CCIL) 235 planning to add
1659 FY 24P 1949 greenfield capacity of
Balkrishna Industries 140 KTPA KTPA 230 KTPA. But these
capacities are at a
Epsilon Carbon 115 FY 23 FY 28P nascent stage.
Therefore, we have not
Total 1,809 Net capacity Capacity additions
taken them into
consideration.
• The total domestic carbon black capacity is estimated to have been around 1,659 KTPA in fiscal 2023 as compared to 1,074 KTPA in fiscal 2018
• Around 140 KTPA of carbon black capacities are expected to get commissioned in the next five years (fiscals 2023 to 2028)
• CRISIL MI&A Research expects the overall tyre industry to grow at 4-6% in the next five years which would help manufacturers to operate at
healthy operating rates
• Overall domestic carbon black capacity is projected to reach 1,949 KTPA by fiscal 2028, as against 1,659 KTPA in fiscal 2023
19
India expected to become a net exporter in coming years
Trade restriction on carbon black from Russia from next fiscal will increase imports from India into US and Europe
Ban on importing carbon black from Russia, one of largest exporters, will keep operating rates at a healthy 80-90%
(KTPA) (%)
2500
CB u 100%
65-70% 80-85%
79% 65-70% 70-75% 75-80%
73% 71%
2000 65% 65% 66% 80%
60%
1500
40%

1000 16%
7% 6% 6% 20%
500 -5% -7% -5% -5% -6% -5%
-9% 0%
0 -20%
Capacity Demand Operating Rates(%) [RHS] Net imports as a % of demand [RHS]
• In fiscal 2023, domestic utilization declined to 66% from 71% in fiscal 2022 led by capacity addition while production risen by ~7%, driven by healthy
domestic demand and growth in exports.
• New capacities added by Phillips Carbon Black and Balakrishna Industries this fiscal will support rise in utilisation levels
• Going forward, utilisation is expected to hover at 80-85% up to fiscal 2028
• Over the next five years, India is expected to add capacity of ~140 KT against incremental demand of 430-440 KT
‒ Therefore, CRISIL MI&A Research expects the share of imports to reduce and that of exports to continue to increase. India will continue to be net
exporter
• However, stiff competition in the export market with established exporting countries such as the US, Japan, Germany and Russia is expected to
pose a challenge to domestic players
20
Carbon black prices to decline in line with crude oil
Carbon black prices to moderate with correction in crude oil prices and capacity addition
Carbon black prices to decline on-year because of higher base in fiscal 2023
300 112.7 120.0
99.0 99.2
250 88.4 85-90 100.0
79.6 267 81.4 80-85
74.5 75.5 73.0 243 245
200 67.0 67.7 68.3 68.6 80.0
61.4 63.2 61.9 62.6 60.6
51.7 50.5
205 206 201 207-213
150 50.2 178 186 60.0

42.7 44.5 162
143 153 150 147 145 31.4 140
100 126 129 135 40.0
122 120 118
100 92 101 103
50 20.0
- 0.0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2P
FY18 FY18 FY18 FY18 FY19 FY19 FY19 FY19 FY20 FY20 FY20 FY20 FY21 FY21 FY21 FY21 FY22 FY22 FY22 FY22 FY23 FY23 FY23 FY23 FY24 FY24
P: Projected Notes: 1) Base 100 for Q1 FY18 Carbon black price index Crude oil prices
2) The index is based on prices sourced from industry participants as well as internal proprietary model
3) The index is to assess on-quarter percentage change in index value, and not to arrive at absolute prices, which may vary from company to company
4) The index is only indicative in nature; it does not represent contractual prices, and is not intended for the purpose of determining pricing of contracts
Source: CRISIL MI&A Research, industry
• Carbon black is produced through two routes: CBFS, a crude oil derivative, and CBO, a coal tar derivative
• In fiscal 2023, crude oil prices as well as coal prices increased. Consequently, priced for CBFS and CBO also increased, and, hence, carbon black prices
‒ Furthermore, recovery in automobile sales in the domestic market supported rise in prices. In India, tyre production rose 13% on-year in fiscal 2023
‒ Hence, domestic carbon black prices increased by 31-32% on-year in the past fiscal
‒ Prices rose mainly because of inflationary environment and geopolitical tensions in eastern Europe
• Going forward, carbon black prices are expected to decline 10-15% this fiscal following drop in input prices and higher capacity addition by major players
• Increasing recessionary fears stemming from inflation, coupled with interest rate hikes globally have cast a significant shadow on consumption and economic growth,
thereby pushing prices downward
21
Phthalic anhydride
Carbon black
Methanol

