Petrochemical Industry

Overview:


Petrochemicals are chemicals made from petroleum (crude oil) and natural gas. The petrochemical industry of today is an indispensable part of the manufacturing and consuming sectors, churning out products which include paint, plastic, rubber, detergents, dyes, fertilizers and textiles. "Primary Petrochemicals" include olefins (ethylene, propylene and butadiene) aromatics (benzene, toluene, and xylenes); and methanol. Olefins and aromatics are the building blocks for a wide range of materials such as solvents, detergents, and adhesives. Olefins are the basis for polymers and oligomers used in plastics, resins, fibers, elastomers, lubricants, and gels. Notwithstanding the wide range of products derived from this sector, it consumes only ~5% of annual oil and gas production.

Over the past 10 years, despite the traditional dominance American and Western European players, there has been a paradigm shift from West to East, with the Middle East emerging as global production hub with natural advantages of low cost feedstock and Asia becoming a major consumption centers.

A job in the petrochemical industry offers lucrative income, employee welfare facilities and career development opportunities. Career opportunities for educated, highly skilled and motivated workers include jobs as engineers, operating technicians, lab technicians, electricians, environmental, health and safety technicians and managers and supervisors. Undoubtedly, there is a very strong emphasis on technical proficiency, efficiency and being a team player.

Performance

The global petrochemicals sector was ravaged by a huge drop in demand for its products due to the global economic slowdown in 2008-2009, exacerbated by increasing input costs with oil prices skyrocketing to $110. That said, most of the big players still made a profit, just not as big as the profits they made over the past two or three boom years. The largest global petrochemicals companies (by 2008 revenue) are BASF (Germany), Dow Chemical (USA), ExxonMobil Chemical (USA), LyondellBasell Industries (Netherlands), INEOS (UK) and Saudi Basic Industries Corporation (Saudi Arabia).

The Indian petrochemical industry has been one of India’s fastest growing domestic industries, comprising both small and large scale enterprises. Due to its linkages with various domestic manufacturing industries such as pharmaceuticals, construction, agriculture, and textiles etc it is undoubtedly an integral part of the energy value chain. In recent years, India has experienced significant industrial and economic development and as a result has become a net exporter of chemicals leveraging the tremendous growth in overseas sales of dyes, intermediates and specialty chemicals. In addition, the government’s decision to revamp eight public sector fertilizer units has helped buoy the domestic market demand. Also, the strong demand for end products such as plastics has ensured that the industry top line remained robust.

The leading players in India are Reliance Industries, Gujarat State Fertilizer and Chemicals, Tata Chemicals, Haldia Petrochemicals and Hindustan Organic chemicals. Like their global counterparts, these players too suffered a subdued 2 years. It is important for players to remain aware of the lessons learnt from this period, which acted as a rude wake-up call for all the euphoric predictors of sustained double digit growth.

The sector reeled under the pressure of escalating crude oil prices, lowered domestic and export demand, resulting in compressed bottom lines. With more balanced predictions, and the economic gloom slowly lifting, optimism is returning once again.

Future Prospects

The aggregate demand of all the key segments in the petrochemical industry is likely to regain a sharp positive trajectory over the next 12 months, with key players aiming to ramp up scale and increase recruitment. Hence, those graduates with a strong technical and/ or engineering background should remain confident of being able to find decent employment opportunities. This is not an industry suitable for the initiated, and freshers with general degrees would be best advised to seek alternate options elsewhere.

Industry Segments

The wide and diverse spectrum of products can be broken down into a number of

categories, including inorganic and organic (commodity) chemicals, drugs and

pharmaceuticals, plastics and petrochemicals, dyes and pigments, fine and specialty

chemicals, pesticides and agrochemicals, and fertilizers.

