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1、March 2023India: The next chemicals manufacturing hubAuthorsAvinash Goyal Ayush Gupta Chris Musso Jakob Fischer Marco Moder Nitika Nathani Rupali Jain Sanchay Vaidya Ulrich WeiheIndia: The next chemicals manufacturing hubAcknowledgmentsMcKinsey & Company would like to thank the Indian Chemical Counc

2、il (ICC) for inviting us to be the knowledge partner for their 16th annual summit on India Chemical Industry Outlook. We are particularly grateful to Bimal L. Goculdas (President, ICC and MD, DMCC Specialty Chemicals), Kamal P. Nanavaty (Chairman of Expert Committee Conference & Exhibition, ICC and

3、President, Reliance Industries) and Rajen Mariwala (Vice President, ICC and MD, Eternis Fine Chemicals). Multiple industry leaders shared their valuable insights, we would like to thank Ravi Kapoor (MD, Heubach Colour), Rajendra Gogri (CMD, Aarti Industries), Kartik Bharatram (Deputy MD, SRF), Sures

4、h Ramachandran (Country Head & Managing Director, Arkema India), Pankaj Mehta (President and Strategy Head, Aarti Industries), Vivek Gadre (President, Atul), Raghunadhan A V (Chief General Manager, IOCL) and Soutrik Ganguli (Policy Analyst, Reliance Industries). A special thank you to Sanjoy Bhattac

5、harya and Sothi Selvam Dhandapani (Director General, ICC) for their guidance.Several colleagues around the globe contributed immensely to shaping this report. We are very grateful to Craig Poppleman, Divy Malik, Lalit Naik, and Victor Gujik for their inputs. The report was made possible through the

6、efforts of the McKinsey working team that included Ayush Gupta, Kundan Parashar, Nitesh Dutt, Rishi Juthani, Sanchay Vaidya, Vedika Gulati, and Vibhor Agarwal.We also thank Sarath Kumar, Saravanan Mani and Vikas Gujaran from the Visual Aids team for designing the report and Akriti Agrawal, Amrutha P

7、enumudi, Anamika Mukharji, Fatema Nulwala, Raksha Shetty, Rohan Moorthy, and Sankalp Khandelwal from the McKinsey Communications team for their editorial inputs.AuthorsAvinash Goyal Senior Partner, IndiaAyush Gupta Engagement Manager, IndiaChris Musso Senior Partner, USAJakob Fischer Senior Partner,

8、 JapanMarco Moder Partner, South KoreaNitika Nathani Partner, IndiaRupali Jain Partner, IndiaSanchay Vaidya Engagement Manager, IndiaMarch 2023ContentsExecutive summary 2An era of sustained robust growth: The 2040 outlook 4Benchmarking Indias manufacturing competitiveness in chemicals Potential winn

9、ing opportunities in Indias chemical sector 16Implications and questions for Indian and global companies to reflect on821Indias chemical industry has been a global outperformer in demand growth and shareholder wealth creation over the last decade. It now stands poised to play an increasingly dominan

10、t role across both consumption and manufacturing in the global arena. Over recent years, changing geopolitical scenarios have led to many countries focusing on domestic self-sufficiency and localized supply chains. However, benchmarking Indias manufacturing competitiveness reveals that India has a s

11、trong starting point vs other key global chemical clusters that could translate into India becoming the next chemicals manufacturing hub.India: The fastest growing global demand center for chemicalsDomestic consumption in India is set to grow at a 9-10 percent CAGR in the coming years as illustrated

12、 in Exhibit 2, on the back of rising disposable incomes, a favorable demographic dividend, increasing global preference for biofriendly alternatives, and growing diversification of global chemical supply chains1.With this growth, Indias share in the global chemicals sector could triple to 10-12 perc

13、ent by 2040, creating an additional USD 700 billion market value, over and above the current contribution of USD 170-180 billion (as of 2021). The Specialty Chemicals segment is likely to be a key driver of this growth. It has the potential to contribute more than USD 20 billion to Indias net export

14、s by 2040, a 10x jump from the current total of USD 2 billion as shown in Exhibit 3.Benchmarking Indias manufacturing competitiveness in chemicals Benchmarking against six global chemical clusters surfaces both Indias strengths and areas of improvement as a global destination for manufacturing chemi

15、cals. Indian chemical companies often face obstacles in feedstock availability due to lagging cracker capacity and low access to building blocks and key minerals. Additionally, India faces dearth of skilled R&D talent and challenges in timely EC & land approvals. Despite this, India is cost competit

16、ive in several chemical segments due to low capital and operating expenses such as labour, utility and overhead expenses etc. Coupled with promoters focus on high profitability and a culture of process innovation, Indian chemical companies generate one of the highest EBITDA per unit of investment in

17、 fixed assets. This is evident from global leadership of multiple Indian firms across segments like Agrochemicals, Pharma Intermediates, Dyes & Pigments, Carbon Black etc.Potential winning opportunities in Indias chemical sectorMany sub-segments in Indias chemicals sector offer opportunities for bui

18、lding at-scale businesses. Winning plays exist across Specialty Chemicals (agrochemicals, flavors & fragrances, cosmetic chemicals, etc.), Inorganic Chemicals (caustic, fluorine, etc.) and petrochemicals (C4, C6 and C8 derivatives). These sub-segments score high on both cost competitivenessa functio

19、n of domestic feedstock availability, trade balance, capacity utilization, scope of process and tech innovation, etc.and market attractiveness, an indicator of market size, demand growth, export potential, etc.The future of Indian chemical sector looks promising, and the country could potentially be