Phenol
22
Methanol – an introduction
Natural gas is the main feedstock for methanol
Key inputs for methanol production Break-up of end use consumption of methanol
FY23 Methyl FY28P
Others MTBE, Amines, Pesticides MTBE,
3% 3% 10% Methyl
Pesticides 7% 9% Acetic Amines,
3% acid, 4% 3%
Pharma,
Chloromet Acetic
27%

Natural gas Methanol hanes, acid, 3%
Pharma,
5%
(33-35 mmBtu) (one tonne) 23%
Chloromet
hanes,
5%
Formaldehyde Formaldehyde
46% 46%
Industry-wise usage
Used in the form of resins in plywood and laminates industry; also

Formaldehyde Construction sector
used in other basic chemicals
Pharmaceuticals Used as an input in various formulations Pharmaceuticals
Used in the manufacture of acetic acid, a key input for PTA and
Acetic acid Man-made fibre and poly-vinyl chloride (PVC)
vinyl chloride monomer (VCM)
Source: CRISIL Research
Note: PTA- Pure terephthalic acid
23
Methanol demand growing at a moderate pace
High inflationary environment and recessionary fears to drag growth in some segments
FY 18-23 FY22 FY23 FY24P FY 23-28P
Share in Long-term outlook
demand Investment in construction industry is likely to increase
with economic recovery. Subsequently, demand for
Formaldehyde 46% 5-7% 10-12% 2-4% 9-11% 6-8% formaldehyde resins segment is expected to register
healthy growth
Pharmaceuticals 23% 10-12% 6-8% 9-11% 9-11% 10-12% Healthy domestic and export demand to support demand
for this segment

Chloromethane 5% 9-11% 4-6% 4-6% 7-9% 3-5%
Capacity additions by chloromethane producers will led
to healthy demand for methanol
Acetic acid 3% 0-2% 7-9% (0-2)% 4-6% 4-6%
Demand is likely to grow led by capacity additions by
Assam Petrochemicals
Others 22% 2-4% 9-11% 9-11% 5-7% 5-7%
Methanol is also used as an antifreeze agent, solvent
and fuel. Demand from these segments is expected to
Overall methanol demand 100% 6-8% 10-12% 7-9% 4-7% 6-8% witness a combined growth of 5-7%
• CRISIL MI&A Research expects methanol demand to increase 4-7% on-year in fiscal 2024, given moderate growth in the overall economy, which is likely to
drive growth in key end-use industries such as construction and pharma.
‒ Demand from the formaldehyde segment is expected to grow 9-11%, with rise in investments in construction activity
‒ Demand from the pharmaceuticals segment is also expected to grow 9-11%, on account of healthy growth in domestic and export demand
• Methanol demand to log 6-8% CAGR over FY23-28
‒ Demand growth is expected to be led by pharma, formaldehyde and chloromethane segments
‒ However, MTBE segment is likely to grow at 5-7% owing to lack of capacity additions
‒ Methanol demand grew in high single digits led by strong domestic market last fiscal despite high input prices, the energy crisis due to the Russia-Ukraine war and
Covid lockdowns in China
Note: Other include MTBE ,pesticides ,alkyl amines
24
Share of pharma to increase in medium term
Companies to backward integrate to produce API and KSM, of which methanol a key ingredient
Methanol demand expected at 2,900-3,000 KT this fiscal
Methanol demand is expected to
Methanol demand was
4000 KT be 3,956 KT in fiscal 2028; share
Methanol demand was expected to be 2,843 KT in
of pharma to increase 200-300 bps
2,034 KT in FY18 FY23
3000

