INDIAN CHEMICAL INDUSTRY: A SECTOR STUDY - smallB | Promoting

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EXPORT-IMPORT BANK OF INDIA

OCCASIONAL PAPER NO. 117

INDIAN CHEMICAL INDUSTRY:A SECTOR STUDY

EXIM Bank’s Occasional Paper Series is an attempt to disseminate the findings of researchstudies carried out in the Bank. The results of research studies can interest exporters,policy makers, industrialists, export promotion agencies as well as researchers. However,views expressed do not necessarily reflect those of the Bank. While reasonable care hasbeen taken to ensure authenticity of information and data, EXIM Bank accepts noresponsibility for authenticity, accuracy or completeness of such items.

© Export-Import Bank of IndiaPublished by Quest Publications

March 2007

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CONTENTS

Page No.

List of Tables 5

List of Exhibits 7

List of Boxes 9

Executive Summary 11

1. Introduction 21

2. Global Scenario 23

3. Chemical Industry in India 36

4. Analysis of Chemical Imports by Major Countries and 56India’s Export Markets

5. Challenges and Strategies 65

6. Outlook 72

Annexures

1. Select Principles of Good Laboratory Practices 74

2. Anti-Dumping Cases Initiated by India Against Various 75Countries in the Chemical Sector (1992-2005)

3. MFN Applied and Bound Tariffs for Chemicals and 78Products in Select CTHA Countries

4. List of Countries that have joined the Responsible Care Initiative 79

5. Megha Deals in Global Chemical Sector in 2005 80

6. Select Foreign Acquisitions by Indian Companies in the 81Chemical Sector

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Study undertaken by:

Mr. S. Prahalathan, Deputy General Manager,

Research and Planning Group

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List of Tables

Table Title Pg. No.No.

1. Chemical Trade by Products in USA (2006) 31

2. Chemical Trade by Products in China (2006) 32

3. Production of Select Chemical Products in Japan (2005 and 2006) 33

4. Production of Select Chemical Products in Canada (2005 and 2006) 35

5. Installed Capacity and Production of Major Basic Chemicals in India 37

6. Installed Capacity and Production of Major Basic Petrochemicals in India 39

7. Installed Capacity and Production of Major Petrochemical 39Intermediates in India

8. CAGR of Production by Various Chemical Sectors in India 40During 2001-02 to 2005-06

9. Estimated Size (in value) of the Chemical Industry (2005-06) 40

10. Investment Proposals in Indian Chemical Industry 49

11. FDI in Indian Chemical Industry 50

12. List of Chemical Items Reserved for SSI Sector 51

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List of Exhibits

No. Title Pg. No.

1. End-user Segments of Chemical Industry 21

2. Sales of Chemical Industry by Select Countries (2005) 23

3. Sales of Chemical Industry by Regions (2005) 24

4. Share of Chemicals in Total Merchandise Exports and 24Manufactured Exports (2005) in the World

5. Exports of Chemical by Regions (2005) 25

6. Sectorwise Break-up of Anti-Dumping Cases – Initiations and 27Measures in the World (1995 – June 2006)

7. Survival Triangle of World Chemical Industry 27

8. Index of Chemical Industry Production (2002=100) in USA 31

9. Comparison of Index of Industrial Production – 36Basic Chemicals, Manufacturing and General Index ofIndustrial Production in India

10. Share of Major States in Production of Chemicals and 41Petrochemicals in India (2005-06)

11. Trends in India’s Export of Select Basic Chemical Products 42

12. Country-wise Export of Organic Chemicals from 43India (2005-06)

13. Country-wise Export of Inorganic Chemicals from 43India (2005-06)

14. Country-wise Export of Dyes, Pigments and Other Colouring 44Materials from India (2005-06)

15. Country-wise Export of Pesticides from India (2005-06) 45

16. Trends in Export of Petrochemicals from India 46

17. Terms of Trade in Select Chemical Sectors in India (2005-06) 46

18. Trends in India’s Import of Select Basic Chemical Products 48

19. Source Countries for India’s Basic Chemical Imports 48

20. Trends in Import of Petrochemicals in India 49

21. Major Importers of Cyclical hydrocarbons (SITC Code 5112) 56and their Source Countries

22. Major Importers of Polyethylene (SITC Code 5711) and 57their Source Countries

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23. Major Importers of Polycarbonates (SITC Code 5743) and 58their Source Countries

24. Major Importers of Propylene Polymers (SITC Code 5751) and 59their Source Countries

25. Major Importers of Monocarboxylic Acids and Derivatives 60(SITC Code 5137) and their Source Countries

26. Major Importers of Acrylic Hydrocarbons (SITC Code 5111) 60and their Source Countries

27. Major Importers of Acrylic Monohydric Alcohol 61(SITC Code 5121) and their Source Countries

28. Major Importers of Polycarboxylic Acids (SITC Code 5138) 62and their Source Countries

29. Major Importers of Albuminoidal Substances (SITC Code 5922) 63and their Source Countries

30. Major Importers of Ether and Alcohol Peroxide 63(SITC Code 5161) and their Source Countries

31. Anti-Dumping Cases Initiated by India (1992 – 2005) 67

32. Possibilities of Collaboration by Chemical Industry 69

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List of Boxes

No. Title Pg. No.

1. Chemical Tariff Harmonisation Agreement 26

2. Mergers and Acquisitions in Global Chemical Industry 29

3. The Responsible Care Initiative 30

4. Major Chemical Groups and Sub-Segments Produced in India 38

5. Exim Bank’s Support to Indian Chemical Industry 47

6. India: A Signatory to Chemical Weapons Convention 52

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INTRODUCTION

This study focusses on chemicalsub-segments such as:

❖ Basic Chemicals also known ascommodity chemicals, includingorganic and inorganicchemicals, bulk petrochemicals,other chemical intermediates,plastic resins, synthetic rubber,man-made fibers, dyes andpigments, printing inks;

❖ Specialty chemicals, also knownas performance chemicals, arelow-volume but high-valuecompounds. These chemicalsare derived from basicchemicals and are sold on thebasis of their function. Forexample, paint, adhesives,electronic chemicals, watermanagement chemicals, oilfieldchemicals, flavors andfragrances, rubber processingadditives, paper additives,industrial cleaners and finechemicals. Sealants, coatings,catalysts also come under thiscategory;

❖ Agricultural chemicalsespecially crop protectionchemicals such as pesticides.

The study excludes drugs andpharmaceuticals, and fertilizers, asthey are large in size to have aseparate industry status and areappropriately positioned forexclusive studies, individually.

GLOBAL SCENARIO

Global chemical production isgrowing and the growth iscontributed by the chemical industryof developing countries. Growth indemand for chemicals in developingcountries is high leading tosubstantial cross-border investmentin the chemical sector. Global salesof chemicals in the year 2005 wereestimated to be aroundUS$ 1.75 trillion. USA is the singlelargest country with a share of 22%(US$ 380 billion) in world chemicalsales, followed by Japan (10% -US$ 194 billion), China (9% - US$163 billion), Germany (7% - US$122 billion) and France (5% - US$90 billion). In terms of regions,Asia-Pacific tops the list with ashare of 35% in global salesfollowed by Europe (34%), NAFTA(25%) and Latin America (4%).

World export of chemicals isestimated to be US$ 832 billion in

EXECUTIVE SUMMARY

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2005. The share of chemicals inworld merchandise trade and globaltrade of manufactures is estimatedto be 11% and 15% respectively, in2005. The growth in worldchemicals trade has averaged out toaround 12% during the period 2000-2005. Leading chemical exportersare Germany (11% - US$ 95 billion),USA (11% - US$ 94 billion), France(6% - US$ 51 billion), Japan (6% -US$ 49 billion), and China (4% - US$32 billion).

The joint framework agreementfor tariff harmonization in theUruguay Round (Chemical TariffHarmonisation Agreement), has ledto a substantial reduction in tariffs inthe signatory countries. However, inmany countries reduction in tariff hasbeen substituted by increase in non-tariff barriers. Dumping of chemicalsand anti-dumping actions bycountries have become part of thegame plan of many firms / countries.

Globalisation of chemicalindustry has led to national marketsbeing supplied from an increasingnumber of locations, while individualcompanies have increased thegeographic scope of their operations.Chemical companies in the world arenow merging their businessprocesses, including their supplychain, to reduce risks and to createsustainable competitive advantage.

The global chemical industry iscontinuously working towardsreduction of environmental impact

of its activities. The industry iscommitted to contribute to thesustainable development of thesociety as a whole, through its‘Responsible Care Initiative’, and hasdeveloped systems for improvingthe health, safety and environmentalperformance of its products andprocesses.

CHEMICAL INDUSTRY IN INDIA

Chemical industry is one of theoldest industries in India. It isestimated that the size of Indianchemical industry is around US$30 billion. Volume of productionin chemical industry positions Indiaas third largest producer in Asia(next to China and Japan), andtwelfth largest in the world. Theindustry, comprising both small-scale and large units (includingMNCs) produces several thousandsof products and bi-products, rangingfrom plastics and petro-chemicalsto cosmetics and toiletries. Asignificant share (around one-third)of production by chemical industryis consumed by itself. The chemicalindustry accounts for about 13%share in the manufacturing outputand around 5% in total exports ofthe country. The chemical industrycontributes around 20% of nationalrevenue by way of various taxesand levies.

The chemical industry producedaround 8 million metric tonnes eachof basic chemicals and basicpetrochemicals, and around

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10 million metric tonnes ofpetrochemical intermediaries in2005-06.

Gujarat is the major contributorto the basic chemical as well aspetrochemical production with 54%and 59% share in all India production,respectively. Other major statesproducing basic chemicals includeMaharashtra (9%), Tamil Nadu andUttar Pradesh (6% each). Other majorstates producing petrochemicalsinclude Maharashtra (18%), WestBengal (12%), Uttar Pradesh (4%),and Tamil Nadu (3%).

India’s export of basic chemicalsamounted to over US$ 7 billion in2005-06. India exported US$ 4.85billion worth of organic chemicals,US$ 775 million worth of inorganicchemicals, US$ 847 million worth oftanning and colouring materials, andUS$ 649 million worth of pesticides,in the year 2005-06. In addition, Indiaexported petrochemicals valuednearly US$ 4 billion. India is also animporter of basic chemicals and theimport value amounted to over US$8 billion in 2005-06. Thecomposition of India’s chemicalimports includes organic chemicals(63%), inorganic chemicals (28%),dyes (6%) and pesticides (3%).China, USA and Saudi Arabia are theleading source countries for India’schemical imports. In addition, Indiaimported petrochemicals valued overUS$ 2 billion.

The Indian chemical industry hasbeen receiving significant investmentintentions, including foreign directinvestment (FDI). Since August 1991,and till November 2006, chemicalindustry has received investmentproposals worth Rs.274486 crores,a share of 11.3% in total investmentproposals received during thisperiod. FDI, which is very essentialfor modern manufacturing ofchemicals, has also been flowing intothe chemical sector significantly.During the period August 1991 toOctober 2006, FDI invlows into thechemicals sector amounted toUS$ 2.2 billion, a share of around6% in total FDI inflows into thecountry.

ANALYSIS OF CHEMICALIMPORTS BY MAJORCOUNTRIES AND INDIA’SEXPORTS

Analysis has been carried out toidentify highly traded chemicals,based on the import data of worldchemicals at SITC classification 4-digit level. The analysis revealedthat in the year 2005, majorchemicals traded in the worldinclude Cyclical hydrocarbons (SITCCode 5112), Polyethylene (5711),Polycarbonates (5743), Propylenepolymers (5751), Monocarboxylicacids and derivatives (5137),Acrylic hydrocarbons (5111),Acrylic monohydric alcohol (5121),Polycarboxylic acids (5138),Albuminoidal substances (5922),

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and Ether and alcohol peroxide(5161). Analyses have been carriedout in these product groups toknow about the major importers ofeach product groups, their sourcecountries for imports, as also India’sexports and major export markets.

The analyses revealed that EU,USA and Japan are the leadingimporting regions / countries forthese analysed product groups.These countries have been mostlysourcing their import requirementswithin the region. Since manycountries in the EU are shifting theirproduction base to other developingcountries, India may endeavor toattract such manufacturingopportunities and explorepossibilities of increasing its exportsto European countries. The analysesfurther revealed that in some productgroups, India has been one of themajor suppliers to the world. Theseinclude insecticides (second majorsupplier with 13% share),hydrocarbons derivatives (rankedsecond with 13% share), cyclicalcohol derivatives (ranked third with12% share), synthetic organicdyestuffs (ranked fourth with 6%share), synthetic brighteners (rankedfifth with 6% share), cyclichydrocarbons, and fluorides (bothranked ninth with 3% and 2% share,respectively). India may leverage theadvancement in manufacturingtechnologies in these product groupsto replicate in the production of otherproducts, and become a globalplayer, across the segments.