20、come the driving force of the demand & supply of the world chemical market. Having said this, it becomes imperative for the global companies to understand the implications and reflect upon the resource allocation mix, the business model and the overall business strategy, before commencing or scaling

21、 up their operations in the country.Further, Indian companies need to ponder upon questions around right type of business, the right mode of entry, the feasibility variables, the global footprint from the go-to-market & asset perspective, leveraging the existing supply chain, if possible, among othe

22、rs. 1 Including value created by the pharmaceuticals sectorExecutive summary2India: The next chemicals manufacturing hub1.An era of sustained robust growth: The 2040 outlookOver the last few years, the Indian chemicals sector has exceeded all shareholder expectations, outperforming not just the over

23、all equity market (Exhibit 1) but also the majority of its upstream and downstream industries. This exceptional growth has been fueled by consistent revenue expansion, increasing margins, and rise in multiples. The sector is projected to grow at 11-12 percent during 2021-27 and 7-10 percent during 2

24、027-40 tripling its global market share by 2040. This growth is expected to be driven by a range of factors: Rising domestic consumption: India is expected to account for more than 20 percent of incremental global consumption for chemicals over the next two decades. Domestic consumption and demand i

25、s expected to rise from USD 170-180 billion in 2021 to USD 850-1000 billion by 2040 (Exhibit 2). Changing consumer preferences: The growing demand for biofriendly products globally could benefit India, as it is among the leading producers of many chemicals that are used in such products. Shifting su

26、pply-chains: Triggered by the evolving geopolitical scenario and the trend to diversify from the existing core manufacturing markets; firms are seeking to make their supply-chains more resilient. With its strong value proposition, India could be a preferred destination.Exhibit 1TRS performance trend

27、s of top chemical companies across geographies I In nd de ex xe ed d T To ot ta al l S Sh ha ar re eh ho ol ld de er rs s R Re et tu ur rn n ( (T TS SR R) ), , Dec 11 =100, USDC Cu ummu ul la at ti iv ve e T TS SR R, , C CA AG GR R, , P Pe er rc ce en nt tD De ec c 2 20 01 11 1 D De ec c 2 20 02 22

28、2D De ec c 2 20 01 17 7 D De ec c 2 20 01 19 9D De ec c 2 20 01 11 1 D De ec c 2 20 01 17 7D De ec c 2 20 01 19 9 D De ec c 2 20 02 22 2Note: Top 500 global companies considered for the analysis27171181481402-9-3-9-8Source: Capital IQ1 Rest of World includes companies across Middle East, Africa, Lat

29、in America, Australia & New Zealand20002023228001720194001860016132115141,0002012North AmericaIndiaEuropeGreater ChinaRest of WorldJapanAsia ex. China, India, Japan1866159-411201187552Asia ex. China,India, JapanRest of World1IndiaChinaJapanNorth AmericaEurope4India: The next chemicals manufacturing

30、hubWidening trade deficitIndias current trade deficit, at USD 9-10 billion2, is expected to balloon to USD 40-42 billion by 2040. While exports are projected to grow at a CAGR of 9.5-10 percent to USD 140-145 billion by 2040, imports are likely to match growth at a CAGR of 9-9.5 percent to USD 180-1

31、85 billion (Exhibit 3).2 Basis Ex-Im data by UN Comtrade and McKinsey mapping of 6 digit HS Codes to chemical segments (inorganic, specialty and chemical)Exhibit 3Indias chemicals sector is expected to have a trade deficit of $40-42 Bn by 2040; Specialty Chemicals has the potential to contribute $20

32、 Bn to net exportsI In nd di ia a C Ch he emmi ic ca al ls s T Tr ra ad de e B Ba al la an nc ce e, , USD Bn1352157320402021ExportsImports5281720212040141018602040202133242040140-1452021180-185I In nd di ia a C Ch he emmi ic ca al ls s s se eg gmme en nt t- -w wi is se e E Ex xp po or rt ts s a an n

33、d d I Immp po or rt ts s, , $ BnSpecialtyInorganicPetchem19.7%9.4%8.7%7.5%11%9.2%11.2%10.8%9-1040-42220421641xxxxNet exports ($ Bn)Net imports ($ Bn)Note: Excludes fertilizers, pharma end-products and consumer products; includes pharma intermediate chemicalsSource: MoCPC report (Chemical & Petrochem

34、ical Statistics at a Glance 2021), Invest India, “India Petrochemicals Scenario 2040” by EIL and IOCL, IHS Markit, UNComtrade, McKinsey Global Institute, McKinsey Fertilizer Demand Model, Press search1 2040 projections assume that the ratio of imports/consumption and exports/consumption at sub-segme

35、nt level remain the same in 2020 and 2040Exhibit 2India is expected to become a $850-1000 Bn chemicals market by 2040, taking 10-12% share of the global chemicals marketI In nd di ia a c ch he emmi ic ca al ls s mma ar rk ke et t, , USD BnSource: MoCPC 2021 report: Chemical & Petrochemical Statistic

36、s at a Glance, Invest India, “India Petrochemicals Scenario 2040” by EIL and IOCL, IHS Markit, UN Comtrade, McKinsey Global Institute, Press searchIndia Chem as % of Global ChemCAGR(Percent)2021-272027-403290-100250-30060-65140-19095-100350-37050-602027204025-305160170-180252021850-1000290-3101565-7