2000
1000
0
Acetic acid Chloromethanes Formaldehyde Pharma Others
• Developed economies spend a major portion of their gross domestic product (GDP) on healthcare. Going forward, demand for pharma products in developed markets is
expected to be driven by factors such as aging population and growing incidence of chronic diseases
• Austerity measures adopted in Europe will continue to drive demand for generic drugs, though pricing realisation may not be as favourable as in the past
• In fiscal 2024, construction sector is set to record 13-16% on-year growth propelled by the infrastructure sector over the medium to long term, increasing the share of
formaldehyde demand
• Pesticides production volume is expected to increase leading to a rise in its share, led by exports to US, Argentina and Brazil
Note: Other include MTBE ,pesticides ,alkyl amines
25
Domestic methanol production to revive this fiscal
Moderation in natural gas prices might encourage players to operate at 20-25% utilisation
Utilisation to improve gradually over the medium-term
(ktpa)
5000 120%
94% 99% 96% 94% 94% 95%
89% 93% 91% 93%
4000 88% 100%
80%
3000 30-35% 40-45% 40-45% 40-45%
50%

47% 60%
42%
2000 33% 29% 20-… 40%
1000 10% 20%
0 0%
• Utilisation rates declined in fiscal 2023 as players shut down their methanol plants, except for Assam Petrochemicals
• Assam Petrochemicals commissioned its methanol and formaldehyde in last quarter and have better export realisations because of accessibility to natural gas
• Presently, only four manufacturers are producing methanol (GNFC, GSFC, Deepak and Assam Petrochemicals), due to non-availability of domestic gas and high cost of
manufacturing methanol by importing LNG
• Over the next five years, only Assam Petrochemicals is expected to fully commission the new plant of 165 ktpa (as it have access to domestic gas).
• Therefore, the share of imports will continue, though decline in input prices is expected in a few quarters
• Unavailability of domestic inputs and availability of cheap imports will restrict capacity addition in the segment
• In the long run, Coal India and NTPC are also planning to set up coal to methanol capacities
‒ However, we have not considered them as the talks are in initial stages
Note: E: Estimated; P: Projected
Source: CRISIL Research
26
Methanol prices to moderate from this fiscal
Natural gas prices to decline due to over-supply and build-up of inventories
Methanol prices are expected to decline 5-15% on-year this fiscal
$/tonne $/mmbtu
500 26.9 30.0
414
400 347 25.0
318 319 270-300 20.0

300 229 249 21.33
15.0
200
10.0
100 12-14
8.0 8.9 5.0
4.55 5.29
0 0.0
FY18 FY19 FY20 FY21 FY22 FY23 FY24P
Methanol prices Natural gas
• In fiscal 2023, methanol prices declined to $319/tonne, from a historical high of $414/tonne in fiscal 2022
‒ Energy crisis in Europe due to the Russia-Ukraine war impacted prices
‒ Moreover, feedstock natural gas prices increased significantly owing to tight supply, good demand and lower inventory levels
• In fiscal 2024, methanol prices are expected to decline to $270-300/tonne due to cheaper imports from Middle East and China
• Imports increased 17-18% in fiscal 2023 due to strong downstream demand in the domestic market
• Iran has increased exports to India by 400% last fiscal. Saudi Arabia and Iran comprise ~24% and ~20%, respectively, of India’s methanol imports
27
Phthalic anhydride (PAN)
Carbon black
Methanol

Phenol
Linear alkyl benzene (LAB)
28
Phenol – an introduction
Benzene and propylene form the feedstock, while acetone is by-product of phenol synthesis
Key inputs for phenol production Break-up of end-use consumption of phenol
FY23 FY28P
Caprolactum Caprolactum
Benzene Alkyl phenol
Alkyl phenol 5% 6%
(0.84 tonnes) 4%
5%
Others
20%
Phenol (one tonne) + Others

21%
Acetone (0.6 tonnes)
Propylene
(.56 tonne) Phenolic resins
Phenolic resins
69% 70%
Source: CRISIL MI&A Research Source: CRISIL MI&A Research
Industry wise usage Key players