Sructure of Indian Chemical Industry

Inorganice

Chemicals

9%

Fertilizers

20%

Polymers

7%

Synthetic

Fibers

19%

Soaps/Toilette

ries

13%

Others

4%

Organic

Chemicals

18%

Dyges

2%

Paints

Agrochemicals 4%

4%

1) Basic Inorganic and Organic Chemical Industry

The Basic inorganic chemical and organic chemical industry constitutes a major segment

of the country's economy. Important chemicals in this category are Soda Ash, Caustic

Soda, Liquid Chlorine, Calcium Carbide, Acetic Acid. Methanol, Formaldehyde, Phenol,

Acetone.

These are raw materials for industries like detergents, toothpaste, plastics, drugs,

petroleum refining, etc. 10 per cent of the Chlor-Caustic Plants use Membrane Cell

Technology, which will find higher usage, as no new capacities are allowed for the

mercury cell process

2) Drugs & Pharmaceuticals

The Indian Pharmaceutical Industry is the largest in the developing world. The industry

currently produces a wide range of bulk drugs. In fact, India is currently a world leader in

manufacture and export of basic drugs such as ethambutol and ibuprofen.

300 bulk drugs & formulation based on them are manufactured in the country. There are

10,000 manufacturing units, of which 290 units are in the large-scale sector, 45 Multi-

National Companies (MNCs) have manufacturing bases here.

Corporate Catalyst India A report on Indian Chemical and Petrochemical industry

India is emerging as one of the largest and cheapest producers of pharmaceuticals in the

world, accounting for nearly 8.5per cent of the world's drug requirements in terms of

volume, and ranks amongst the top 15 drug manufacturing countries in the world. India

being a signatory to the GATT accord, (and the TRIPs agreement therein) patent

protection will be provided under the treaty obligations.

3) Pesticides & Agrochemicals

India is currently the largest manufacturer of Pesticides in Asia, second only to Japan.

The pesticides demand from the agriculture sector is expected to go up to 97,000 tonnes

by the year 2000. More than 60 technical grade pesticide is manufactured indigenously.

Some 125 units are engaged in the manufacture of the above and over 500 units are

making pesticide formulations.

In agrochemical, we manufacture significant quantities of synthetic pyrethroids, such as

fenvalerate and cypermethrin, endosulphane, and organophosphate range of

agrochemicals, including monocrotophos. India is also a dominant producer of

isoproturon, a weedicide accounting for nearly 25 per cent of the world-wide production.

The Indian pesticide industry has advanced significantly in recent years, producing more

than 1,000 tons of pesticides annually. India is the 13th largest exporter of pesticides and

disinfectants in the world, and in terms of volume, is the 12th largest producer of

chemicals. However the average Indian consumption is very low, merely1/20th of world

average. Consumption varies depending on crop and region Cash crops like sugarcane,

tobacco etc. are the major consumers of pesticides (above 60per cent)

There are two types of producers out of them there are about 40 Technical producers

and above 500 formulators. United Phosphorus, Rallis and Excel are the major Indian

players. Multinational like Hoechst, Agrevo, Novartis, Bayer etc has significant share in

the market.

4) Petrochemicals

The petrochemical industry of India is less than 40 years old. Petrochemicals cover basic

chemicals like Ethylene, Propylene, Benzene and Xylene. The other major components

are the intermediates like MEG, PAN and LAB etc, Synthetic fibres like Nylon, PSF and

PFY, Polymers like LDPE/HDPE, PVC, Polyester and PET etc and Synthetic rubber

like SBR, PBR. The sector has a significant growth potential. Although the current per

capita consumption of petrochemicals products is low, the demand for the same is

growing: The major players in this field includes Reliance, Indian Petrochemicals Limited

(IPCL), National Organic Chemical Industry Ltd (NOCIL) and Gas Authority of India

Ltd (GAIL) etc.

5) Dyes & Pigments

There are about 50 units in the organised sector and about 900 units in the small scale

sector. The Installed Capacity of the organized sector is 37,000 MTA while the small

scale sector has an installed capacity of 10,000 MTA. The Market is highly fragmented.