37、5189 9- -1 10 0% p p. .a a. .Inorganic1Pet-Chem2FertilizersOthers3Specialty11 2027 estimations basis sub-sector level CAGRs from IHS Markit; 2040 projections basis end-use sector nominal GVA CAGR (weighted)2 Estimated basis EIL 2020 and 2040 projections; 5% price CAGR assumed for 2021, 2027 and 2040

38、 projections3 Includes pharma products (vaccines, injectables, OSDs, medical devices etc.) as per NICs industry division 21. Also includes some personal care consumer products(e.g. Shampoo, hair oil, toothpastes, soaps etc.) as NICs industry division 205.2%10-12%3-3.5%3 3- -4 4x x11.5%11%11%6%8-9%7-

39、9.5%8-9%10-11%5-6%8%Note: 2040 projections assume that the ratio of imports/consumption and exports/consumption at sub-segment level remain the same in 2020 and 2040. Govt. policies could change this mix over time.5India: The next chemicals manufacturing hubOut of the three main segments of the sect

40、orInorganic3, Petrochemicals4 and Specialty5only Specialty is expected to be a net exporter. By 2040, its net exports are expected to rise by around ten times, from about USD 2 billion in 2021 to USD 21 billion. Almost 80 percent of the exports in the segment would come from four sub-segments: agroc

41、hemicals, dyes and pigments, cosmetics and personal care, and food ingredient chemicals (Exhibit 4).Due to limited cracker infrastructure and scarcity of key feedstock and minerals, both Petchem and Inorganic segments will have a trade deficit. At USD 41 billion, Petchems deficit will be almost twic

42、e as large as Inorganics USD 21 billion (Exhibit 3). Imports in Petchem would likely be fragmented across products, with the two largest imported products, PVC and Polypropylene accounting for just 13 and 8 percent of imports, respectively. Exports in the segment, meanwhile, will be driven by the C8

43、 (Paraxylene) and C6 (Benzene) building blocks and bulk polymers PP, LLDPE and HDPE. In the Inorganic segment, imports will be driven by Phosphorus, Potassium and Titanium (together accounting for 70% of total imports) and exports by Carbon Black, Sodium and Titanium (together accounting 65% of tota

44、l exports) as can be seen in Exhibit 43 Includes Potassium, Bromine, Caustic, Carbon Black, Fluorine, Sodium, Phosphorus, Titanium, Calcium, Silicon and Sulphur4 Includes building blocks (C1-C8), intermediates and end-products5 Specialty chemicals include: Dyes & Pigments, Agrochemicals, Electronic

45、chemicals, Flavors and Fragrances, Cosmetic chemicals, Nutraceutical ingredients, Food & Feed additives, Plastics additives, Rubber-processing chemicals, Adhesives and sealants, Construction chemicals, Specialty polymers, Cleaners, industrial and institutional, Surfactants, Textile chemicals, Water

46、management chemicals, Paper chemicals, Flame retardants, Lubricating oil additives, Antioxidants, Petroleum refining and chemical process catalysts, Biocides, and Corrosion inhibitorsExhibit 44-5 key segments could drive 50%+ of trade balance across Specialty, Inorganic and PetchemNote: Excludes fer

47、tilizers, pharma end-products and consumer products; includes pharma intermediate chemicals Source: MoCPC report (Chemical & Petrochemical Statistics at a Glance 2021), Invest India, “India Petrochemicals Scenario 2040” by EIL and IOCL, IHS Markit, UN Comtrade, McKinsey Global Institute, McKinsey Fe

48、rtilizer Demand Model, Press searchMMa aj jo or r c co on nt tr ri ib bu ut to or rs s t to o e ex xp po or rt t/ /i immp po or rt t, , 2 20 04 40 0, , USD Bn40%27%7%5%19%3%32%22%11%10%25%20%14%9%9%8%41%Sub-segment export, %Sub-segment import, %SpecialtyInorganicPetchem26%18%6%9%5%36%36%21%15%7%21%1

49、3%8%5%5%65%5%PETPolyester Fiber(Filament)Polypropylene (PP)ParaxyleneBenzeneOthersFood & Feed additivesCosmetic ChemicalsDyes & PigmentsFlavors & FragrancesOthersAgrochemicalsOthersTitaniumSodiumCausticCarbon BlackHDPESBRPolypropyleneOthersSAPPVCTitaniumPotassiumCarbon BlackOthersPhosphorusCosmetic

50、ChemicalsFlame RetardantsDyes & PigmentsPlastic AdditivesOthersAgrochemicalsSpecialtyInorganicPetchem6India: The next chemicals manufacturing hubBenchmarking Indias manufacturing competitiveness in chemicalsExhibit 5Macro BenchmarkingGlobal chemicals manufacturing hubs selected for benchmarking agai

51、nst IndiaChinaIndonesiaSaudi ArabiaGermanySouth KoreaVietnamLeadingComparable to peersLaggard/needs improvementCategoryB. Labour& utilitiesA. Feedstock availabilityC. Capital costsD. Policy environmentVariables8. Material costs ($/unit)9. Machinery costs (USD)2. Average Hourly Wage (USD/hr)3. Total

52、Labour Force (Mn)4. Industrial water usage costs (USD/m3)5. Electricity costs (USD/kwh)6. Availability of R&D talent7. Construction costs (USD/sq. m)10. EBITDA per unit of investment in fixed assets (%)11. Real interest rates (%)12. Corporate tax rates (%)13-23. Ease of doing business metrics24. Env

53、ironmental Clearance1. Domestic availability of petchembuilding blocks RemarksOne of the lowest manufacturing labor wages in the world1.Highest workforce availability, next to ChinaComparable to peersComparable to peersLimited availability of R&D talent for chemicals companiesOne of the lowest infra