CHALLENGES

Indian chemical sector has growna long way since its early days ofindependence. The sector hasgrown from a small-scale sector tomulti-dimensional sector, which istaking on the challenges ofglobalization. Now, Indian chemicalindustry holds a recognized positionin the global map; however, thereare few factors, which hinders thegrowth of the industry. Theseinclude:

High prices of basic feed stock

Basic raw materials constitute majorportion of cost of production (30%to 60%) in the chemical industry.Indian chemical industry either usesnatural gas or crude oil as feedstockfor manufacturing process. Thefluctuations in oil prices thereforeaffect the growth projections of thefirms.

SSI reservation / Fragmentednature of industry

The Indian chemical industry ishaving a fragmented structure withmore number of units in small-scalesectors spread in various parts ofthe country. The installed capacitiesin most of the small-scale units aresmaller as compared to globalscales. The limitation in capacityin the SSI sector put them indisadvantageous position whiletapping export opportunities withlarge volume.

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Low R&D levels

The level of R&D investments inthe Indian chemical sector is lowat around 0.3% of total sales. Theareas for strengthening of R&D inchemical industry includeimprovements in manufacturingprocess for reduction in cost ofproduction, applicationdevelopment to diversify demand,and new product development.

Low Level of ICT interface

The usage of informationtechnology in Indian chemicalindustry is relatively lower, as mostof the units are in the small-scalesector. Application of informationtechnology in the chemical sectoris required for equipment design,chemical engineering, and processsimulation that have helped inreducing product and processdevelopment time. Informationtechnology should also beincreasingly used in the area ofR&D, especially in collaborativeresearch.

Low Level of BrandDevelopment

Indian chemical producers,excepting a few large producers,generally sell their products asgeneric products without branddevelopment. There is also lowlevel of interest amongst small-scale producers for branddevelopment, product developmentas also market development.

Low Level of CommonInfrastructure

In general, due to its very nature,the chemical / petrochemicalindustry requires certain basicinfrastructure facilities, both in theprocess chain as also in the supplychain. At present, each unit has tocreate specialized facilities on itsown which leads to duplication ofefforts and investment. If chemicalunits are clustered in closeproximity, the required infrastructurecould be vertically integratedresulting in cost reduction.

Environmental Regulations

As with other industries, thechemical industry needs to complywith regulations such asOccupational Safety and Health andProcess Safety Managementregulations. Environmental safety,occupational safety and processmanagement safety can easily bemet if a firm is manufacturing largevolume of single chemical. But itmay not be relatively feasible forthe firms who manufacture lowvolume and large number ofchemicals in a single plant.

Dumping / ImportCompetition

Chemical industry is the secondlargest industry that has attractedlarge number of anti-dumpingactions in the world. In India,chemicals and petrochemicalsindustry is the largest segment that

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has initiated anti-dumpinginvestigations during the period1992-2005. 82 anti-dumping cases(out of 188 cases) initiated by Indiafall under the category of chemicalsand petro-chemicals, during thisperiod.

STRATEGIES

Focus on Core Competence

Chemical products trade isincreasingly getting specialised allover the world. Innovation isincreasingly becoming an importantfactor to focus on core competenceand to become a leading player inspecialty products. In the abovecontext, it is important for theIndian chemical manufacturers tofocus on select business segmentswhere competitive advantageexists.

Strengthening TechnologicalCompetence

Indian chemical industry shouldstrive for continually improving itsproduction processes and productsby investing resources intechnology development.Technological development maybe achieved by the chemicalindustry at two levels. In the bulkproducts segment, the chemicalindustry should undertake processinnovation with the objective ofreduction in cost of production. Inaddition, the industry needs toinvest in technological resources

that would lead to specializedproduct development.

Improving Basic ManagementCapabilities

Indian chemical industry has a goodrecord of management expertise.This could be further leveraged withtechniques such as GoodManufacturing Practices, GoodLaboratory Practices, Total QualityManagement, Total ProductionManagement and Risk Management.

Adhering to EnvironmentalNorms

Since chemical substances are usedin manufacture of consumer itemssuch as paint, glue, insect spray,cosmetics and household cleaners,chemical producers have theresponsibility in promoting safemanagement of substances – startingfrom design in production to end-use, and their final disposal(hazardous waste). Further, in orderto garner a greater share in worldchemicals market, Indian chemicalindustry needs to address variousdevelopmental issues such assustainable chemistry, adherence tosafety and health and riskmanagement.

Focus on R&D

Indian chemical industry needs tofocus on R&D in one or multipleareas. While R&D remains anuniversal imperative, its purpose

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and nature varies across segments.The basic chemical sector shouldfocus on process innovation andproduct development andstrengthen their competitivenessthrough improvements based onperformance and quality ofproducts. Firms in knowledge basedchemical sector should focus onR&D with the objective ofachieving product leadership andprocess innovations. Thepetrochemical sector should focuson application R&D, as newapplications have to be identifiedto increase use and application ofpolymers.

Collaboration

The chemical industry needs toenhance their collaborative effortsin order to improvecompetitiveness. Collaborationamongst players in the chemicalindustry could happen both atcluster level (for sharing ofcommon infrastructure) as also atfirm level (for sharing ofknowledge and technology).Collaboration with firms acrossborders for technology andinvestment would also give a boostto the industry. In addition, theplayers should also achieve greaterlevel of industry-institutionalpartnership for knowledgedevelopment and sharing.

Increasing ICT interface

Chemical firms in India can gain alot by making their manufacturing

process IT-enabled. InformationTechnology (IT) can bring a goodchange in entire process cycle fromtechnology, engineering andprocurement to manufacturing byintegrating them with businessprocesses in all these areas. Thiswill eventually result in higherefficiency for the industry.Increasing use of IT to transactbusiness will also help the sector,as most of the products in thechemical sector are commoditised.

Consolidation

The new trend in chemical industryis competing through consolidation.Chemical firms, through mergersand alliances are now achievingeconomies of scale all over theworld. Consolidation helps thechemical industry in reduction ofcost in their procurement andproduction. Such consolidationexercises also provide for reductionin overheads, marketing expenses,increased efficiencies in supplychain management and enhancedpresence in various regions. It isimportant for Indian chemicalindustry to consolidate theiroperations and emerge as globalwinners.

Industry - Academia Linkages

For transforming ideas into newproducts, partnership betweenindustry and academia is a must.Thus, Indian chemical industryshould leverage the potential ofeducational and research institutions

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to source intellectual as well ashuman capital. Such linkages maybe effectively used for setting upof in-house R&D facility or foroutsourcing R&D activities.

Marketing and Promotion

Indian chemical industry shouldincreasingly focus on marketing andpromotion to achieve greater sharein global chemical trade. Theindustry may endeavour toconcentrate more on issues suchas brand building, export promotionand market development.

Setting up of Chemical Parksor Mega Chemical Estates

In order to address the issue ofcreation of common infrastructure,the chemical industry, in associationwith the Government may establishexclusive Chemical Parks – aconcept similar to the Software /Hardware Technology Park. It isalso important to considerestablishment of exclusive ChemicalZones on the lines of SpecialEconomic Zones to give a fillip tothe industry. In such Parks / Zones,the industry may be encouragedto set up mega chemical plantsthat could contribute to increasedproduction as well as employmentgeneration. The Government hasalready initiated policies for settingup of integrated Petroleum,Chemicals and PetrochemicalsInvestment Regions (PCPIR).

De-reservation of SelectChemical Production

Many chemical products (eg.Potassium Permanganete, SodiumFerrocyanide, Calcium Carbide,Citric Acid, Sodium Cyanide) arestill reserved for production undersmall-scale sector. However, cost-competitiveness as well astechnological compliance cannot beachieved without operating underscale economies. Most of the firmsoperating at the global level arebig ones and enjoy economies ofscale. De-reservation of chemicalproducts reserved for productionunder small-scale sector can be agood measure to support theglobalisation efforts of the industry.

Creation of ModernizationFund

A modernization fund on the linesof technology upgradation fundestablished for the textile sectormay be created to strengthen thetechnological competence of theindustry.

Increasing Consumption Levelsof Chemicals

Per capita chemical consumptionin India is low as compared toworld standards (estimated to beone-tenth of world average).Increasing consumption level in thedomestic market would ignite theprevailing latent demand. Thiscould be achieved through

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increasing applications through R&Dand enhancing the knowledge ofend consumers.

OUTLOOK

Indian chemical industry has comea long way. Today, India hassignificant presence in productionof basic organic and inorganicchemicals, pesticides, paints,dyestuffs and intermediates,petrochemicals, fine and specialtychemicals, cosmetic and toiletryproduct segments. Thus, by virtueof its diversity, the chemicalindustry bears a close correlationnot only with the quantum ofoverall economic growth but alsowith the contents and quality ofgrowth.

The performance and outlook ofthe chemical industry, particularly inthe context of India’s developmentprocess, depends upon anddetermines the trends in the overalleconomy, as also the linkages withthe rest of the world in terms ofinternational trade, investment flowsand technology transfers. On thedomestic front, with the reductionin tariffs, Indian chemical companieswith strong systems and organizedoperations are likely to be benefitedfurther. Companies with competitiveadvantages, like having competencein the areas of high value addedchemicals, conforming tointernational quality standards, could

translate their capabilities andestablish a dominant presence inboth international and domesticmarkets.

In the years to come, variousnew avenues are likely to arise inthe Indian chemical industry likestructural shifts, strategic marketingalliances for domestic sales andexports, strategic marketing alliancewith multinationals and tradingcompanies, stricter enforcement ofgood manufacturing practices,opportunity for value addition usingcontract manufacturing or contractresearch.

Use of advanced technology,strong research capabilities,backward and forward linkages anddevelopment of domestic capacityto reduce dependence on importedraw materials are key success factorsfor Indian chemical industry. Inaddition, safety, health andenvironment protection issues arebecoming important challenges forthe Indian chemical industry. Indianmanufacturers are addressing suchchallenges in an organized way.

The International Council ofChemical Associations (ICCA), anassociation representing 80% of theworld manufacturers of chemicalshas reiterated its support for a newround of multilateral tradenegotiations in the World TradeOrganization. ICCA’s priorities

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include elimination of chemical tariffsby the year 2010, harmonization ofanti-dumping practices, simplificationof customs procedures and fullimplementation of TRIPs agreement.

While the harmonization of anti-dumping practices would benefitdeveloping countries like India, thetariff-free world would pose stiffcompetition.

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Chemical industry is one of thekey industries in contribution to theworld economic output andemployment. The industry hascontributed around US$ 1.75 trillionin global value of sales in 2005. Theindustry provides products andservices that improve the quality life

of customers and communities.Product-lines of the chemicalindustry are used in every area oflife such as food, clothing, housing,communication, transport as well asentertainment. Thus, the businesscycles of end user segmentssignificantly affect the chemicalindustry.

1. INTRODUCTION

SOURCE: Adapted from Report of the Task Force on Chemical Industry,Government of India, February 2002.

Exhibit 1END-USER SEGMENTS OF CHEMICAL INDUSTRY

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The chemical industry uses rawmaterials such as gas, oil, coal, waterand minerals to produce a vast arrayof products. Chemical industry is alsomajor demand driver for othersectors such as energy, informationtechnology, environmentaltechnology.

The industry is heterogeneousin nature with many sectors such asorganic, inorganic, dyes, paints,pesticides and specialty chemicals.Specialty chemicals are produced inselect countries, which has advancedtechnology and production skills.The chemical industry is energy-intensive in its manufacturing processas also in terms of usage of rawmaterials. While using natural gas,natural gas liquids, oil, coal andelectricity as energy, the industry alsodraws up its raw materials from suchenergy sources as primary ingredientin production. The industry is oneof the largest employers (employsover 10 million persons worldwide)and contributes to the welfare andemployment on a global scale. Therole of Research & Development(R&D) is crucial in the chemicalindustry due to the constant needfor innovation.

The chemical industry isgenerally categorised into thefollowing three broad segments:

❖ Basic chemicals, also known ascommodity chemicals, includeorganic and inorganicchemicals, bulk petrochemicals,other chemical intermediates,plastic resins, synthetic rubber,man-made fibers, dyes andpigments, printing inks.

❖ Specialty chemicals are low-volume but high-valuecompounds, and are alsoknown as performancechemicals. These chemicals arederived from basic chemicalsand are sold on the basis oftheir function. For example,paint, adhesives, electronicchemicals, water managementchemicals, oilfield chemicals,flavors and fragrances, rubberprocessing additives, paperadditives, industrial cleaners andfine chemicals. Sealants,coatings, catalysts also comeunder this category.