Downstream
Usage Player name Existing capacity
segments
Phenolic resins Used mainly in plywood and laminates, automobile industry SI Group 40,000
Foundry resins Used for casting metals into shapes
Monomer for nylon-6 (fibre, engineering plastics applications Hindustan Organic Chemicals 40,000
Caprolactum
in textiles and automotives)
Alkyl phenol Detergents and wetting agents Deepak Phenolics 200,000
Source : Industry, CRISIL MI&A Research
29
Phenol demand to grow at healthy pace -in next five years
Demand will be led by end-user segments such as automotives and construction
Share in FY 18-23 FY22 FY23P FY24P FY 23-28P
Long term outlook
demand
Plywoods and laminates industry is expected to clock 8-
Phenolic resins 70% 3-5% 18-20% 1-3% 8-10% 6-8% 10% CAGR. Demand from automotive and construction
is expected to increase 11-12% on-year. In the long
term, we expect phenolic resins to log 6-8% CAGR
Caprolactum 5% 0-2% 0-2% 13-15% 10-12% 8-10%

Alkyl phenol 5% 4-6% 7-9% 4-6% 6-8% 5-7% Healthy domestic from automotives and packaging to
support demand for this segment
Others 21% 18-20% 7-9% 4-6% 4-6% 4-7%
Healthy demand from surfactants to drive demand for

Overall phenol demand 100% 5-7% 11-13% 3-5% 8-10% 6-8% this segment
• CRISIL MI&A Research expects phenol demand to increase 8-10% on-year in fiscal 2024, given a modest growth in overall GDP, which is likely to drive growth in key
end use industries such as construction, automobiles, detergents, and agriculture
‒ Demand from the phenolic resins segment (~70% of the total demand) is expected to grow over 8-10% on year, owing to rise in consumption from end-use
industries such as plywood and laminates, automobile components, paints
‒ Caprolactam. which is a raw material for nylon-6, is expected to grow in double-digits led by automotives and packaging sectors
• We expect domestic phenol demand to log 6-8% CAGR between fiscal 2023 and 2028, compared with 5-7% CAGR between fiscal 2018 and 2023
30
Phenolics resins to maintain share in phenol demand
Strong demand in domestic construction and robust automotive sales will be the drivers
KT Phenol demand expected to be
700 Phenol demand was expected to be Phenol demand was expected to be ~640KT in FY28, logging 6-8%
around 337 KT in FY18 around 469 KT in FY23 CAGR
600
500

400
300
200
100
0
FY18 FY19 FY20 FY21 FY22 FY23P FY24P FY25P FY26P FY27P FY28P
Alkyl phenol Caprolactum Phenolic resins Others
• In fiscal 2024, new additions to the affordable segment in real estate coupled with improved policies and regulations will improve demand in the medium to long term
• Demand for downstream sectors such as epoxy and abrasives will be key monitorable , given that operating rates are modest this fiscal as per the YTD numbers
31
Imports to rise 50-60% this fiscal, remain high
High domestic demand will be supported by debottlenecking by Deepak Phenolics and higher imports
Utilisation rates to be over 110% in next five years; imports to continue increasing
(ktpa) (%)
400 140%
120% 105-110% 105-110%
110-115% 105-110% 105-
105% 110% 120%
104%
300
88% 100%
86%

67% 80%
200 62%
52% 52% 56%
47% 48% 60%
44% 44%
39% 39%
31% 40%
100
20%
0 0%
FY18 FY19 FY20 FY21 FY22 FY23P FY24P FY25P FY26P FY27P FY28P
• Deepak Phenolics commissioned a greenfield capacity of 2 lakh tonne per annum in November 2018 and given higher demand from downstream industries, it is
expected to debottleneck its existing plant to 3 lakh tonne per annum
• Most domestic plants are operating at more than 90% capacity, with average utilisation rates hovering at over 120%
• Going forward, share of imports is expected to remain high till fiscal 2027. Post fiscal 2026, Nayara is expected to add capacity
‒ As of fiscal 2023, India met nearly 143 ktpa of phenol requirement through imports. Hence, with the new capacity, India's import requirement is likely to come down
significantly, and it is expected to gradually become self-sufficient
‒ The demand-supply gap of phenol provides a tremendous opportunity for players to set up phenol capacities in India
32
Phenol prices to decline this fiscal
Over-supply and high inventory levels will keep prices down in the domestic market
Tolling margins to decline this fiscal Raw material costs to remain flat
1,600 $/tonne
1,200
1,300 1,048 900-1000
1,264 1,289 1,009
1,000 910 937
1,200 1,103 1050-1150 852 862 1,023
1,003 800 975
977