54、structure costs up to 70% lower than some of the other chemicals manufacturing hubs around the worldTop Indian companies have the highest EBITDA to Gross PPE ratioStable policy rate environment, comparable to leading economiesComparable to leading economiesTop quintile in protecting minority investo

55、rs, getting electricity/ credit and dealing with construction permits Approval challenges often lead to production delaysSufficient: C4, C6, C8Insufficient: C1, C2, C3, C7Competitive in resolving insolvency and trading across borders Scope of improvement in registering property/land, paying taxes, s

56、tarting a business and enforcing contracts1 While average hourly cost is low; due to lower productivity there is an advantage but not always as significant unless productivity is high2.While it is clear that the Indian chemicals sector is geared for robust growth, its manufacturing competitiveness i

57、s less clear. Benchmarking the sector against six global chemicals clustersChina, Germany, Indonesia, Saudi Arabia, South Korea, and Vietnamacross 24 variables shows that though India is more or equally competitive on most counts, other countries have a competitive edge over India in a few crucial r

58、espects. (Exhibit 5)8India: The next chemicals manufacturing hubAn analysis of Indias competitiveness This section analyzes Indias competitiveness in chemicals across four categories feedstock availability, labour and utilities, capital costs, and policy environment:Petchem feedstock availability: I

59、ndia is self-sufficient C4, C6, C8, but is deficient in C1, C2, C3, C7 In the Petchem segment, India possesses abundant feedstock for higher carbon building blocks (C4, C6, and C8). Consequently, its combined surplus production of Butadiene (C4), Benzene (C6), Paraxylene (C8) and Orthoxylene (C8) is

60、 significantly higher than that of its peers. However, for building blocks C1, C2, C3, and C7, India does not have sufficient feedstock to meet its downstream requirements. There is limited availability of Ethylene and Propylene in the merchant market as Indian refineries use these for captive consu

61、mption for producing bulk polymers. As a result, India is dependent on imports for intermediates and end-products derived from Ethylene and Propylene. Similarly, India imports large quantities of Methanol and Toluene for domestic consumption (Exhibit 6).Exhibit 61 1. .E Ex xc ce es ss s p pr ro od d

62、u uc ct ti io on n o of f P Pe et tc ch he emm b bu ui il ld di in ng g b bl lo oc ck ks s (2020, 000 kTA)S Se el lf f- -s su uf ff fi ic ci ie en nt t i in n C C4 4, , C C6 6, , C C8 8H Hi ig gh h i immp po or rt ts s o of f C C1 1 a an nd d C C7 7Source: “India Petrochemicals Scenario 2040” by EIL

63、 and IOCL, IHS Markit, UN Comtrade, Press Search L Li immi it te ed d f fe ee ed ds st to oc ck k a av va ai il la ab bi il li it ty y i in n C C2 2, , C C3 3India doesnt have enough Ethylene and Propylene domestically for downstream requirements. Intermediates & end-products derived from Ethylene a

64、nd Propylene generally have high imports E Et th hy yl le en ne e ( (C C2 2) )P Pr ro op py yl le en ne e ( (C C3 3) )I Immp po or rt ts s mme ee et t 1 10 00 0% d de emma an nd d f fo or rI Immp po or rt ts s mme ee et t 1 10 00 0% d de emma an nd d f fo or rEthylene Propylene Diene MonomerAcrylic

65、AcidTEG, Polyethylene GlycolN-butanolI Immp po or rt ts s mme ee et t 5 50 0%+ + d de emma an nd d f fo or rI Immp po or rt ts s mme ee et t 5 50 0%+ + d de emma an nd d f fo or rEthylene DichloridePropylene GlycolAcrylonitrileA. Feedstock availability: India is self-sufficient in C4, C6, C8 but has

66、 supply deficit of remaining building blocks 1.22.20.2-0.5Benzene(C6)-2.0-0.1-1.1IndiaChinaGermanyIndonesiaKoreaVietnamSaudi Arabia00-0.1Orthoxylene(C8)-0.20.30.100.500-0.30.2Butadiene(C4)-0.30-0.4-0.70.62.0-13.1Paraxylene(C8)6.01.4-2.0-0.2-4.24.4-0.5-11.1-1.9Methanol(C1)-0.20.3-0.1-0.4-0.4Toluene(C

67、7)-0.1-0.1LeadingComparable to peersLaggard/needs improvement9India: The next chemicals manufacturing hubLabor and utilities: India has abundant low-cost labor and competitive water & electricity costs, but faces a shortage of R&D talentIndia has the worlds highest labor availability, more than 470

68、million, after China. Among the six peers, its labor costs are also one of the lowest, at less than USD 2 per hour. Indias industrial grid electricity and water costs are also globally competitive, at USD 0.1 per kWh and USD 0.6-0.8 per m3, respectively.However, Indias chemical sector faces a shorta

69、ge of skilled R&D talent. Only about 1,400 chemical engineers graduate from Indias top 25-30 universities every year. Even from this limited pool, the majority either opt for higher studies or switch streams. This has led to low availability of specialized PhDs. India, therefore, is dependent on for

70、eign talent for its chemical R&D needs6.Capital costs: India is competitive across the boardIndias infrastructure costs, across construction, material, and machinery7, are up to 70 percent lower than other global chemical manufacturing hubs. For instance, construction costs in India are 5x lower vs