❖ Agricultural chemicals,especially crop protectionchemicals such as pesticides.

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PRODUCTION

Global sales of chemicals in theyear 2005 were estimated to bearound US$ 1.75 trillion. USA isthe single largest country with ashare of 22% (US$ 380 billion) inworld chemical sales, followed byJapan – 10% (US$ 194 billion),China - 9% (US$ 163 billion),Germany -7% (US$ 122 billion) andFrance - 5% (US$ 90 billion).

In terms of regions, Asia-Pacifictops the list with a share of 35% inglobal sales (US$ 615 billion),

followed by Europe (34% - US$609 billion) and NAFTA (25% - US$450 billion). Latin American countriesaccounted for US$ 73 billion (4%) ofglobal sales in 2005.

EXPORTS

According to World TradeOrganisation’s data, world exportof chemicals is estimated to beUS$ 832 billion in 2005. The shareof chemicals in global merchandisetrade and global trade ofmanufactures is estimated to be11% and 15%, respectively in 2005.

2. GLOBAL SCENARIO

Exhibit 2SALES OF CHEMICAL INDUSTRY BY SELECT COUNTRIES (2005)

SOURCE: German Chemical Industry Association; American Chemistry Council;European Chemical Industry Council

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Export of chemicals by Europeanregion has highest share (15.2%) intotal merchandise exports, while thatof Africa was the lowest at 3.1% in2005. Export of chemicals by CISregion has highest share (21%) intotal export of manufactures, while

that of Asia was the lowest at 8.9%in 2005.

The growth in world chemicalstrade has averaged out to around12% during the period 2000-2005.In terms of individual countries,leading exporters in the order of

Exhibit 3SALES OF CHEMICAL INDUSTRY BY REGIONS (2005)

SOURCE: German Chemical Industry Association; American Chemistry Council;European Chemical Industry Council

Exhibit 4SHARE OF CHEMICALS IN TOTAL MERCHANDISE EXPORTS AND

MANUFACTURES EXPORTS IN THE WORLD (2005)

SOURCE: World Trade Organisation

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their share in world exports includeGermany (11% - US$ 95 billion), USA(11% - US$ 94 billion), France (6% -US$ 51 billion), Japan (6% - US$ 49billion), and China (4% - US$ 32billion). Leading importers are USA(11.% - US$ 92 billion), China (9% -US$ 75 billion), Germany (8% - US$67 billion), France (5% - US$ 46billion), UK (4.5% - 39 billion), Italy(4% - 36 billion) and Japan (3% -US$ 30 billion)

According to World TradeOrganisation, the share of intra-regional trade by Europe, NorthAmerica and Asia have beensignificant. The share of intra-regional trade by Europe was 72%,while that of North America and Asiahave been 40% and 65%respectively.

TRENDS IN GLOBAL CHEMICALINDUSTRY

World chemical production isgrowing and the growth is

contributed by the chemical industryin developing countries. Growth inchemicals demand in developingcountries is also high, leading tosubstantial cross-border investmentin the chemical sector. Transnationalcorporations through cross borderinvestment and production cater tothe demand growth in developingcountries. Trade betweendeveloping countries is also on therise due to the increasedproduction capacity in developingcountries.

The joint framework agreementfor tariff harmonization in theUruguay Round, (Chemical TariffHarmonization Agreement or CTHA),has led to a substantial reduction intariffs in the signatory countries.However, in many countries,reduction in tariff has beensubstituted by increase in non-tariffbarriers. The tariffs in countries notparticipating in the CTHA are alsoremaining high. Many CTHA

Exhibit 5EXPORTS OF CHEMICAL BY REGIONS (2005)

SOURCE: International Trade Statistics – 2005; World Trade Organisation

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members are seeking for inclusionof more chemical producingcountries under CTHA or other suchmechanisms that might bring sametariff harmonization results.

Globalisation of chemicalindustry has led to national marketsbeing supplied from an increasingnumber of locations, while individualcompanies have increased thegeographic scope of their operations.Dumping of chemicals and anti-dumping actions by countries havebecome part of the game plan ofmany firms / countries. Accordingto data collated by World TradeOrganisation, during the period 1995to June 2006, 578 anti-dumpingcases have been initiated in thechemical sector, second largestsector, next only to metals / metalprocessing sector. During the same

period, in 381 cases the membercountries have taken anti-dumpingmeasures, second largest sector witha share of 20%.

The economic transformation inthe world in the last two decadeshas altered the landscape of thetraditional chemical supply chain.Such alterations have also changedorganizational boundaries ofmultinational firms and have pushedthe frontier of information technologyas a key enabler to this businessprocess transformation. Chemicalcompanies in the world are nowmerging their business processes,including their supply chain, withinformation technology to bettermanage unexpected events toreduce risks and to create asustainable competitive advantage.

Box 1CHEMICAL TARIFF HARMONISATION AGREEMENT

In the Uruguay Round, select WTO Members have agreed to harmonizetariffs on a broad range of chemical goods to promote liberalization inthis sector and to develop a more predictable and transparent globaltariff structure for this industry. The result was the Chemical TariffHarmonization Agreement (CTHA), which led to a substantial reductionand harmonization of chemical tariffs in HS Chapters 28-39. Currentdiscussions involve the expansion of both product coverage andparticipation in that Agreement, although the focus continues to be onparticipation. At present, CTHA members include: Australia, Bulgaria,Canada, the Czech Republic, Ecuador, Estonia, the European Union,Hong Kong, Japan, Jordan, the Republic of Korea, Mongolia, NewZealand, Norway, Panama, People’s Republic of China, Qatar, Singapore,Slovakia, Switzerland, Taiwan, the United Arab Emirates and the UnitedStates of America.

SOURCE: World Trade Organisation, CEFIC

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Exhibit 6SECTORWISE BREAK-UP OF ANTI-DUMPING CASES – INITIATIONS AND

MEASURES IN THE WORLD (1995 – JUNE 2006)

SOURCE: Exim Bank Research

SOURCE: World Trade Organisation

Exhibit 7SURVIVAL TRIANGLE OF WORLD CHEMICAL INDUSTRY

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The chemical industry is ridingon the big wave of automation,integration and collaboration.Technology is becoming a keyenabler in the world chemicalindustry with the wake of increasingcomplexity. It is expected that thedemand for automation would flowacross organizational boundarieswithin the enterprise.

Successful chemical firms aredeploying an adaptive businessnetwork that gives them the abilityto quickly sense and respond tochanges in the extended supplychain. Chemical firms now requireviable supply chain, with analyticalcapabilities to integrate across theenterprise and to close the loopbetween planning and execution.

The planning process in theworld chemical industry is becomingmore and more interactive anddemand-driven with additionalinformation flowing into the planningsystems directly from the customers,suppliers and service providers.Technology has been performing askey enabler in transforming thechemical companies to become moreresponsive and competitive withoutsacrificing costs.

The concept of sustainabledevelopment is receiving a growingrecognition in the chemical industry.In order to implement sustainabledevelopment, environmental andsafety standards have been set forthe chemical industry, which

addresses the problems of users(both intermediate and end users),as also the production related issues(consumption of energy and energyresources as raw materials).

Some of the parameters that arebeing addressed by the chemicalindustry include:

❖ Use of scientific environmentmonitoring systems;

❖ Development of wasteminimization (be it energy orenergy resources as rawmaterials) systems in aconsistent manner, with theobjective of integratingenvironmental protectionconsiderations into products andprocesses, as early as possible;

❖ Enhancing systems for plantand product safety andimproving the efficiency ofwaste disposal systems;

❖ Creating a policy for usage ofeconomically andenvironmentally optimizedmaterials and energy use witha thrust on sound attitudetowards usage of scarceresources;

❖ Appropriate provision for re-use or recycling of usedsubstances and products

The chemical industry is anenergy intensive industry; on anaverage, about 9% of total productioncosts are being incurred by theindustry due to energy use. For

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manufacture of some chemicals, thisratio can raise upto 60%. Thus,competitive access to energy isnecessary to the chemical industry.Since the reservoir of energyresources is finite, their propermanagement is a crucial pillar ofsustainable development. The globalchemical industry is continuouslyworking towards reduction ofenvironmental impact of its activities.Perhaps, the innovation in the worldchemical industry is enabling otherindustries to use resources more

efficiently with less environmentalimpact.

The global chemical industry hascommitted to continuouslyimproving the health, safety andenvironmental performance of itsproducts and processes, and therebycontributes to the sustainabledevelopment of the society as awhole, through its ‘Responsible Care’initiative. The Responsible Careinitiative is currently implementedin over 50 nations with chemicalmanufacturing operations,

Box 2MERGERS AND ACQUISITIONS IN GLOBAL CHEMICAL INDUSTRY

A study by PriceWaterHouseCoopers has estimated that over 2000 dealswere in the chemicals sector during the period January 2003 to December2005, with a cumulative deal value of over US $ 130 billion. Theseinclude 35 mega deals, with a value of US $ 1 billion and more, with anaggregate value of US $ 82.1 billion.

In the year 2005 alone, number of deals witnessed by this sector was95 with a cumulative deal value of US $ 55 billion. There were 15 dealswith the deal value of US $ 1 billion or more, cumulatively accountingfor 63% (US $ 32 billion) of total deals concluded in this year.

The global trends in mergers and acquisitions have indicated that mostof the chemical companies were interested in improving their marketposition in Europe and North America, but prefer to expand in Asia bymeans of investments in capacity expansion. In the year 2005, AsiaPacific region witnessed 263 deals, of which China alone accounted for112 deals, followed by Japan 63, and India 24.

Majority of the deals in 2005 were in the basic chemical sector (55%),followed by specialty and fine chemicals (20%), polymers (16%) anddiversified chemicals (9%). Strategic investors played a major role inmany of the deals in the year 2005. Strategic investors have collectivelyinvested nearly US $ 38 billion (about 68% of the total value of deals).

SOURCE: PriceWaterHouseCoopers, Mergers and Acquisitions Activity in the GlobalChemicals Industry 2003-2005.

30

accounting for 90% of globalchemical production..

PROFILE OF LEADINGCHEMICAL PRODUCINGCOUNTRIES

USA

The chemical industry in USA hasover 15000 units and employsaround 0.9 million workers directly.The industry accounts for 6.2% oftotal employment generated by themanufacturing sector. In addition, itis estimated that around 5 millionindirect employment is created bythe chemical industry. With a salesturnover of US$ 380 billion andexport turnover of US$ 94 billion,

the export orientation of the chemicalindustry in USA works out to 25% in2005. The industry ranks second interms of productivity – the peremployee value added in the USchemical industry is estimated to beUS$ 200 per annum – secondamongst all manufacturing sectors.

Japan

Chemical industry in Japan is thesecond largest in the world (nextonly to USA) with a turnover of US$194 billion in 2005. The chemicalindustry in Japan consists of over4000 units, employing over 250,000persons. The value added in theJapanese chemical industryaccounted for 11% of total value

Box 3THE RESPONSIBLE CARE INITIATIVE

The Responsible Care initiative:

◆ promotes mutual support between companies and associationsthrough experience sharing and peer pressure to identify andimplement best practices;

◆ encourages companies and associations to inform their public aboutwhat they make and do, including the reporting of performancedata and the products they make;

◆ supports education and research on the health, safety andenvironmental issues on chemical processes and products;

◆ helps the industry to engage and work in partnership withstakeholders at the local, national and international levels to listento and address their concerns and aspirations;

◆ promotes cooperation with governments and organizations in thedevelopment and implementation of effective regulations andstandards; and enhances accountability through its requirement todevelop credible processes to verify that member companies aremeeting Responsible Care goals and expectations.

SOURCE: Status Report on Responsible Care Initiative, International ChemicalCouncils Association

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added in the manufacturing sector.With an export value of US$ 49billion in 2005, export orientation ofJapanese chemical industry was 25%.R&D expenditure by chemicalindustry in Japan accounted for 16%of total business R&D; the R&Dexpenditure as a percentage of salesaccounted for 5%.

