Why China’s Overcapacity Is Hurting India’s Chemical Industry

India’s chemical sector is facing a convergence of structural and macroeconomic headwinds that threaten to cap any near-term recovery, according to a report by Nuvama.

At the core of the challenge is China’s overwhelming dominance in global commodity chemicals. The report highlights that China controls a significant share of worldwide capacity across key products such as soda ash, caustic soda, phenol, PVC, polycarbonates, epoxy resins, TDI, phthalic anhydride and acetic acid. Despite weak demand, utilisation levels in China remain far below optimal, keeping global prices depressed.

What makes this particularly damaging for Indian producers is China’s policy-backed resilience. State-supported Chinese manufacturers continue operating even at losses, distorting global supply-demand dynamics and effectively capping any meaningful pricing recovery for Indian chemical companies. As Nuvama puts it, “China’s chemical industry continues to operate with massive overcapacities across virtually all major commodity chemical chains.”

Adding to the strain are elevated crude oil and feedstock prices. Higher crude directly inflates the cost of critical inputs such as naphtha, benzene, propylene and ethylene, squeezing margins across the value chain. Energy-intensive downstream chemical segments are especially vulnerable during prolonged phases of oil price volatility, the report notes.

Currency movement is another headwind. A stronger rupee against the US dollar hurts export realisations, particularly for bulk and mid-value chemical products. Since Europe and the US remain India’s key export markets, currency appreciation can erase India’s cost competitiveness at a time when global chemical prices are already under pressure.

Demand conditions in Western markets continue to disappoint. The report points to a persistent slowdown across housing, FMCG, agrochemicals, pharmaceuticals, automotive and construction-linked sectors in Europe and the US. Weak residential construction has hit demand for PVC, caustic soda and polycarbonates, while subdued agrochemical and pharma activity has weighed on intermediates and solvents.

Closer home, policy and execution gaps are compounding the problem. Citing a NITI Aayog report, Nuvama flags delays in environmental clearances, weak enforcement of anti-dumping duties, and high logistics and energy costs as factors that dilute India’s competitiveness. Without faster approvals and stronger trade safeguards, the report warns, India risks missing the strategic opening created by Europe’s industrial decline.

The message is clear: while India’s chemical sector has long-term potential, near-term realities remain harsh, and structural reforms will matter as much as global cycles.

(ANI and yMedia are the content partners for this story)