71、Germany. Similarly, Indias material costs are 4.5x lower vs Germany and 3x lower vs Saudi Arabia (Exhibit 8). At 25 percent, Indias corporate tax rate is comparable among peers. Indonesia has slightly lower tax rate at 22%, while Vietnam and Saudi Arabia have a tax rate of 20 percent 8. Germanys tax

72、 rate, meanwhile, is the highest, at 30 percent. Indias average real interest rate, is also competitive9. While it is lower than the average rate in Indonesia and Vietnam, it is higher than South Koreas and Chinas (Exhibit 8).6 Basis ICT, industry interviews7 Turner & Townsend Construction Index; pr

73、ess search8 Trading Economics and World bank Data9 Based on data from the World BankExhibit 7E Ea as sy y a ac cc ce es ss s t to o c ch he ea ap p l la ab bo or r2 2. .G Ge en ne er ra al l l la ab bo ou ur r c co os st ts s (2020, USD/hr)Source: General labor costs from Turner & Townsend and local

74、 press search; Total manpower from World Bank; Industrial electricity costs from World Bank, , and local press search; Industrial water usage costs from CEIC Data, DE Statis, IBNET tariff data, and local water department websitesB. India has one of the lowest labour costs in the world and competitiv

75、e utility costs40.0-42.03.0-3.51-1.5VietnamIndonesiaKoreaSaudi ArabiaGermany1.5-2.01.0-2.0ChinaIndia11.5-12.07.0-8.03 3. .T To ot ta al l MMa an np po ow we er r (2021, Mn)47179213916445629GermanyVietnamKoreaSaudi ArabiaIndonesiaIndiaChina4 4. .I In nd du us st tr ri ia al l g gr ri id d e el le ec

76、ct tr ri ic ci it ty y (2022, USD/kWh)C Co ommp pe et ti it ti iv ve e u ut ti il li it ty y c co os st ts s5 5. .I In nd du us st tr ri ia al l w wa at te er r u us sa ag ge e c co os st t (2022, USD/m3)LeadingComparable to peersLaggard/needs improvement0.100.090.070.070.340.080.08VietnamIndonesiaS

77、audi ArabiaChinaIndiaKoreaGermany0.8-1.00.5-0.71.7-1.91.8-2.00.7-0.90.6-0.80.5-0.7KoreaVietnamSaudi ArabiaChinaIndonesiaIndiaGermany10India: The next chemicals manufacturing hubOn the back of these low rates and a razor-sharp focus on profitability, Indian firms outperform their global peers on the

78、measure of EBITDA-to-gross-PPE ratio. The top 15-20 Indian companies generate an EBITDA of more than 40 percent per unit of investment in gross PPE10significantly higher than the 10-30 percent reported by their counterparts across the world.10 Calculated using data from annual reports and Capital IQ

79、Exhibit 8C. India has the lowest construction & infrastructure costs in the world and competitive tax & real interest ratesSource: Turner & Townsend Construction Index, Capital IQ, EIU, World Bank; Press Search1 Average cost of one unit of each - Concrete, Standard brick per 1000, 13mm plasterboard,

80、 and Structural steel beams (tonne) (100 tonne+ job) 2 Considered data of top 20 listed chemical companies of each country for Dec 22 TTML Lo ow w c co on ns st tr ru uc ct ti io on n & & c ca ap pi it ta al l c co os st ts sC Co ommp pe et ti it ti iv ve e c co or rp po or ra at te e t ta ax x a an

81、 nd d r re ea al l i in nt te er re es st t r ra at te es s7 7. . C Co on ns st tr ru uc ct ti io on n c co os st ts s (USD/sq. m)8 8. . MMa at te er ri ia al l c co os st ts s (USD)19 9. . MMa ac ch hi in ne er ry y c co os st ts s (USD)1 10 0. . E EB BI IT TD DA A/ /G Gr ro os ss s P PP PE E (%)21

82、 11 1. . C Co or rp po or ra at te e T Ta ax x r ra at te es s (%, 2022)1 12 2. . R Re ea al l i in nt te er re es st t R Ra at te es s (%, avg. 2019-2021)6249931,1021,3333,112618VietnamSaudi ArabiaGermanyIndonesiaIndiaChina8609451,2032,6443,823GermanyIndiaSaudi ArabiaIndonesiaChina4974287428801,554

83、GermanyIndonesiaIndiaSaudi ArabiaChinaLeadingComparable to peersLaggard/needs improvement10-15%10-15%China10-15%30-35%15-20%Korea20-25%VietnamGermanySaudi Arabia40-45%IndonesiaIndia25%25%22%20%30%20%28%KoreaGermanySaudi ArabiaVietnamChinaIndiaIndonesia5.5%7.1%-2.1%2.3%Korea-0.6%GermanySaudi ArabiaCh

84、ina3.2%2.1%IndonesiaVietnamIndia11India: The next chemicals manufacturing hubRegulatory environment: India has made good progress over the years, but more needs to be doneOver the last 5 to 7 years, India has made substantial improvements in its policy and regulatory environment, making it much easi

85、er for enterprises to establish themselves and flourish. These improvements have included the introduction of the Insolvency and Bankruptcy Code (IBC) in 2016; a revamped universal tax regime in the form of the Goods and Services Tax (GST); and simplification, digitization, or discontinuation of lar

86、ge number of compliance requirements. Among other things, these changes have made it easier for businesses to receive credit, apply for construction permits, and manage insolvencies.As a result of these developments, Indias Ease of Doing Business Ranking jumped from 143 in 2015 to 63 in 2020, and it

87、s manufacturing FDI during FY16-20 exceeded the figure for the preceding five-year period by three times (Exhibit 9).On some parameters, however, India lags behind its peers. These include the ease of starting a business, registering property, paying taxes, and enforcing contracts. Getting timely en