China

With a sales turnover of US$ 163billion in 2005, the Chinese chemicalindustry is third largest in the world,

and second largest in Asia (next toJapan). The growth in the value ofoutput in Chinese chemical industryis quite high and increasing everyyear. In the last one decade, Chinahas displaced France and Germanyto move to the third slot in the worldchemical production. The Chinesechemical industry exported goodsvalued US$ 32 billion in 2005; thus,the export orientation is estimatedto be 20%. Chemical majors in Chinaare mainly public sector firms.However, the Chinese Government

Table 1CHEMICAL TRADE BY PRODUCTS IN USA (2006)

(US$ Million)

Type of Chemicals Exports Imports Trade Balance

Organic Chemicals 29470 42676 - 13206

Inorganic Chemicals 8980 10960 - 1980

Plastics 32482 19183 13299

Dyes and Colourants 5367 3100 2267

Others 17865 9546 8319

Total 94164 85465 8699

SOURCE: Chemical and Engineering News

Exhibit 8INDEX OF CHEMICAL INDUSTRY PRODUCTION (2002=100) IN USA


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Table 2CHEMICAL TRADE BY PRODUCTS IN CHINA (2006)

(US$ Million)

Type of Chemicals Exports Imports Trade Balance

Organic Chemicals 15222 29127 - 13905

Inorganic Chemicals 7371 6157 1214

Dyes and Pigments 2954 3462 - 508

Other Chemicals 8719 11470 - 2751

Total including others 34266 50216 - 15950


continues to actively steer marketentry for foreign companies. Thereare over 10,000 chemical units inChina, majority of which are set upas joint ventures.

Germany

The German chemical industryconsists of over 2000 firms; some ofthem are well-known householdnames across the globe. However,over 90 percent of German chemicalfirms are small and mediumenterprises with less than 500employees. The chemical industryin Germany employs around 450,000persons directly and another 600,000jobs indirectly. The sales turnoverof German chemical industry isestimated to be US$ 122 billion. Withan export turnover of US$ 95 billion,the German chemical industry hasan export orientation of 77%, one ofthe largest in the world. Germanchemical industry is estimated to behaving 10% share in totalmanufacturing output. The industryinvests around US$ 10 billion in

Research and Development (R&D).The R&D intensity of Germanchemical industry is estimated to bearound 6%.

France

With a sales turnover of US$ 90billion, the French chemical industryis the fifth largest in the world andsecond largest in Europe. Thechemical industry in France is secondlargest manufacturing sector, next toAutomobiles, and exports around60% of its turnover. The industry hasaround 1000 units providingemployment to around 200,000persons. With an export turnover ofUS$ 51 billion, the chemical industryin France is the largest exportingsector. Exports accounted for one-sixth of total exports of themanufacturing sector in France. TheR&D intensity of the French chemicalindustry was over 3% of sales, whilethe R&D budget represented over20% of the total value of investmentinto industrial R&D in France.

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Table 3PRODUCTION OF SELECT CHEMICAL PRODUCTS IN JAPAN

(2005 AND 2006)

Chemicals 2005 2006 Growth (%)

Inorganic ChemicalsAmmonia 1318 1316 - 0.2Ammonium Sulphate 1458 1457 - 0.1Carbon Black 805 825 2.5Chlorine Liquid 601 579 - 3.7Hydrochloric Acid 2276 2281 0.2Hydrogen Peroxide 197 211 7.1Nitrogen 11435 11890 4.0Oxygen 11371 11708 3.0Sodium Hydroxide 4552 4399 - 3.4Sodium Silicate 546 517 - 5.3Sulfuric Acid 6546 6984 6.7Titanium Dioxide 259 244 - 5.8

Organic ChemicalsAcetic Acid 599 585 - 2.3Acetone 546 516 - 5.5Acryl nitrite 742 653 - 12.0Benzene 4980 4726 - 5.1Butadiene 1040 981 - 5.7Butanol 513 499 - 2.7Captrolactum 458 485 5.9Cyclohexane 723 746 3.2Ethylene 7618 7406 - 2.8Ethylene Dichloride 3689 3517 - 4.7Ethylene Glycol 841 766 - 8.9Ethylene Oxide 1005 976 - 3.2Octanol 279 265 - 5.0Phenol 938 823 - 12.3Phthalate Plasticizers 315 281 - 10.8Phthalic Anhydride 239 174 - 27.2Polypropylene Glycol 339 336 - 0.9Propylene 6030 5936 - 1.1Purified Terephthalic Acid 1472 1491 1.3Styrene 3392 3318 - 2.2Toluene 1676 1614 - 3.7Toluene disocyanate 216 219 1.4Xylene 5570 5598 0.5P-Xylene 3358 3384 0.8


(000 Tonnes)

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Italy

Chemical industry in Italy is thethird largest in Europe, afterGermany and France. In the year2005, the production of Italianchemical industry was valued at US$60 billion. The industry employsaround 130,000 persons. Theindustry is well represented by smalland medium enterprises (42% of totalunits), Italian large enterprises (23%),and foreign multinationals (35%).Export turnover of Italian chemicalindustry was US$ 26 billion in 2005;the export orientation of the Italianchemical industry thus works out to43% in 2005. Exports to turnoverhave grown from 15% to 43% in 15years, the best performance amongEuropean countries. Not only largefirms, but also SMEs in Italy arestrongly oriented to internationalmarkets. According to a survey byFederation of Italian ChemicalAssociations (FEDERCHIMICA), over70% of Italian chemical enterprisesare engaged in R&D activities.

UK

Chemical industry is one the largestmanufacturing sectors and topranking export sector in UK. In 2005,

the UK chemical industry producedgoods worth US$ 50 billion, andaccounted for around 2% of nationalGDP and over 10% of gross valueadded in the manufacturing sector.Exports of chemicals by UK wasestimated to be US$ 38 billion in2005. The export intensity of the UKchemical industry thus works out to76%. The UK chemical industryprovides direct employment toaround 200,000 persons and helpsin creation of indirect employmentto equal number of persons. In 2005,the chemical industry in UK made acapital investment of around US$ 2billion, which is over 10% of capitalinvestment in manufacturing sector.R&D intensity of UK chemicalindustry is estimated to be 3% in2004.

Canada

The Canadian chemical industrywitnessed a turnover of US$ 26billion in 2005. Exports by thechemical industry in Canadaamounted to US$ 22 billion in 2005.The export intensity thus worked outto 85%. The industry employedaround 80000 persons and providesindirect employment to another200,000 persons.

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Table 4PRODUCTION OF SELECT CHEMICAL PRODUCTS IN CANADA

(2005 and 2006)

Chemical Items 2005 2006 Growth (%)

Ammonia 4607 4444 - 3.5

Ammonium Nitrate 1206 1120 - 7.2

Benzene 798 724 - 9.3

Butadiene 245 251 2.6

Chlorine 1004 988 - 1.6

Hydrochloric Acid 141 162 14.6

Nitric Acid 1147 1121 - 2.2

Polyethylene 3366 3613 7.3

Polystyrene 198 194 - 2.0

Propylene 737 755 2.5

Sodium Chlorate 1169 1125 - 3.8

Sodium Hydroxide 1117 1071 - 4.2

Sulfuric Acid 3755 3828 1.9


(000 Tonnes)

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OVERVIEW

Chemical industry is one of theoldest industries that has contributedsignificantly to the industrial andeconomic growth of India. It isestimated that the size of the Indianchemical industry is around US$30 billion. Volume of productionby chemical industry positions Indiaas third largest producer in Asia(next to China and Japan) and

twelfth largest in the world. Theindustry, comprising both smallscale and large units (includingMNCs), produces several thousandsof products and bi-products, rangingfrom plastics and petrochemicals tocosmetics and toiletries. Asignificant share (around one-third)of production by chemical industryis consumed by itself.

3. CHEMICAL INDUSTRY IN INDIA

Exhibit 9COMPARISON OF INDEX OF INDUSTRIAL PRODUCTION – BASIC

CHEMICALS, MANUFACTURING AND GENERAL INDEX OF INDUSTRIALPRODUCTION IN INDIA

SOURCE: Central Statistical Organisation, Ministry of Statistics and ProgrammeImplementation, Government of India

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The basic chemicals andchemical products industry hasgrown greater than the growth inmanufacturing sector as also thegeneral industrial production. Thedata on Index of Industrial Production(IIP) compiled by Central StatisticalOrganisation shows that the IIP(1993-94=100) for basic chemicalsand chemical products has increasedto 258.5 in 2005-06 as compared tothe index of 234.2 for themanufacturing sector and 221.5 forgeneral index, in the same year.

The chemical industry accountsfor about 13% share in themanufacturing output and around10% in total exports of the country.India is also an importer ofchemicals; however, the chemical

trade balance is positive. Theindustry contributes around 20% ofnational revenue by way of varioustaxes and levies.

CAPACITY AND PRODUCTIONOF MAJOR CHEMICAL SUB-SEGMENTS

The volume of major basicchemicals produced in Indiaamounted to around 8 millionmetric tonnes (MTs) in 2005-06.This works out to a capacityutilization level of over 80%.Alkalis (such as soda ash, causticsoda and liquid chlorine) are thelargest sub-segment in productionof chemicals amounting to around70% share in volume terms.

Table 5INSTALLED CAPACITY AND PRODUCTION OF MAJOR

BASIC CHEMICALS IN INDIA

Major basic Installed Production (MT)

chemical Capacity 2001-02 2002-03 2003-04 2004-05 2005-06segments as of (P)

March2006

Alkali 6602680 4342305 4792345 5070374 5271675 5474614

Inorganic 742015 374132 403827 440608 508157 543965

Organic 1791858 1140405 1319967 1444510 1472819 1509546

Pesticides 148551 81803 69565 85118 93966 82240

Dyes and 52043 24789 26196 25940 28498 29541Dyestuff

Total Above 9337147 5963434 6611900 7066550 7375115 7639906

SOURCE: Chemical and Petrochemical Statistics at a Glance, Ministry of Chemicalsand Fertilizers, Government of India.

P – Provisional

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Box 4MAJOR CHEMICAL GROUPS AND SUB-SEGMENTS PRODUCED IN INDIA

Alkali – Such as Soda ash, Caustic soda, and Liquidchlorine

Inorganic chemicals – Such as Aluminum fluoride, Calcium carbide,Carbon black, Potassium chlorate, Sodiumchlorate, Titanium dioxide and Red phosphorous.

Organic chemicals – Such as Acetic acid, Acetic anhydride, Acetone,Phenol, Methanol, Formaldehyde, Nitrobenzene,Citric acid, Maleic Anhydride, Penta-Erithritol,Aniline, Chloro methanes, ONCB, PNCB, MEK,Acetaldehyde, Ethanolamines, Ethyl acetate andOrtho nitro toluene.

Pesticides – Pesticides and insecticides registered under theInsecticide Act of 1968.

Dyes and dyestuff – Such as Azo dyes, Acid direct dyes, Basic dyes,Fast colour bases, Ingrain dyes, Oil soluble(solvent dyes), Optical whitening agents, Organicpigment colours, Pigment emulsion, Reactivedyes, Sulphur dyes, Vat dyes, Food colours andNapthols.

Petrochemicals – Such as Synthetic fibres, Fibre intermediates,Polymer, Elastomers, Surfactants and Performanceplastics.

The volume of major basicpetrochemicals produced in Indiaamounted to around 8 million MTsin 2005-06. This works out to acapacity utilization level of over 90%.Polymers (such as Low / HighDensity Polyethylene, Polypro-pylene and Polystyrene) are thelargest sub-segment in production ofpetrochemicals amounting to around63% share in volume terms.

The volume of majorpetrochemical intermediatesproduced in India amounted toaround 10 million MTs in 2005-06.This works out to a capacityutilization level of over 98%. Olefins(such as Ethylene, Propylene andButadiene) are the largest sub-segment in production ofpetrochemicals amounting to around46% share in volume terms.

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Table 6INSTALLED CAPACITY AND PRODUCTION OF MAJOR BASIC

PETROCHEMICALS IN INDIA

Basic Installed Production (MT)

petro- Capacity 2001-02 2002-03 2003-04 2004-05 2005-06chemical as of (P)segments March

2006

Synthetic 2416500 1668553 1754556 1867746 1875420 1906193fibre yarn

Polymers 4727750 3974170 4175085 4499167 4775745 4768085

Elastomers 147580 79372 81506 87394 96775 110212Synthetic 577500 424760 447426 453379 487895 555474detergentintermediatesPerformance 136580 89883 94656 99257 112834 126681Plastics

Total Above 8005910 6236738 6553229 7006943 7348669 7466665

SOURCE: Chemical and Petrochemical Statistics at a Glance, Ministry of Chemicalsand Fertilizers, Government of India.P – Provisional

Table 7INSTALLED CAPACITY AND PRODUCTION OF MAJOR PETROCHEMICAL

INTERMEDIATES IN INDIA

Basic Installed Production (MT)

petro- Capacity 2001-02 2002-03 2003-04 2004-05 2005-06chemical as of (P)inter- Marchmediates 2006

FibreInter- 2847200 2417331 2648473 2691098 2851365 2963039mediates

Olefins 4374800 3696808 3961673 4281669 4667885 4679743

Aromatics 3142400 2242549 2426258 2424962 2451310 2536549

Total Above 10364400 8356688 9036404 9397729 9970560 10179331

SOURCE: Chemical and Petrochemical Statistics at a Glance, Ministry of Chemicalsand Fertilizers, Government of India.P – Provisional

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Table 8CAGR OF PRODUCTION BY VARIOUS CHEMICAL SECTORS IN INDIA

DURING 2001-02 TO 2005-06

Sector / Sub sector CAGR %(2001-02 to 2005-06)

Basic Chemicals 6.39Alkali 5.96Inorganic 9.77Organic 7.26Pesticides 0.12Dyes and Dyestuff 4.54Basic Petrochemicals 4.60Synthetic Fibre Yarn 3.39Polymers 4.66Elastomers 8.63Synthetic Detergent Intermediates 6.90Performance Plastics 8.99Petrochemical Intermediates 5.05Fibre Intermediates 5.22Olefins 6.08Aromatics 3.13

SOURCE: Compiled from Chemical and Petrochemical Statistics at a Glance2005-06.