Corporate Catalyst India A report on Indian Chemical and Petrochemical industry

About 25 large and medium players have hold over 50 per cent of the dyes and pigments

market and about 2000 players in unorganized sector contributes to the rest.

Nearly 80 per cent of the dyes manufactured is utilised by the textile industry, with the

balance going to into paints, printing inks, rubber & leather. Just like Agrochemicals, per

capita consumption of dyes too is very low (400 gms) as compared to developed

countries like USA (15 kgs). However India is a major exporter of dyes, mostly due to

ban of production of some of the dyes and intermediates in the developed countries due

to pollution

Major Players

• Paints - Asian Paints, Goodlass Nerolac, ICI, Courtalds, Jenson & Nicholson

• Dyes & Intermediates - Color Chem (Hoechst), Clariant, IDI, Atul, Mardia etc.

• Inks - Coates, Hindustan Inks, Sakata

6) Fine & Specialty Chemicals

70 per cent of the Fine Chemicals produced in India find their way into the

Pharmaceutical and Agrochemical sectors. Performance chemicals geared to customer

need are being developed locally particularly since there is growing demand for Speciality

chemicals like Sunscreens, Antioxidants, Biocides, etc.

Manufacturers of Fine Chemicals and specialities have major strengths in basic research

facilities available with CSIR laboratories such as NCL, IICT & RRls as also corporate R

& D centres. This ensures that development of process know-how; plant process design

and engineers, detailed engineering design, commissioning assistance and even

consultancy for re-engineering are available at low cost. This segment is also highly

segmented with large number of players. Major Indian players are ION Exchange,

Balmer Lawrie, Dai Ichi Karkaria. etc. The multinationals like Ciba, Hoechst, Foseco,

Nalco Chemicals, Clariant, ICI etc too have significant share in the fast growing market.

7) Fertilizers

The Indian fertilizer industry has emerged as the fourth largest producer of fertilizers in

the world after China, USA, Russia. Nitrogenous and phosphatic fertilizers are produced

indigenously, while requests for potassic fertilizers are met through imports.

India has achieved near self-sufficiency in the inputs for the production of nitrogenous

fertilizers, but for the production of phosphatic fertilizers, the country continues to rely

on imports of raw materials (rock phosphate and sulphur and for intermediates such as

phosphoric acid).

Production Trends of Major Chemicals:

Corporate Catalyst India A report on Indian Chemical and Petrochemical industry

Production of Major Chemicals During 2001-02 

Alkali Chemicals Inorganic Chemicals Organic Chemicals

Pesticides(Tech.) Dyes & Dyestuffs

The annual growth rate in production of basic chemicals during 2002-06 has been 6.4per

cent despite that fact that no major capacity additions have taken place in respect of any

of these chemical groups during this period. Inorganic, organic and alkali chemicals

however registered an annual growth of 9.8per cent, 7.3per cent and 6.0per cent

respectively during this period. Production of pesticides has tended to fluctuate from

year to year basis with 2005-06 production being at the level of 2001-02. Also there has

been a very little growth in production of major chemicals during 2005-06 production

being at the level of 2001-02. Also there has been a very little growth in production of

dyes and dyestuff (3.8per cent).

External Trade in Chemicals

Trade in chemicals to and from India in the recent years has increased substantially.

Though earlier the exports were to countries of South East Asia, Africa, this is now

changing. Indian Chemicals have markets in countries such as USA, UK, Germany,

France, Japan, etc.

WTO regime has brought structural changes in external trade. There has been reduction

in tariff. However, non-tariff barriers like environmental issues, child labour, pesticide

residuals in agriculture produce etc are still used to influence imports into the developed

countries.

Corporate Catalyst India A report on Indian Chemical and Petrochemical industry

India's Growing Chemical ExporT

Chimicals Petrochemicals Drugs/Pharmaceuticals

During 2001-06, there has been an annual growth of 23per cent in exports of all

chemicals as against 21.6per cent in total exports. On the other hand, imports of all

chemicals registered a growth of 23.5 per cent against 28.1 per cent growth in total

imports of the country. During this period share of chemicals in total exports increased

from 12.9per cent in 2001-02 to 13.5per cent in 2005-06 whereas in case of imports it

declined from 9.9per cent to 8.6per cent during the said period.