88、vironmental clearances (ECs) is also a major challenge in India. According to a report by the Comptroller and Auditor General of India, ECs in India are delayed nearly 9 out of 10 times, with the average period of delay being about 6.5 months. This becomes a source of significant capital drain for I

89、ndian chemicals manufacturers, who are often forced to wait for months, sometimes even years, to get clearance to initiate production in a finished facility.Exhibit 9Policy reforms since 2015 have led to improvements in ease of doing business rank along with $ 240+ Bn of FDI inflowsSource: Ease of D

90、oing Business Reports, World BankR Ra an nk ki in ng gs s a ac cr ro os ss s E Ea as se e o of f D Do oi in ng g B Bu us si in ne es ss s p pa ar ra amme et te er rs s (2015-20)C Ch hi in na aI In nd do on ne es si ia aK Ko or re ea aG Ge er rmma an ny yI In nd di ia a20202020202020202020 (since 15)

91、2020V Vi ie et tn na amm1 13 36 6283725619713. Protecting minority investors2 22 2- -1 11 15 51233252714. Getting electricity2 25 5- -1 11 1924867482515. Getting credit2 27 7- -1 15 57 73311012302516. Dealing with const. permits5 52 2- -8 85 5513811412217. Resolving insolvency6 68 8- -5 58 856116364

92、210418. Trading across borders1 11 15 5- -4 41 110581214610919. Paying taxes45140321251 13 35 5- -2 23 311520. Starting a business1 15 54 43 33 32810040766421. Registering property1 16 63 3- -2 23 351392146822. Enforcing contracts6 63 3- -8 80 03273522702 23 3. . O Ov ve er ra al ll l r ra an nk ki

93、in ng gLeadingComparable to peersLaggard/needs improvementExhibit 10Most Indian chemicals manufacturers faceproduction delays due to EC hurdlesSource: CAG Report, 201684%56%59%93%82%89%Grant of clearance to applicantConveying decision to applicantAppraisal by Expert Appraisal CommitteeGrant of terms

94、 of referenceRecommenda-tion of EAC to ministryScrutiny of final EIA report2 24 4. . S Sh ha ar re e o of f p pr ro oj je ec ct ts s t th ha at t f fa ac ce ed d d de el la ay ys s a at t d di if ff fe er re en nt t s st te ep ps s o of f E EC C (%, CAG Report 2016 latest available)K Ke ey y mmi il

95、le es st to on ne es s i in n E EC C f fi il li in ng g p pr ro oc ce es ss sLaggard/needs improvement12India: The next chemicals manufacturing hubCost competitiveness across sub- segmentsMacro trends play a pivotal role in developing a broad-based picture of Indias strengths and improvement areas i

96、n chemical manufacturing. However, at the sub-segment level, cost-curve benchmarking serves as a better guide to cost competitiveness. This approach shows that competitiveness is a function of a variety of factors that can differ greatly from product to product. For instance, it shows that while fee

97、dstock availability is the main determinant of competitiveness in some segments, innovation and capabilities developed by Indian companies can sharpen the countrys competitive edge in others. The following three cost curves illustrate this clearly. C6 Derivative- IsobutyleneIn producing isobutylene

98、(a derivative of butadiene), Indian firms might have up to 15 percent lower costs than in China (despite only a little difference in raw material costs), up to 35 percent lower than in Germany (even though raw material costs are lower in Germany), and up to 45 percent lower than in Saudi Arabia. Wit

99、h this clear cost advantage, India commands two-third of the market for Iso-Butyl Benzene (IBB), an Isobutylene derivative used in pharma APIs and perfumes (Exhibit 11).C2 Derivative - Ethylene DichlorideProduction costs of ethylene dichloride in India are typically higher than in Germany and Saudi

100、Arabia, despite advantages in labor costs and plant overhead expenses. This is because of limited availability of ethylene for merchant sales in India. As a result, India imports more than half of its EDC requirements, primarily from the Middle East, Europe, and North America (Exhibit 12).Exhibit 11

101、Pet-chem competitiveness: India is highly cost competitive in C4, C6 and C8 derivatives due to domestic feedstock availability E.g. IsobutyleneIndiaSource: IHS, ITC Trade Map, IndiaPetrochem, Press Search1 Includes raw material cost and by-product credits 2 Other direct cost includes maintenance mat

102、erials, operating supplies and control laboratory related costs3 Isobutylene from Isobutane by the Oleflex Dehydrogenation process4 Considered for average plant size: India (105 kTA), China (30 kTA), Saudi Arabia (33 kTA), Germany (42 kTA)I Is so ob bu ut ty yl le en ne e3 3C Co os st t C Cu ur rv v

103、e e1,3009006001,1001,200500700400903008001,0000020010050Quantity (kTA)Manpower CostPlant Over headOther Direct Cost2Utility CostRaw Material Cost1ChinaGermanySaudi ArabiaCash costs4(cents/Kg)13India: The next chemicals manufacturing hubExhibit 12Pet-chem competitiveness: India has low cost-competiti

104、veness and high import dependency for C1, C2, C3 E.g. Ethylene Dichloride (EDC)Source: IHS, ITC Trade Map, IndiaPetrochem, Press Search1 Includes raw material cost and by-product credits 2 Other direct cost includes maintenance materials, operating supplies and control laboratory related costs3 Ethy