Table 9ESTIMATED SIZE (IN VALUE) OF THE CHEMICAL INDUSTRY (2005-06)

(Rs. Crores)

Item Estimated Turnover (2005-06)

Organic chemicals 10200

Pesticides 5200

Dyes and Pigments 4800

Alkalies 3000

Inorganic chemicals 2200

Other chemicals 7000

Total (above) 32400

SOURCE: CMIE, Exim Research.

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In value terms the size of thebasic chemical industry in India isestimated to be around US$ 7.5 billionin 2005-06.

In terms of consumption, Indianchemical industry itself is its largestconsumer; as the basic chemicalsundergo several processing tomanufacture downstream chemicals.The industry accounts forapproximately one-third of the totalconsumption.

With over 40000 units, theindustry is widespread and haspresence in both small and large-scale sector. The advantages of SSIreservations and the fiscalconcessions extended to this sectorfacilitated establishment of largenumber of units in the Small ScaleIndustry (SSI) sector. Gujarat is themajor contributor to the basicchemical as well as petrochemicalproduction with 54% and 59% share,in all India production, respectively.

Other major states producing basicchemicals include Maharashtra (9%),Tamilnadu and Uttar Pradesh (6%each). Other major states producingpetrochemicals include Maharashtra(18%), West Bengal (12%), UttarPradesh (4%) and Tamil Nadu (3%).

EXPORTS

Since the formation of World TradeOrganisation, structural changeshave happened in chemicals trade.There has been reduction in tarifffor chemical imports in developedcountries. However, non-tariffbarriers associated withenvironmental issues areinfluencing the chemical imports bydeveloped countries.

India has been increasing itsexport of chemical products in therecent years. The trend analysis ofIndia’s exports of major chemicalproducts in the last four years isgiven in Exhibit - 11.

Exhibit 10SHARE OF MAJOR STATES IN PRODUCTION OF CHEMICALS AND

PETROCHEMICALS IN INDIA (2005-06)

SOURCE: Compiled from Chemical and Petrochemical Statistics at a Glance, Ministryof Chemicals and Fertilizers, Government of India.

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Analysis of production andexport performance of majorchemical segments are given in thefollowing sections:

Organic chemicals

Most of the chemical compoundsthat contain carbon atoms are calledorganic chemicals. Organicchemicals are used in manyhousehold products like paints,varnishes and products of cleaningand disinfecting. In the year 2005-06, India is expected to haveproduced 1.5 million MTs oforganic chemicals. Major productsproduced include methanol, aceticacid, formaldehyde andacetaldehyde. India’s export oforganic chemicals in the year 2005-06 was valued at US$ 4.85 billion.The exports during the first quarter

(April – June) of 2006-07 werevalued at US$ 1.32 billion.

Major markets for Indian organicchemicals include USA, China,Indonesia and Germany. The shareof USA market in India’s exports wasaround 11%.

Inorganic chemicals

Inorganic chemicals are substancesof mineral origin, but not ofbasically carbon structure. Theseinclude nitrate, fluoride and metals.Inorganic chemicals are mostly usedin detergents, soaps, and fertilizers.Major products produced in Indiaare carbon black, titanium dioxideand calcium carbide. In the year2005-06, India is estimated to haveproduced 544,000 MTs of inorganicchemicals. In addition, alkalies,

Exhibit 11TRENDS IN INDIA’S EXPORT OF SELECT BASIC CHEMICAL PRODUCTS

SOURCE: Directorate General of Commercial Intelligence and Statistics, Ministryof Commerce and Industry, Government of India.

43

which are commonly used tomanufacture products like bleach,ammonia, detergent powder, draincleaners, hair color preparations,depilatories, alkaline disk batteriesare also produced in India. India

has built up capacity of alkalichemicals viz., soda ash, causticsoda and liquid chlorine. Theestimated total production of theseitems in the year 2005-06 was5.47 million MTs.

Exhibit 12COUNTRY-WISE EXPORT OF ORGANIC CHEMICALS FROM INDIA (2005-06)


Exhibit 13COUNTRY-WISE EXPORT OF INORGANIC CHEMICALS

FROM INDIA (2005-06)


44

India exported inorganicchemicals valued US$ 775 millionin 2005-06. In the first quarter of2006-07 (April – June), India hasachieved an export level of US$ 228million. Major markets for India’sinorganic chemicals include China,Iran, USA, Sri Lanka, Singapore andIndonesia. China alone accounted forabout 42% of India’s exports in 2005-06.

Dyes and Pigments

Indian dyestuff sector is one ofthe important segments of Indianchemical industry. The dyestuffsfind usage either as raw materialor for direct application in anumber of manufacturing sectorslike textiles, leather, paper, printing

inks and foodstuffs. Indian dyestuffsector has emerged as a leadingplayer in the world market with ashare of over 6%. In the year2005-06, the production of dyesand dyestuffs in India wasestimated to be 29,541 MTs. Majordyestuffs produced in India areorganic pigment colours, azo dyes,sulphur dyes, reactive dyes andpigment emulsion.

India exported tanning andcolouring materials (including paints)worth US$ 847 million in 2005-06.Exports during the first three months(April-June) of 2006-07 wereUS$ 231 million. Major destinationsof Indian dyestuff materials are USA,Germany, Italy, China, Turkey, UK,The Netherlands and Belgium.


Exhibit 14COUNTRY-WISE EXPORT OF DYES, PIGMENTS AND OTHER COLOURING

MATERIALS FROM INDIA (2005-06)

45

Pesticides

India, at present, indigenouslyproduces over 60 technical gradepesticides. The industry comprisesof both large and SMEmanufacturers, numbering over 100units. Besides, India also has thepresence of leading multinationalfirms. In the year 2005-06, theindustry is estimated to haveproduced 82,240 MTs of pesticides,(including fungicides, herbicides,weedicides, rodonticides andfugiments).

India’s exports of pesticidesamounted to US$ 649 million in2005-06. In the current year (April-June 2006-07), exports were valuedat US$ 152 million. Major marketsfor Indian pesticides include USA,The Netherlands, France, Argentina,Brazil and Belgium. Majorcomponent of India’s exports of

pesticides is insecticides, which hasa share of over three-fourth of totalexports of pesticides.

Petrochemicals

The petrochemical industry isrelatively a new entrant in theIndian chemical industry, but hasregistered rapid growth since1980’s. The petrochemical industrymainly comprises of syntheticfibres, polymers, elastomers,synthetic detergents intermediatesand performance plastics. Todaypetrochemical products permeatethe entire spectrum of daily useitems and almost cover entiresphere of life. In the year 2005-06, Indian petrochemical industryis estimated to have produced over18 million MTs of products. Invalue terms, in the year 2004-05,export of petrochemicals amountedto nearly Rs.16,800 crores.

Exhibit 15COUNTRY-WISE EXPORT OF PESTICIDES FROM INDIA (2005-06)


46

IMPORTS

India is also an importer ofchemical products; India’s chemicalimports are either for the purposeof further processing in thechemical industry or for usage asintermediates in othermanufacturing sector. Overall the

terms of trade have been negativein inorganic and organic chemicalsectors, the two major productgroups traded by India. However,the terms of trade have beenpositive for dyes and intermediates,pesticides and petrochemicalssegments. Thus, it may be

SOURCE: Annual Report – 2005-06, Ministry of Chemicals and Fertilizers,Government of India

Exhibit 17TERMS OF TRADE IN SELECT CHEMICAL SECTORS IN INDIA (2005-06)

SOURCE: DGCIS, Ministry of Chemicals and Fertilizers, Government of India.

* Petrochemical data represents the year 2004-05.

Exhibit 16TRENDS IN EXPORT OF PETROCHEMICALS FROM INDIA

47

concluded that overall, import ofchemicals has been lower thanexports.

The trend analysis of India’simports of major basic chemicalproducts in the last four years isgiven in Exhibit - 18.

Basic chemical imports by Indiaamounted to over US$ 8 billion in2005-06. Organic chemicalsaccounted for around 63% of India’schemical imports followed byinorganic chemicals (28%), dyes (6%)

and pesticides (3%). India has beensourcing its imports mainly fromChina (20% of India’s total chemicalimports), followed by USA (8%),Saudi Arabia (6%), Singapore,Morocco and Germany (5% each).

INVESTMENT PROPOSALSINCLUDING FOREIGN DIRECTINVESTMENT IN INDIANCHEMICAL INDUSTRY

Increasing investments in anysector will have significant effect ongrowth, development productivity

Box 5EXIM BANK’S SUPPORT TO INDIAN CHEMICAL INDUSTRY

Exim Bank has been closely associated with the export efforts of Indianchemical industry. Exim Bank’s loan exposure to chemicals sector,including dyes, amounted to over Rs. 1000 crores as of December 31,2006. This works out to a share of 5% in the Bank’s total loan exposureduring this period.

The Bank has been helping the chemical manufacturing and exportingunits to modernise and upgrade their production facilities, install pollutioncontrol and environmental safety systems of internationally acceptablestandards and develop export market for value added products throughvarious products and services.

The Bank has helped a few chemical companies to invest in overseasventures for manufacturing and marketing, under its Overseas InvestmentFinance Programmes. In addition, the Bank through its refinanceprogrammes, supported a number of small chemical units throughcommercial bank network.

The Bank, in association with the Centre for Promotion of Imports fromDeveloping Countries, The Netherlands facilitated Participation of Indianfine and speciality chemical firms in the Export Promotion Programme(EPP) in Europe. EPP has provided combination of elements such asassistance on adhering to regulations and standards, marketing,organisation of production and operational management, training in exportmarketing.

48

and competitiveness. The Indianchemical industry has been receivingsignificant investment intentions,including Foreign Direct Investment(FDI). Since August 1991 and tillNovember 2006, chemical industry

has received investment proposalsworth Rs. 274486 crores, a share of11.28% in total investment proposalsreceived during this period. Theinvestment proposals include over8500 industrial entrepreneurs

Exhibit 19SOURCE COUNTRIES FOR INDIA’S BASIC CHEMICAL IMPORTS


Exhibit 18TRENDS IN INDIA’S IMPORT OF SELECT BASIC CHEMICAL PRODUCTS


49

memoranda and over 500 letters ofintent / direct industrial licenses filedfor production of chemicals, with anestimated employment generationfor over 1 million persons.

FDI, which is very essential formodern manufacturing of chemicals,has also been flowing into this sectorsignificantly. During the period

August 1991 to October 2006, FDIinflows into chemicals sectoramounted to US$ 2.2 billion, a shareof around 6% in total FDI inflowsinto the country. Chemicals sectorwas ranked at sixth positionfollowing electrical equipments,services sector, telecommunication,transportation and fuels.

Table 10INVESTMENT PROPOSALS IN INDIAN CHEMICAL INDUSTRY

Sl. No Sector Investment Share in TotalProposals Investment(Rs. Crores) Proposals

1 Metallurgical Industries 512652 21.07

2 Electrical Equipments 313883 12.90

3 Chemicals 274486 11.28 (Other than Pharmaceuticals and fertilizers)

Total Investment Proposals 2432713 100.00

SOURCE: SIA Statistics, December 2006, Secretariat for Industrial Approvals,Department of Industrial Policy and Promotion, Government of India.

SOURCE: Annual Report – 2005-06, Ministry of Chemicals and Fertilizers,Government of India

Exhibit 20TRENDS IN IMPORT OF PETROCHEMICALS IN INDIA

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GOVERNMENT INITIATIVESAND POLICIES

The Government has beenannouncing a number of measuresto improve the competitiveness ofthe Indian chemical industry. Theseinclude: abolition of industriallicensing to most of the chemicalsub-sectors, excepting a small listof hazardous chemicals. Approvalis being granted for FDI up to100 percent in the chemical sector.The Government is alsocontinuously reducing the list ofreserved chemical items forproduction in the small scalesector, thereby facilitating greaterinvestment in technologyupgradation and modernization.Now, there are only around 25chemical items reserved forproduction in small-scale sector.

