Rating agency ICRA has revised the outlook on the petrochemicals and basic chemicals to Negative with demand headwinds and over-supply affecting profitability. “Moderation in global demand and over-supply are exerting pressure on the operating rates and profitability of the basic chemical players. Despite expected steady domestic demand for basic chemicals, dumping of some of these chemicals into India by major overseas producers, due to the lackluster demand in other markets, is likely to keep the margins under pressure in the near term,” ICRA says.  

According to ICRA, the caustic soda segment is among the most severely impacted owing to a steep fall in realisations. Earlier, some of the capacities in Europe went offline owing to elevated energy costs, however with decline in gas prices, these capacities are back on line. Further, there have been a spate of capacity expansions by domestic players leading to an oversupply situation.

Soda ash prices have been under pressure in the last few months due to softening demand amid supply overhang following capacity additions across China and the US. Although soda ash prices have witnessed an uptrend in recent weeks due to the stimulus by China, sustenance of the same remains to be seen.

In the case of phthalic anhydride (PAN) and malic anhydride (MAN), the realisations have been under pressure impacting profitability of the manufacturers. However, the domestic demand remains healthy for PAN and the trade protection measures on imports are likely to support the domestic manufacturers.

ICRA expects the profit generation of its sample set of basic chemical companies to witness moderation in the near to medium term, resulting in weakening of return metrics owing to which ICRA has revised the outlook on the industry from Stable to Negative