105、lene Dichloride by Direct Chlorination: Liquid-phase HTC process (Oxy Vinyls)4 Considered for average plant size: India (383 kTA), China (384 kTA), SE Asia (390 kTA), Saudi Arabia (385 kTA), Germany (552 kTA)5613,0007,0008,000017,0001,00016,00015,00014,00011,000506,00012,0005,0002,0004,00010,0009,00

106、003,000Q Qu ua an nt ti it ty y (kTA)Plant Over headUtility CostManpower CostOther Direct Cost2Raw Material Cost1Cash costs4(cents/Kg)Ethylene Dichloride3Cost CurveIndiaChinaGermanySaudi ArabiaSE AsiaExhibit 13Specialty Chemicals competitiveness: India is highly competitive globally E.g. Cost leader

107、ship in AgrochemicalsSource: IHS, ITC Trade Map, IndiaPetrochem, Press Search1 Includes raw material cost and by-product credits2 Other direct cost includes maintenance materials, operating supplies and control laboratory related costs3 Considered average capacity of 5 kTAC Co os st t C Cu ur rv ve

108、e f fo or r a a k ke ey y F Fu un ng gi ic ci id de eC Ca as sh h c co os st ts s3 3(cents/Kg)14018040013010402008011012030601707015010019005020900200160Q Qu ua an nt ti it ty y3 3 (kTA)Other Direct Cost2Plant Over headRaw Material Cost1Utility CostManpower CostIndiaChinaGermanySE AsiaAgrochemicalsI

109、ndian agrochemical companies have a compelling cost advantage over their global counterparts, predominantly because of low raw material costs and labor costs (Indias labor costs are less than half of Chinas) as illustrated in Exhibit 13. 14India: The next chemicals manufacturing hub3.Potential winni

110、ng opportunities in Indias chemical sectorToday, the Indian chemical industry offers several opportunities to build at-scale businesses across several Specialty, Inorganic and Petrochemical segments. Identifying these opportunities calls for the right balance between market attractiveness and cost c

111、ompetitiveness. While cost competitiveness is generally a function of feedstock availability, trade balance, and scope of value addition via process or tech innovation, market attractiveness is a composite of current market size, expected CAGR and macro trends.Specialty chemicalsWith a net trade sur

112、plus, the Specialty segment is the strongest pillar of Indias chemicals sector. In all, 16 specialty chemicals sub-segments perform well on both cost competitiveness and market attractiveness. Two of these sub-segments (as illustrated in Exhibit 14) are: Agrochemicals: Agrochemicals in India is curr

113、ently a USD 5.5 billion market11, growing at a CAGR of 8.3 percent. By 2040, it is expected to account for almost 40 percent of Indias overall chemicals exports and nearly 13 percent of the global ag-chem market. Food and Feed Ingredient Chemicals: Constituting flavors and fragrances, food and feed

114、additives, and nutraceuticals, this sub-segment is a USD 3 billion market in India, growing at a CAGR of 7-9 percent.11 Includes local and exports marketExhibit 14Ranking of top 25 Specialty Chemicals segments on cost competitiveness and market attractivenessC Co os st t c co om mp pe et ti it ti iv

115、 ve en ne es ss s f fo or r m ma an nu uf fa ac ct tu ur ri in ng g i in n I In nd di ia a1 1HighMediumLowLow1 Basis domestic feedstock availability, 2022 imports and exports by India, scope of value addition via tech or process innovation2 Basis India market size (2022), India consumption CAGR (202

116、2-2040), global market size (2022), and macro trendsAttractive segments selected basis market size & growth, competitive cost of production for manufacturing in India, historical performance and macro trendsAttractive zoneIndia market size (USD Bn, 2022), bubble representative of $300 MnNutraceutica

117、l ingredientsPaper chemicals, specialtyCosmetic ChemicalsSpecialty polymersConstruction chemicalsAntioxidantsSurfactantsRubber-processing chemicalsDyes & PigmentsAdhesives and sealantsWater management chemicalsPetroleum refining and chemical process catalystsFood & Feed additivesAgrochemicalsTextile

118、 chemicalsBiocidesCorrosion inhibitorsElectronic ChemicalsFlavors and fragrancesCleaners, industrial and institutionalPlastics additivesLubricating oil additivesFlame retardantsLowM Ma ar rk ke et t a at tt tr ra ac ct ti iv ve en ne es ss s2 2MediumHighSource: IHS Markit, UN Comtrade, Press search1

119、6India: The next chemicals manufacturing hubInorganic chemicalsAs inorganic chemicals require little processing as compared with other segments, the Inorganic chemicals segment is predominantly dependent on feedstock availability. India, unfortunately, has a scarcity of raw material for most chemica

120、ls in this segment. However, it has a high demand for many inorganic chemicals, making it an attractive market.Six sub-segments emerge as an opportunity for building an at-scale business in the segment, backed by high growth rate of end-use industries and natural feedstock advantages. Two of these (

121、as illustrated in Exhibit 15) are: Fluorine: Growing at a CAGR of more than 10 percent, fluorine is expected to become a USD 4.2 billion market by 2040. Its growth will be driven by rising demand from two of its main end-use industries: pharma and ag-chem. Sodium and Caustic: This sub-segment is exp

122、ected to register CAGR of nearly 10 percent. By 2040, sodium and caustic could become a USD 13 billion and USD 11.5 billion market respectively.Exhibit 15Ranking of Inorganic Chemicals segments on cost competitiveness and market attractivenessC Co os st t c co om mp pe et ti it ti iv ve en ne es ss