The Government has initiatedpolicies for setting up of integratedPetroleum, Chemicals andPetrochemicals Investment Regions(PCPIR). Such an initiative is likelyto attract major investment, bothdomestic and foreign, into theregions, which would have enablinginfrastructure that would provideconducive and competitiveenvironment for setting up ofmanufacturing units. PCPIR wouldreap the benefits of co-siting,networking and greater efficiencythrough use of common infrastructureand support services. Such anindustrial complex would boostmanufacturing activities, augmentexports and generate employment.

Government is a signatory toChemicals Weapons Convention,which is an universal, non-

Table 11FDI IN INDIAN CHEMICAL INDUSTRY

Sl. No Sector FDI Inflows Share in Total(US$ Million) FDI Inflows

1 Electrical equipments 6712.26 17.49 (including computer software and electronics)

2 Services Sector 5235.43 13.643 Telecommunications 3797.54 9.894 Transportation 3460.31 9.015 Fuels (Power & Oil refinery) 2731.65 7.116 Chemicals (Other than

Pharmaceuticals and fertilizers) 2238.84 5.83Total FDI (excluding acquisition of shares and stock swaps) 38382.82 100.00

SOURCE: SIA Newsletter, November 2006, Secretariat for Industrial Approvals,Department of Industrial Policy and Promotion, Government of India.

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discriminatory, multilateralDisarmament Treaty that bans thedevelopment, production,acquisition, transfer, use and stockpileof all chemical weapons. India haspassed the Chemical WeaponsConvention Act, 2000, which has

come into force in 2005. Necessaryrules, to facilitate the implementationof the Act have also been notified.The Government is taking steps tocreate awareness in the industryabout its obligations, under theChemical Weapons Convention, by

Table 12LIST OF CHEMICAL ITEMS RESERVED FOR SSI SECTOR

Sl. No Item

1. Water soluble wood preservative based on copper chrome arsenicboric compounds

2. Dyestuff – Basic dyes3. Azo dyes4. Naphthols5. Phthalocyanine Blue (except for captive consumption for

manufacture of Phthele Cyanine green)6. Reactive dyes7. Fast colour bases8. Pyrasolones9. Potassium citrate – industrial grade10. Diethyl phthalate11. Diocytyl phthalate12. Niacinamide13 Paint dryers-Napthhenates octoates linolcates etc., of lead, cobalt,

manganese, zinc, calcium, etc.,14. Chlorinated paraffin wax (upto 60% of chlorine content)15. Lanolin anhydrous16. Turpentine by steam/hydro-distillation process17. PVC compounds18. Alkyd resins (except for captive consumption)19. Potassium nitrate produced from salt petre20. Barium carbonate21. Copper sulphate - other than manufactured as primary producer as a

by-product22. Zinc sulphate-other than manufactured as primary producer as a by-

product.23 Magnesium sulphate24 Sodium silicate25 Calcium silicate

SOURCE: Ministry of Small Scale Industries, Agro and Rural Industries, Governmentof India.

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Box 6INDIA: A SIGNATORY TO CHEMICAL WEAPONS CONVENTION

The Chemical Weapons Convention is a universal, non-discriminatory,multilateral Disarmament Treaty, which bans the development, production,acquisition, transfer, use and stockpile of all chemical weapons. Theconvention is being implemented by the Organization for the Prohibitionof Chemical Weapons (OPCW) located in The Hague. The Conventionpermits commercial production of those chemicals, which are used fornon-prohibited purposes. The Convention identifies toxic chemicals onthree schedules:

1. Schedule – 1 lists chemicals that are produced and stockpiled aschemical weapons;

2. Schedule – 2 contains such precursors, which pose significant riskto the objective and purpose of the Convention, since these chemicalsare capable of generating Schedule 1 chemicals.

3. Schedule – 3 lists dual-purpose chemicals that have a large numberof legitimate civilian, commercial applications and which could alsobe used for purposes of developing chemical weapons.

India is a signatory to this convention. To be able to discharge theobligations under the Convention, each country is required to have adomestic legislation, which makes the mandatory filing of correctinformation about various activities in scheduled chemicals. India haspassed the Chemical Weapons Convention Act, 2000, which has comeinto force in 2005. Necessary rules, to facilitate the implementation ofthe Act have also been notified.

Declarations and verifications are the two important aspects forimplementation of the Convention. Each nation is required to makeannual declarations of the production, import and export of the scheduledchemicals and their production facilities. Declarations in respect ofrelatively large number of plant sites producing other Discrete OrganicChemicals are also required to be made. India has been makingdeclarations within the prescribed time frame.

Inspections are routinely conducted by the OPCW to ensure that theactivities in schedule chemicals are in accordance with the provisions ofthe Convention. Ministry of Chemicals and Fertilisers is taking steps tocreate awareness in the industry about its obligations, under the ChemicalWeapons Convention, by organizing a number of awareness programmesall over the country.

SOURCE: Department of Chemicals and Petrochemicals, Ministry of Chemicalsand Fertilizers, Government of India

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organizing a number of awarenessprogrammes all over the country.

INDUSTRY INITIATIVES

Indian Chemical Council (ICC - alsoknown as Indian ChemicalManufacturers Association) is thenodal point / signatory representingIndia under the Responsible CareInitiative. ICC has prepared codes,guidance notes for implementationof process safety, employee healthand safety, pollution prevention,emergency response and productsafety. ICC is continuouslyinteracting with regulatory bodieson various issues like emergencypreparedness, and safetransportation of hazardouschemicals. Member companies ofICC are encouraged to dialoguewith local communities and groupssuch as students, teachers, fire /police personnel. Nearly 100member firms of ICC have signedup indicating their commitment tothe Responsible Care Initiative. Self-assessment reports are beingobtained from Responsible Carecompanies. However, externalauditing has not been introduced,although many firms are interestedin getting external audit.

FIRM LEVEL INITIATIVES

At firm level too, several initiativesare being taken to strategicallyposition in the global market place.Indian chemical firms have strivedto increase their market share

through global presence. One ofthe leading firms in the agro-chemical sector has acquiredseveral manufacturing facilities inboth developed and developingcountry markets. Through suchacquisitions, strategic alliances andestablishment of subsidiaries, thefirm has built a network across theglobe and strategically positionedfor continuous expansion, backward/ forward integration, branddevelopment, product registrationand aggressive marketing.

Indian chemical firms have inplace technical agreements withmultinational firms to keep abreastof the technological development inthe global chemical industry, and toexplore possibilities of adapting thetechnology to meet the specificrequirements of the Indian market.Such a strategy helped the firms tohave continuous upgradation intechnology, resulting in a wide andsuperior product portfolio.

Managing supply chain ininternational marketing is anotherstrategy adopted by Indian chemicalfirms. A firm manufacturing oleochemicals has adopted varioussupply chain management strategies,such as having bulk storage tankswith leading ship-lines, custom builtrail/road tankers exclusively for itsbulk products and warehousingfacilities for packaged goods invarious places, supported by vastdistributor network, to manage thesupply chain in international markets.

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Strategies have also beenadopted by Indian chemical firms tocut down cost of production throughleveraged buy-out for sourcing costefficient raw materials and solutionsfor energy efficiency. A leading sodaash manufacturing firm bought amanufacturing facility in Romania totap the natural resources availablein east and central Europeancountries and to become low costproducer of soda ash. The firmthrough innovative use of cokebriquettes made from coke fines(rather than using the expensivemetallurgical coke) in its kilns hasalso brought down the cost ofenergy. Another leadingmanufacturer of acetyls is usingmolasses based production process,in which molasses is used asfeedstock. Such innovation inmanufacturing process has helpedthe firm in overcoming the costcycles that affects the chemicalindustry worldwide.

Some Indian chemical firms areengaged in continuous research anddevelopment activities to innovatenew applications to increase enduser segments. A leading firmengaged in manufacture ofperformance polymers works closelywith customers to innovate newproducts to suit the end users.

Several manufacturers of bulkchemicals have started focussing onmoving up in the value chain tomanufacture specialty chemicals.While some of them have started

separate entities for manufacture ofspecialty chemicals, a leadingspecialty chemical manufacturingfirm has changed its name with thevision of re-branding from acommodity chemical manufacturer tospecialty chemical manufacturer andto move up in the value chain.

Consolidation through buy-outsof brands and business is anotherstrategy adopted by Indian chemicalfirms. An Indian firm manufacturingbuilding chemicals has adopted thisstrategy to consolidate the marketposition and to enhance the rangeof products. The firm has also boughtleading retail brands of drawingbrushes and colours to enhance themarket presence in retail segment.

Indian chemical firms areleveraging their manufacturingexpertise and enter into contractmanufacturing with multinationalfirms. These include custommanufacturing and private labeling.A leading chemical firm, leveragingits expertise in handling hazardouschemicals and distillation andcrystallization operations, isundertaking customized synthesis oforganic chemical products. The firm,equipped with advanced processequipments and analyticalinstruments, also undertakes researchand development in areas such asagrochemicals and specialtychemicals.

The chemical manufacturers arealso addressing the environmental

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issues through technologicalsolutions. Many Chlor Alkalimanufacturers have moved awayfrom Mercury Cell Technology toMembrane Cell Technology in orderto be energy efficient and

environment friendly. A leadingmanufacturer of organic acids andpigments has established modernbiological effluent treatment plant toensure zero pollution from the entirecomplex.

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Analysis has been carried out toidentify highly traded chemicals,based on the import data of worldchemicals at SITC classification 4-digit level. The analysis revealed thatin the year 2005, major chemicalstraded in the world include Cyclicalhydrocarbons (SITC Code 5112),Polyethylene (5711), Polycarbonates(5743), Propylene polymers (5751),Monocarboxylic acids and derivatives(5137), Acrylic hydrocarbons (5111),Acrylic monohydric alcohol (5121),

Polycarboxylic acids (5138)),Albuminoidal substances (5922), andEther and alcohol peroxide (5161).Analyses have been carried out inthese product groups to know aboutthe major importers of each productgroups, their source countries forimports, as also India’s exports andmajor export markets.

World imports of cyclicalhydrocarbons are estimated to beUS$ 30 billion in 2005. Major

4. ANALYSIS OF CHEMICALIMPORTS BY MAJOR COUNTRIESAND INDIA’S EXPORT MARKETS

Exhibit 21MAJOR IMPORTERS OF CYCLICAL HYDROCARBONS (SITC CODE 5112)

AND THEIR SOURCE COUNTRIES

SOURCE: COMTRADE, International Trade Centre, Geneva.

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importers are China, Taiwan,Belgium, and USA. China and Taiwanhave mainly sourced from Japan andSouth Korea. While Belgium hassourced from other EU countries suchas Netherlands, Germany and UK;USA has sourced from Canada andKorea. India’s exports of cyclicalhydrocarbons in 2005 amounted toUS$ 815 million. India’s share inglobal trade of cyclical hydrocarbonswas around 2.7% in 2005. India hasexported cyclical hydrocarbonsmainly to Indonesia, Pakistan andSingapore. India may explorepossibilities of increasing its exportsto EU and USA.

Polyethylene imports by theworld in 2005 are estimated to beUS$ 28 billion. Major importers of

polyethylene are China, Germanyand USA. China has sourced its importrequirements mainly from Asiancountries such as Korea, Saudi Arabiaand Malaysia; while Germany hassourced from EU partners, USA hasprimarily sourced from Canada. Indiaexported US$ 267 million worth ofpolyethylene in 2005. With such alevel of exports, India accounted foraround 1% of global imports ofpolyethylene. Major market forIndia’s exports is China, whichaccounted for about 56% of India’stotal exports of polyethylene.However, India’s share in totalimports of polyethylene by Chinaamounted to only 4%. India mayexplore possibilities of increasing itsexports to Germany and USA.

Exhibit 22MAJOR IMPORTERS OF POLYETHYLENE (SITC CODE 5711) AND THEIR

SOURCE COUNTRIES


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Global import ofpolycarbonates is valued at overUS$ 22 billion. Major importersinclude China, USA and Germany.China has principally sourced itsimports from Asian countries suchas Taiwan, Japan and Thailand. WhileUSA has sourced from Canada, thesource countries for Germany areprincipally EU countries such asNetherlands, Belgium and Italy. Indiaexported polycarbonates worth US$370 million in 2005. India accountedfor around 2% of global imports ofpolycarbonates. Major markets forIndia’s polycarbonates are USA, UAE,Saudi Arabia and Israel. USA aloneaccounted for one-fourth of India’stotal exports. India may explorepossibilities of tapping markets suchas China and Germany.