959 729
800 950-1050
814 813
970 950-
800 921 729 745
869 877 1050 600 667
807 649
744
650 520
400
400 526
200
586 468 484 561 352 508 540 591 380-440
0
0
FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24P
Phenol tolling margins Phenol Acetone Propylene Benzene
• Last fiscal, phenol prices declined ~1% along with a drop in raw material costs leading to an increase in margins by ~9%
• Phenol prices are expected to decline 13-18% this fiscal because of over-supply and high inventories
• With input prices remaining constant this fiscal , we expect margins to decline in a range of 25-35%
• Imports are expected to increase in coming quarters as a major producer shuts down for debottlenecking
33
Methanol
Phenol
Phthalic anhydride (PAN)

Carbon black
Linear alkyl benzene (LAB)
34
Introduction to linear alkyl benzene
N-paraffin and benzene, which are downstream products of crude oil, are input materials for LAB
Key inputs for LAB production Break-up of end-use consumption of LAB
Others, 5%
N-paraffin
(0.85
tonne)

LAB
(1 tonne)
Benzene
(0.37
tonne)
LABSA, 95%
Industry usage Key players
Downstream segments Usage Players Capacity(KTPA)
Used as surfactants in the detergents industry Reliance Industries Ltd 120,000

Soaps and detergents
(Higher concentration in premium detergents)
Indian Oil Corporation Ltd 162,000
Nirma Ltd 120,000
Tamilnadu Petroproducts Ltd 145,000

Note- LABSA:Linear alkyl benzene sulphonic acid

35
35
Rising per capita income and awareness of cleanliness to boost
demand
LAB is the raw material for LABSA, which is a constituent of home care products; usage to improve LAB offtake
LABSA to drive consumption of LAB
KTPA CAGR ~3-5% 897
CAGR ~2-4% 780
722 720 750
656
3-5%

2-4%
(0-2)%
FY18 FY21 FY22 FY23 FY24P FY28P

LAB Demand
• CRISIL MI&A Research expects demand for LAB to grow 3-5% this fiscal, led by domestic demand amid rising consumer awareness about hygiene and the increasing
penetration of detergents
‒ Given the occurrence of the Covid-19 pandemic, the demand for cleaning agents will remain healthy
• However, slowdown in end-use LABSA exports owing to shipping issues restricted LAB demand growth in fiscal 2022
• Domestic LAB demand is expected to grow 3-5% over fiscal 2023 to fiscal 2028, led by steady domestic demand from the detergents and soaps segment
• Demand is expected to improve gradually, with increasing hygiene awareness, penetration of detergents and disposable income. Moreover, an increasing number of
consumers are shifting towards the premium detergents segment (LABSA usage is higher in the segment); this will also help demand
• However, in the long run, a shift towards eco-friendly surfactant (alpha olefin sulphonate or AOS) in the case of liquid detergents will impact demand for LABSA, and
thus, LAB. Since AOS is made primarily from coconut oils/palm oil fatty acids, it is bio-degradable
36
Operating rates to increase for LAB this fiscal
Imports from the Middle East, including Iran, are likely to decrease significantly due to non-conformity with BIS standards
No capacity additions owing to non-availability of N-paraffin; to keep imports high
(KTPA)
90-95% 90-95% 90-95%
1000 85-90% 85-90% 100%
82% 83% 84% 85%
76% 79%
800 80%
600 60%