It may be noted that there has been a positive trade balance in chemicals since 2001-02

and it stood at Rs 4972 crore in 2005-06 registering an annual growth of 17.6per cent

during 2001-06.

India's Chemical Import 

Chimicals Petrochemicals Drugs/Pharmaceuticals

With initiation of economic reforms in 1991, industrial policy has been liberalized and

except for few sectors, licensing has been discontinued. From August 1991 to June 2006,

66071 proposals amounting to Rs 2119427 crore have been filed. The share of chemical

sector in total proposed investment is 11.85per cent and the Basic chemicals and

petrochemicals account for 14.66per cent of the total proposed investment.

Corporate Catalyst India A report on Indian Chemical and Petrochemical industry

INVESTMENT POLICY AND INITIATIVES

1) Policy and initiatives to promote the sector:

With a special focus on modernization, the Indian government takes an active role in

promoting and advancing the domestic chemical industry. The Department of Chemicals

& Petro-Chemicals, which has been part of the Ministry of Chemicals and Fertilizers

since 1991, is responsible for policy, planning, development, and regulation of the

industry.

In the private sector, numerous organizations, including the Indian Chemical

Manufacturers Association, the Chemicals and Petrochemicals Manufacturers

Association, and the Pesticides Manufacturers and Formulators Association of India, all

work to promote the growth of the industry and the export of Indian chemicals. The

Indian Chemical Manufacturers Association, for example, represents a large number of

Indian companies that produce and export a number of chemicals that have legitimate

commercial applications, but also can be used as precursors and intermediates for

chemical weapons production.

2) Foreign Direct Investment (FDI) Policies

The procedure has been simplified for facilitating foreign direct investment. Most of the

chemical items fall under the RBI automatic approval route for FDI/NRI/OCB

investment up to 100% except the following

• Activities / items that require an industrial license

• Proposals in which the foreign collaborator has previous / existing venture/tie

up in India in the same or allied field

• All proposals relating to acquisition of shares in an existing Indian company by a

foreign/NRI investor

• All proposals falling outside notified sectoral policy/caps or under sectors in

which FDI is not permitted

For other industries, Government approval is accorded through Foreign Investment

Promotion Board (FIPB).

Corporate Catalyst India A report on Indian Chemical and Petrochemical industry

 INVESTMENT OPPORTUNITIES/ HURDLES IN THE SECTOR

Due to its low cost infrastructure, India has potential of growth in exports. According to

a report by McKinsey, India’s manufactured exports have the potential to rise from $40

bn last year to $300 bn by 2015. This defines an investment of $50 bn in chemical

industry alone.

India has the capacity for major value addition being close to Middle East. This is a

cheap and abundant source for petrochemical feedstock.

In certain categories of chemicals India does have advantage for exports (dyes,

pharmaceuticals and agrochemicals) by creating strategic alliances with countries like

Russia and CIS countries. With the know-how available in the country there is a

tremendous potential to grow and increase exports in dyestuff and agrochemical market.

Availability and abundance of raw materials for titanium dioxide and agro-based

products like castor oil offer an opportunity to generate significant value addition. This,

however, would require substituting their exports in raw form by manufacturing higher

value derivatives.

The major challenges are quest for feedstock and knowledge management. Traditionally

naphtha-based crackers have been providing feedstock to the industry. Today, they are

being replaced by new gas-based crackers. India and China will pose a stiff competition

to the Middle East due to the vibrant exports and large unexplored reserves of oil and

gas. Indian government is acting as a facilitator by setting up LNG terminals and

acquiring equity interests in overseas proven oil reserves. This will fuel rapid growth in

chemical industry. The government is also engaged in the formulation of a National

Policy on Pharmaceuticals and mega-industrial chemical estates.