World import of propylenepolymers is valued at US$ 21 billionin 2005. Major importers ofpropylene polymers are China,Germany and Italy. China’s majorsourcing partners are Korea, Taiwanand Singapore. Germany and Italyhave mainly sourced from EUcountries such as Belgium,Netherlands and France. In 2005,India’s exports of propylenepolymers amounted to US$ 241million - a share of around 1% inglobal imports. India’s major marketsfor propylene polymers are China,Pakistan and Vietnam. China aloneaccounted for around 20% of India’stotal exports of propylene polymers.However, India’s exports ofpropylene polymers accounted foraround 1% of China’s total importsof propylene polymers. India may

Exhibit 23MAJOR IMPORTERS OF POLYCARBONATES (SITC CODE 5743) AND THEIR

SOURCE COUNTRIES


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explore possibilities of increasing itsexport of propylene polymers toChina and EU countries such asGermany and Italy.

World imports ofmonocarboxylic acids andderivatives amounted to US$ 15billion in 2005. Belgium, China andUSA are the major importersaccounting for a cumulative share ofaround 30% in world imports. India’sexports amounted to US$ 126 millionin 2005, a share of little less than1% in global imports. Belgium hasmainly imported from UK, Germanyand USA; while China has importedmainly from Asian countries such asSingapore, Japan and Taiwan. USAhas principally sourced from China,Japan and UK. India’s major exportmarkets are USA, China and UK.

However, India’s market share wasnegligible in these markets. Indiamay explore possibilities ofincreasing its export ofmonocarboxylic acids and derivativesto these markets.

World import of acrylichydrocarbons is valued at US$ 14billion in 2005. Major importers areBelgium, Germany and USA. Thesethree countries cumulativelyaccounted for over 40% of worldimports in 2005. Major sourcecountries for Belgium and Germanyare European countries such asNetherlands and UK. Major sourcecountry for USA is Canada,accounting for over 70% of marketshare. India, in the year 2005,exported acrylic hydrocarbonsvalued at US$ 98 million. Major

Exhibit 24MAJOR IMPORTERS OF PROPYLENE POLYMERS (SITC CODE 5751) AND

THEIR SOURCE COUNTRIES


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markets for India’s export of acrylichydrocarbons are Taiwan, Malaysiaand China, cumulatively accountingfor two-third of India’s exports. India

may explore possibilities ofincreasing its export of acrylichydrocarbons to EU countries suchas Belgium and Germany and USA.

Exhibit 25MAJOR IMPORTERS OF MONOCARBOXYLIC ACIDS AND DERIVATIVES

(SITC CODE 5137) AND THEIR SOURCE COUNTRIES



Exhibit 26MAJOR IMPORTERS OF ACRYLIC HYDROCARBONS (SITC CODE 5111)


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In 2005, global import ofmonohydric alcohol wasestimated to be around US$ 14 billionin 2005. Major importing countriesare USA, China, Japan and Germany.These four countries cumulativelyaccount for around 40% of globalimports. USA has principally sourcedfrom America region, from countriessuch as Trinidad and Tobago,Venezuela and Canada. China hassourced from Malaysia andSingapore, while Japan has sourcedfrom Saudi Arabia, Brazil andMalaysia. India’s export value of US$125 million in 2005 accounted foraround 1% of global imports ofmonohydric alcohol. India’s exportsare principally oriented towardsNetherlands, USA and China. Indiamay explore possibilities of

increasing its export of monohydricalcohol to EU countries such asGermany, and Asian countries suchas Japan.

World import ofpolycarboxylic acids is estimatedto be US$ 14 billion in 2005. Majorimporters include China, Germanyand Italy. China alone accounts forover 40% of global imports ofpolycarboxylic acids in 2005. Chinahas imported mainly from Asiancountries such as Korea, Taiwan andJapan. While Germany has sourcedfrom EU countries such as UK, Italyand Netherlands; Italy has sourcedfrom other EU countries such asBelgium, Spain and France. India’sexport of polycarboxylic acids in2005 was US$ 85 million. Major

Exhibit 27MAJOR IMPORTERS OF ACRYLIC MONOHYDRIC ALCOHOL



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markets for India’s export ofpolycarboxylic acids are Saudi Arabia,UAE and China. India may explorepossibilities of increasing its exportof polycarboxylic acids to EUcountries such as Germany and Italy.

World import of albuminoidalsubstances was valued at over US$12 billion in 2005. Major importersare USA, Germany and Japan. Thesethree countries cumulativelyaccounted for around one-fourth oftotal world import of albuminoidalsubstances in 2005. USA has mainlyimported from New Zealand, Irelandand Canada. Germany has mainlyimported from Netherlands, Franceand Switzerland. Japan has mainlyimported from USA, Thailand andNew Zealand. India’s export ofalbuminoidal substances was valuedat US$ 128 million in 2005. Major

markets for India are USA, UAE andJapan. USA alone accounted foraround two-third of India’s export ofalbuminoidal substances in 2005.India may explore possibilities ofincreasing its export of albuminoidalsubstances to EU countries such asGermany.

World import of ether andalcohol peroxide was estimated ataround US$ 12 billion in 2005. Majorimporters are USA, Netherlands andBelgium. USA’s main sourcingpartners are Saudi Arabia, UAE andVenezuela. Netherlands has importedfrom mainly Germany and SaudiArabia. Major source markets forBelgium include Netherlands,Germany and USA. India exportedUS$ 70 million worth ether andalcohol peroxide in 2005. Majorexport markets for India were China,

Exhibit 28MAJOR IMPORTERS OF POLYCARBOXYLIC ACIDS (SITC CODE 5138) AND

THEIR SOURCE COUNTRIES


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Indonesia and Netherlands. Chinaalone accounted for over one-thirdof India’s exports of ether and alcoholperoxide to the world. India may

explore possibilities of increasing itsexport of ether and alcohol peroxideto USA and EU countries such asBelgium.

Exhibit 29MAJOR IMPORTERS OF ALBUMINOIDAL SUBSTANCES (SITC CODE 5922)



Exhibit 30MAJOR IMPORTERS OF ETHER AND ALCOHOL PEROXIDE



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The product / country analysesshow that EU, USA and Japan arethe leading importing regions /countries for these analysed productgroups. These countries have beenmostly sourcing their importrequirements within the region. Sincemany countries in the EU are shiftingtheir production base to otherdeveloping countries, India mayendeavor to attract suchmanufacturing opportunities andexplore possibilities of increasing itsexports to European countries. It maybe mentioned that in some productgroups, India has been one of themajor suppliers to the world. These

include insecticides (second majorsupplier with 13% share),hydrocarbons derivatives (rankedsecond with 13% share), cyclicalcohol derivatives (ranked third with12% share), synthetic organicdyestuffs (ranked fourth with 6%share), synthetic brightners (rankedfifth with 6% share), cyclichydrocarbons, and fluorides (bothranked ninth with 3% and 2% share,respectively). India may leverage theadvancement in manufacturingtechnologies in these product groupsto other products, to replicate in theproduction of other products andbecome a global player across thesegments.

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CHALLENGES

Indian chemical sector has growna long way since its early days ofindependence. The sector hasgrown from a small-scale sector tomulti-dimensional sector, which istaking on the challenges ofglobalization. Now, Indian chemicalindustry holds a recognized positionin the global map; however, thereare few factors, which hinders thegrowth of the industry. Theseinclude:

High prices of basic feed stock

Basic raw materials constitute majorportion of cost of production (30%to 60%) in the chemical industry.Indian chemical industry either usesnatural gas or crude oil as feedstockfor manufacturing process. Thefluctuations in oil prices thereforeaffect the growth projections of thefirms. At times, the manufacturersare unable to pass-on the costescalation (occurring due to suddenincrease in oil prices) to endconsumers. Cost optimization is thuscritical for the chemical units, astheir margins may go underpressure during oil crisis.

5. CHALLENGES AND STRATEGIES

SSI reservation / Fragmentednature of industry

The Indian chemical industry ishaving a fragmented structure withmore number of units in small-scalesectors spread in various parts ofthe country. The installed capacitiesin most of the small-scale units aresmaller as compared to globalscales. The limitation in capacityin the SSI sector put them indisadvantageous position whiletapping export opportunities withlarge volume.

Low R&D levels

R&D intensity is assuming greatersignificance for many of themanufacturing segments. Since,chemical industry is a knowledge-based industry, the competitivenessof the units can be strengthenedonly through supply of new andinnovative products. The areas forR&D in chemical industry includeimprovements in manufacturingprocess for reduction in cost ofproduction, applicationdevelopment to diversify demand,and new product development. Thelevel of R&D investments in the

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Indian chemical sector is low ataround 0.3% of total sales.

Low Level of ICT interface

Globally, information technology isbeing extensively used in severalareas like chemical processing andmanufacturing. Application ofinformation technology in thechemical sector is mainly forequipment design, chemicalengineering, and process simulationthat has helped in reducing productand process development time.Information technology is alsoincreasingly used in the area ofR&D, especially in collaborativeresearch. The usage of informationtechnology in Indian chemicalindustry is relatively lower, as mostof the units are in the small-scalesector.

Low Level of BrandDevelopment

Indian chemical producers,excepting a few large producers,generally sell their products asgeneric products without branddevelopment. There is also lowlevel of interest amongst small-scale producers for branddevelopment, product developmentas also market development.

Low Level of CommonInfrastructure

In general, due to its very nature,the chemical / petrochemicalindustry requires certain basic

infrastructure facilities, both in theprocess chain as also in the supplychain. In the process chain, thecritical infrastructure requirementsinclude a common effluenttreatment plant, and an effectivegreen belt segregating the industrialunits from human settlements. Inthe supply chain, the criticalinfrastructure requirements includea good port, chemical storageterminal, and adequate berthingfacilities. In the above context, itis being felt that the productionand export earnings of this sectorwould receive a quantum jump ifan industrial estate dedicated to thechemical industry could be set up.At present, each unit has to createspecialized facilities on its ownwhich leads to duplication of effortsand investment. If chemical unitsare clustered in close proximity,the required infrastructure could bevertically integrated resulting in costreduction.

Environmental Regulations

Safety, health and environmentprotection issues are becomingimportant concerns for the Indianchemical industry. As with otherindustries, the chemical industryneeds to comply with regulationssuch as Occupational Safety andHealth and Process SafetyManagement regulations.Environmental safety, occupationalsafety and process managementsafety can easily be met if a firmis manufacturing large volume ofsingle chemical. But it may not be

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relatively feasible for the firms whomanufacture low volume and largenumber of chemicals in a singleplant.

Dumping / ImportCompetition

As mentioned earlier, the chemicalindustry is the second largestindustry that has attracted largenumber of anti-dumping actions inthe world. In India, chemicals andpetro-chemicals industry is thelargest segment that has initiatedanti-dumping investigations duringthe period 1992-2005. 82 anti-dumping cases (out of 188 cases)initiated by India fall under thecategory of chemicals and petro-chemicals, during this period.

STRATEGIES

Focus on Core Competence

Chemical products trade isincreasingly getting specialised allover the world. Innovation isincreasingly becoming an importantfactor to focus on core competenceand to become a leading player inspecialty products. In the abovecontext, it is important for theIndian chemical manufacturers tofocus on select business segmentswhere competitive advantageexists. Such strategies would helpIndian chemical manufacturers toestablish relationship with theircustomers in profitable segmentsand exit non-competitive segments.

Exhibit 31ANTI-DUMPING CASES INITIATED BY INDIA (1992 – 2005)

SOURCE: Ministry of Commerce and Industry, Government of India

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Strengthening TechnologicalCompetence

Indian chemical industry shouldstrive for continually improving itsproduction processes and productsby investing resources intechnology development.Technological development maybe achieved by the chemicalindustry at two levels. In the bulkproducts segment, the chemicalindustry should undertake processinnovation with the objective ofreduction in cost of production. Inaddition, the industry needs toinvest in technological resourcesthat would lead to specializedproduct development. Liberalizationprocess has already increased thepossibility of intra-firm transfer oftechnology and managementpractices in the form ofconsolidation within the economyas also from developed countriesthrough foreign direct investment.

Improving Basic ManagementCapabilities

Indian chemical industry has a goodrecord of management expertise.This could be further leveragedwith techniques such as GoodManufacturing Practices, GoodLaboratory Practices, Total QualityManagement, Total ProductionManagement and Risk Management.The Principles of Good LaboratoryPractices have been developed topromote the quality and validity oftest data used for determining the

safety of chemicals and chemicalproducts. Such practices wouldresult in quality improvement andlower cost, thereby improvingcompetitiveness.