45% 41% 43%
39% 36% 38% 39% 40%
33% 36%
400 31% 40%
200 20%
0 0%
• In fiscal 2023, the utilisation level declined to 79% from 85% owing to dumping of cheaper inventories from Iran due to removal of anti-dumping duty in June ,2022
• Despite a steady rise in demand, no major capacity addition is expected in India in the medium term due to non-availability of feedstock n-paraffin.
‒ Integrated players such as Reliance Industries do not have any major plans to expand capacity due to the small size of the market and competitively priced imports
‒ Moreover, non-integrated players, who do not have oil refineries (that produce kerosene), suffer due to the unavailability of kerosene. The latter is a feedstock for n-
paraffin for industrial use
‒ Tamilnadu Petro Products is the first company to acquire the Burea of Indian Standards certification
• Thus, LAB imports are expected to clock 2-4% CAGR over fiscal 2023 to fiscal 2027. They will account for over 43% of total domestic consumption in fiscal 2027, a
decline from 45% in fiscal 2023. Imports are likely to continue from the Middle East nations, which have integrated capacities and access to cheaper feedstock
Note: E: Estimated; P: Projected
37
LAB prices are expected to decline this fiscal
Correction in crude oil prices along with high inflationary environment has impacted consumer sentiment around the globe
LAB prices are expected to decline 10-15% this fiscal
2,000 1,776 1,817 1500-1700 600
500
1,500 1,338 1,296 1,316 1,365
1,242 1,240 1,257 1100-1200
1,090 1,097 400
996 1,000 1,036
919
1,000 731 300

1,023 975 1050-1150
816 870 200
500 667 743 727
571 100
149 198 105 137 195 525 544 295 319
0 0
LAB margins LAB Benzene N-paraffin
• In fiscal 2022, LAB prices increased significantly, led by moderate demand from the detergents segment and the energy crisis in Europe
‒ N-paraffin and benzene prices increased following the rise in crude oil prices
‒ The energy crisis in Europe due to the Russia-Ukraine conflict aggravated the situation significantly
‒ Therefore, tolling margins declined to $295 per tonnes
• Going forward in fiscal 2023, LAB prices are expected to decline because of moderation on the back of over-supply in the domestic market
• In fiscal 2020, LAB prices declined marginally despite lower upstream prices owing to sustained demand from LABSA
‒ N-paraffin and benzene prices declined ~25% in line with the decline in crude oil prices
‒ Therefore, tolling margins expanded
38
Thank you
39

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Commodity Chemicals - PPT - June2023

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May 2023

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93-95 94-96 96-98 98.5-

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Recessionary pressures April-June Summer demand in the US and Europe October-December

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60.0 Increasing inflationary

• The advent of the Russia-Ukraine conflict pushed prices $99 and

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Source: Ministry of Statistics and Programme Implementation, CRISIL MI&A Research

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Methanol 92% 99%

E: Estimated; P: Projected; ADD: Anti-dumping duty; CVD: Countervailing duty

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Linear alkyl benzene

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Segment wise usage

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IG Petrochemicals 222,110 275,110

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Source: DGFT, DCPC, CRISIL MI&A Research

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Source: CRISIL MI&A Research

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Linear alkyl benzene

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Source: Company reports, CRISIL MI&A Research

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FY18 FY21 FY22 FY23 FY24P FY28P

• Domestic demand for SBR expected to increase 6-8% this fiscal

Tonne Growth Tonne Growth Growth CAGR CAGR OEM

OEM demand 812 23-25% 887 8-10% 7-9% 2-4% 8-10%

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Philips Carbon Black 750 Cumulative capacity

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Linear alkyl benzene

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Used in the form of resins in plywood and laminates industry; also

Pharmaceuticals Used as an input in various formulations Pharmaceuticals

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© 2023 CRISIL Ltd. All rights reserved.

Note: Other include MTBE ,pesticides ,alkyl amines

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Source: CRISIL MI&A Research

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Linear alkyl benzene (LAB)

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Industry wise usage Key players

Source : Industry, CRISIL MI&A Research

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Others 21% 18-20% 7-9% 4-6% 4-6% 4-7%

Healthy demand from surfactants to drive demand for

Source : Industry, CRISIL MI&A Research

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