123、s f fo or r m ma an nu uf fa ac ct tu ur ri in ng g i in n I In nd di ia a1 1HighMediumLowLowM Ma ar rk ke et t a at tt tr ra ac ct ti iv ve en ne es ss s2 2MediumHigh1 Basis domestic feedstock availability, 2022 imports and exports by India, scope of value addition via tech or process innovation2 B

124、asis India market size (2022), India consumption CAGR (2022-2040), global market size (2022), and macro trendsAttractive segments selected basis market size & growth, competitive cost of production for manufacturing in India, historical performance and macro trendsAttractive zoneIndia market size (U

125、SD Bn, 2022), bubble representative of $200 MnSulphurFluorineSodiumCarbon BlackPhosphorusCalciumTitaniumBrominePotassiumSiliconCausticSource: IHS Markit, UN Comtrade, EIL and IOCL Petrochemicals Perspective Plan, Press search17India: The next chemicals manufacturing hubExhibit 16Ranking of top petch

126、em segments ($200 Mn market size) on cost competitiveness and market attractiveness - for companies with low or moderate backward integrationC Co os st t c co om mp pe et ti it ti iv ve en ne es ss s f fo or r m ma an nu uf fa ac ct tu ur ri in ng g i in n I In nd di ia a1 1HighMediumLowLowLowM Ma a

127、r rk ke et t a at tt tr ra ac ct ti iv ve en ne es ss s2 2MediumHigh1 Basis domestic feedstock availability, 2022 imports and exports by India, scope of value addition via tech or process innovation and capacity utilization levels2 Basis India market size (2022), India consumption CAGR (2022-2040),

128、global market size (2022), and macro trendsNote: Only primary chain/building block considered for products where multiple C1-C8 feedstocks are requiredAttractive segments selected basis market size & growth, competitive cost of production for manufacturing in India, historical performance and macro

129、trendsAttractive zoneIndia market size (USD Mn, 2022), bubble representative of $100 MnUnsaturated Polyester Resin (UPR)N Ni it tr ro ob be en nz ze en ne e: : D DN NB B, , P PA AP PAcrylic Acid EstersA Ammi in ne es sEthoxylate SulphatesButdiene derived rubbers(Butyl rubber, NBR, SBR, PBR)Ethyl Ace

130、tatePolyether PolyolsButyl AcrylateP PE ET TABSL Li in ne ea ar r A Al lk ky yl l B Be en nz ze en ne e ( (L LA AB B) )SAPPolyethylene (LDPE, HDPE, LLDPE)P Pu ur ri if fi ie ed d T Te er re ep ph ht th ha al li ic c A Ac ci id dEthylene-vinyl Acetate (EVA)Chlor-alkali(EDC, VCM, PVC)Metallocene LLDPE

131、 (C6)Epoxy ResinAcetic AcidMethylene DiphenylDiisocyanatePolypropylene (PP)FormaldehydeDiketene & derivativesIsopropyl AlcoholP Ph he en no ol lOlefins (Alpha, Linear Alpha, Poly Alpha)P Ph ht th ha al li ic c A An nh hy yd dr ri id de e ( (P PA A) )A Al lk ky yd d R Re es si in nStyrene/ Polystyren

132、eA An ni il li in ne e a an nd d r ru ub bb be er r c ch he emmi ic ca al ls s c ch ha ai in nPolycarbonate (PC)C Ch hl lo or ro ob be en nz ze en ne e d de er ri iv va at ti iv ve es sEthylene OxideP Po ol ly ye es st te er r f fi ib be er r( (s st ta ap pl le e, , f fi il la amme en nt t) )Ethoxyl

133、atesEthylene GlycolsC4C8C3C6C2MiscellaneousC1Source: IHS Markit, UN Comtrade, EIL and IOCL Petrochemicals Perspective Plan, Press searchPetchemIn petrochemicals, opportunities are highly dependent on scale and vertical integration capabilities of chemical companies. For example, backward integration

134、 at the cracker level makes bulk polymers (Polyethylene, Polypropylene, PVC etc.) score high on market attractiveness and cost competitiveness. However, other companies are better suited to focus on products where feedstock are easily available in the merchant market (e.g., C4, C6 and C8 derivatives

135、) as illustrated in Exhibit 16.18India: The next chemicals manufacturing hubImplications and questions for Indian and global companies to reflect on4.India has the potential to become the consumption and manufacturing engine of the global chemical industry. It is witnessing rapid economic growth, is

136、 home to a rising middle class and requires lower capital and operating expenses. However, numerous challenges still persist including limited domestic feedstock availability, delayed regulatory approvals and scarcity of skilled R&D talent. These enablers and obstacles have influenced the spectrum o

137、f chemical sub-segments falling in the consideration pool, in terms of both market attractiveness and cost competitiveness. Global chemical companies interested in entering or scaling up their businesses in India should, however, strategically ponder upon several questions, such as: Should we cater

138、to Indias demand via exports or a local manufacturing base? What should be our resource allocation strategy for Indian operations? What could be the right business model to overcome Indias structural challenges?Similarly, Indian chemical companies need to reflect upon numerous questions, such as: Wh

139、at type of business is suitable to enter and what is the best mode of entry? Where are we truly advantaged from the geographic stand-point? Where does the business stand across the feasibility variables (technical, economic and social) to enter a sub-segment? What would it take to be a real global player across assets, talent and go-to-market? Can we leverage the existing supply chain, if possible?20India: The next chemicals manufacturing hubMcKinsey and Company March 2023 Copyright McKinsey & Company Designed by INO VG & Design team McKinseyIndia McKinseyIndia McKinseyIndia McKinseyIndia