Adhering to EnvironmentalNorms

Since chemical substances are usedin manufacture of consumer itemssuch as paint, glue, insect spray,cosmetics and household cleaners,chemical producers have theresponsibility in promoting safemanagement of substances –starting from design in productionto end-use, and their final disposal(hazardous waste). Many chemicalconsuming countries are workingtowards development of inherentlysafer chemical products (such asless polluting solvents) andprocesses (such as use ofrenewable feed-stocks). In fact,environmental regulations were theprincipal reason for the relocationof manufacturing facilities fromdeveloped to developing countries.There are also instances oflegislative pronouncements in manycountries on the use of chemicals.

To garner a greater share in worldchemicals market, Indian chemicalindustry needs to address variousdevelopmental issues such assustainable chemistry, adherence tosafety and health and riskmanagement. It may be mentionedthat in addition to the chemicalindustry, government and

69

community also have major role(in terms of preparedness for, andresponse to chemical accidents) toensure chemical safety in abroadest sense.

Focus on R&D

Research and Development in thechemical sector may be undertakenin areas such as:

● Product development;

● Process innovation;

● Equipments for production; and

● Research related to application/safe use of chemicals.

Indian chemical industry needsto focus on R&D in one or multiple

areas. While R&D remains anuniversal imperative, its purposeand nature varies across segments.The basic chemical sector shouldfocus on process innovation andproduct development and strengthentheir competitiveness throughimprovements based onperformance and quality of products.Firms in knowledge based chemicalsector should focus on R&D with theobjective of achieving productleadership and process innovations.The petrochemical sector shouldfocus on application R&D, as newapplications have to be identified toincrease use and application ofpolymers.

Exhibit 32POSSIBILITIES OF COLLABORATION BY CHEMICAL INDUSTRY

SOURCE: Exim Bank Research

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Collaboration

The chemical industry needs toenhance their collaborative effortsin order to improve competitive-ness. Collaboration amongst playersin the chemical industry couldhappen both at cluster level (forsharing of common infrastructure)as also at firm level (for sharingof knowledge and technology).Collaboration with firms acrossborders for technology andinvestment would also give a boostto the industry. In addition, theplayers should also achieve greaterlevel of industry-institutionalpartnership for knowledgedevelopment and sharing.

Increasing ICT interface

Chemical firms in India can gain alot by making their manufacturingprocess IT-enabled. InformationTechnology (IT) can bring a goodchange in entire process cycle fromtechnology, engineering andprocurement to manufacturing, byintegrating them with businessprocesses in all these areas. Thiswill eventually result in higherefficiency for the industry.Increasing use of IT to transactbusiness will also help the sector,as most of the products in thechemical sector are commoditised.

Consolidation

The new trend in chemical industryis competing through consolidation.Chemical firms, through mergers

and alliances are now achievingeconomies of scale all over theworld. Consolidation helps thechemical industry in reduction ofcost in their procurement andproduction. Such consolidationexercises also provide for reductionin overheads, marketing expenses,increased efficiencies in supplychain management, and enhancedpresence in various regions. Ananalysis of the global chemicalindustry shows that mergers andacquisitions have helped thecombined entities consolidate theirposition in the market and enhancetheir revenues. It is important forIndian chemical industry toconsolidate their operations andemerge as global winners.

Industry - Academia Linkages

For transforming ideas into newproducts, partnership betweenindustry and academia is a must.Thus, Indian chemical industryshould leverage the potential ofeducational and research institutionsto source intellectual as well ashuman capital. Such linkages maybe effectively used for setting upof in-house R&D facility or foroutsourcing R&D activities. Theeducational institutions could playa greater role for development ofIndian chemical industry by offeringcourses and conducting researchproactively. The research andacademic institutions may also openlocal offices within chemicalclusters to facilitate greater levelof interactions.

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Marketing and Promotion

Indian chemical industry shouldincreasingly focus on marketing andpromotion to achieve greater sharein global chemical trade. Theindustry may endeavour toconcentrate more on issues suchas brand building, export promotionand market development. Theseaspects can be easily tackledthrough adoption of superiorprocess technologies and adheringto quality and environmentalstandards.

Setting up of Chemical Parksor Mega Chemical Estates

In order to address the issue ofcapacity expansion and for creationof common infrastructure, thechemical industry, in associationwith the Government may establishexclusive Chemical Parks – aconcept similar to the Software /Hardware Technology Park. It isalso important to considerestablishment of exclusive ChemicalZones on the lines of SpecialEconomic Zones to give a fillip tothe industry. In such Parks / Zones,the industry may be encouragedto set up mega chemical plantsthat could contribute to increasedproduction as well as employmentgeneration. The Government hasalready initiated policies for settingup of integrated Petroleum,Chemicals and PetrochemicalsInvestment Regions (PCPIR).

De-reservation of SelectChemical Production

Many chemical products are stillreserved for production undersmall-scale sector. However, cost-competitiveness as well astechnological compliance cannot beachieved without operating underscale economies. Most of the firmsoperating at the global level arebig ones and enjoy economies ofscale. De-reservation of chemicalproducts reserved for productionunder small-scale sector can be agood measure to support theglobalisation efforts of the industry.

Creation of ModernizationFund

A modernization fund on the linesof technology upgradation fundestablished for the textile sectormay be created to strengthen thetechnological competence of theindustry.

Increasing Consumption Levelsof Chemicals

Per capita chemical consumptionin India is low as compared toworld standards (estimated to beone-tenth of world average).Increasing consumption level in thedomestic market would ignite theprevailing latent demand. Thiscould be achieved throughincreasing applications through R&Dand enhancing the knowledge ofend consumers. The industry, thus,has a major role in increasing theper capita consumption level in thedomestic market.

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Indian chemical industry hascome a long way. Today, India hassignificant presence in production ofbasic organic and inorganicchemicals, pesticides, paints,dyestuffs and intermediates,petrochemicals, fine and specialtychemicals, cosmetic and toiletryproduct segments. Thus, by virtueof its diversity, the chemical industrybears a close correlation not onlywith the quantum of overalleconomic growth but also with thecontents and quality of growth. Onthe one hand, the range of productsof the industry’s constituent segmentsare used in most productiveactivities, and on the other, thechemical industry’s diversity relatesto the pattern of demand to thechanging standards of living. Specificto mention is the significantcontribution of Indian chemicalindustry for the growth of India’sagriculture and healthcare sectors.

The performance and outlook ofthe chemical industry, particularly inthe context of India’s developmentprocess, depends upon anddetermines the trends in the overalleconomy, as also the linkages withthe rest of the world in terms of

international trade, investment flowsand technology transfers. On thedomestic front, with the reductionin tariffs, Indian chemical companieswith strong systems and organizedoperations are likely to be benefitedfurther. Companies with competitiveadvantages, like having competencein the areas of high value addedchemicals, conforming tointernational quality standards, couldtranslate their capabilities andestablish a dominant presence inboth international and domesticmarkets.

In the years to come, variousnew avenues are likely to arise inchemical industry like structuraltransformation, strategic marketingalliances with multinationals andtrading companies for domestic salesand exports, stricter enforcement ofgood manufacturing practices,opportunity for value addition usingcontract manufacturing or contractresearch.

Use of advanced technology,strong research capabilities,backward and forward linkages anddevelopment of domestic capacityto reduce dependence on imported

6. OUTLOOK

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raw materials are key success factorsfor Indian chemical industry. Inaddition, safety, health andenvironment protection issues arebecoming important challenges forthe Indian chemical industry. Indianmanufacturers are addressing suchchallenges in an organized way.

Indian chemical industry hasmajor strengths in basic researchfacilities available with CSIRlaboratories such as NationalChemical Laboratory, Indian Instituteof Chemical Technology, as alsocorporate R&D centers. This ensuresthat development of process know-how, plant process design, detailedengineering design, commissioningassistance and even consultancy forre-engineering are available at lowcost.

The need for globalisation hasmade many Indian chemicalcompanies enter into strategicalliances or merge operations toachieve economies of scale. Foreigncollaboration is also bringingsolutions for clean technology,process consultancy, feedstocklinkages, R&D, waste management,

safe manufacture and environmentalprotection. In addition, Indianchemical companies are attemptingto achieve global standards byimproving productivity throughvarious measures such as better rawmaterial utilisation, bi-productreduction and use, energy reductionand conservation, effluentmanagement, water management,upgradation of plant and equipment,skill development.

The International Council ofChemical Associations (ICCA), anassociation representing 80% of theworld manufacturers of chemicalshas reiterated its support for a newround of multilateral tradenegotiations in the World TradeOrganization. ICCA’s prioritiesinclude elimination of chemical tariffsby the year 2010, harmonization ofanti-dumping practices, simplificationof customs procedures and fullimplementation of TRIPs agreement.While the harmonization of anti-dumping practices would benefitdeveloping countries like India, thetariff-free world would pose stiffcompetition.

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ANNEXURE 1: SELECT PRINCIPLES OF GOODLABORATORY PRACTICES

SOURCE: Adapted from OECD

75

Sl. No Item Country

1 PVC Resin Brail, Korea, Mexico and USA

2 Potassium Permanganate China

3 Trimethoxy Benzaldehyde China

4 Acrylonitrile Butadiene Rubber Japan

5 Sodium Ferrocyanide China

6 Dead Burnt Mangnesite China

7 Low Carbon Ferro Chrome Russia, Kazakhstan, Ukraine

8 Acrylonitrile Butadiene Rubber Germany, Korea

9 Catalysts Denmark

10 Purified Terephthalic Acid (PTA) Korea, Thailand & Indonesia

11 Polystyrene Korea, Japan, Taiwan & Malaysia

12 Calcium Carbide China, Malaysia and Romania

13 Para Tert Butyl Catechol (PTBC) France

14 Citric Acid China

15 Styrene Butadiene Rubber China, Korea, Turkey, Japan,Taiwan, USA, Germany and France

16 Low Carbon Ferro Chrome (LCFC) China, South Africa & Macedonia

17 Poly Tetra Fluoro Ethylene (PTFE) Russia

18 Acrylonitrile Butadiene Rubber Taiwan

19 Sodium Cyanide USA, Germany, Czech, Korea

20 Polystyrene China, Hong Kong, Singapore &Thailand

21 Barium Carbonate China

22 Pure Terephthalic Acid (PTA) Spain

23 Soda Ash China

24 Oxo Alcohols Poland, South Korea, Russia, Iran,USA, European Union, Indonesiaand Saudi Arabia

25 Aniline Japan & USA

ANNEXURE 2: ANTI-DUMPING CASESINITIATED BY INDIA AGAINSTVARIOUS COUNTRIES IN THECHEMICAL SECTOR (1992-2005)

(Contd...)

76

26 Sodium Nitrite China

27 Sodium Ferrocyanide European Union

28 Caustic Soda Iran, Saudi Arabia, USA, France& Japan)

29 Aniline European Union

30 Strontium Carbonate China

31 Phosphoric Acid China

32 Potassium Permanganate China, Hong Kong and Taiwan

33 Sodium Hydrosulphite China

34 Zinc Oxide China

35 Choline Chloride China and EU

36 High Styrene Butadiene Poland and EU

37 2-Methyl (5) Nitro Imidazole China

38 Hexamine Saudi Arabia and Russia

39 Zinc Oxide Nepal

40 Flexible Slabstock Polyol USA, Japan, Singapore & EU

41 Poly-Iso-Butylene EU, Brazil, Japan, Korea,Singapore and Thailand

42 D (-) Para Hydroxy Phenyl China & SingaporeGlycine base

43 Caustic Soda Qatar

44 Sodium Nitrite EU, Taiwan

45 Isopropyl Alcohol Singapore, USA, EU & China

46 Pentaerythritol Canada, Taiwan & Japan

47 Hydrofluoric Acid China

48 Acyclic Alcohols (Oxo Alcohol) Singapore, Brazil, Romania, Malaysiaand South Africa

49 Vinyl Acetate Monomer Iran and Singapore

50 Phenol EU, Singapore and South Africa

51 Sodium Tripoly Phosphate China and Taiwan

52 D (-) Para Hydroxy Phenyl European UnionGlycine Base

53 Citric Acid Indonesia & Thailand

54 Ammonium Nitrate Russia and Iran

(Contd...)

(Contd...)

Sl. No Item Country

77

55 Caustic Soda Taiwan, Indonesia and EU(excluding France)

56 D (-) Para Hydroxy Phenyl China and SingaporeGlycine Methyl Dane Salt

57 Hexamine Iran

58 Methylene Chloride European Union, South Africaand Singapore

59 Isopropyl Alcohol Singapore, USA, Netherlands

60 Sodium Hydrosulphite Germany and Korea

61 Caustic Soda China and Korea

62 Borax Decahydrate China and Turkey

63 Potassium Carbonate EU, China, Korea and Taiwan

64 Titanium Dioxide China

65 Methylene Chloride Korea

66 Toluene Di-Isocyanate Taiwan, EU, Japan, Korea and USA

67 Melamine China

68 6-Hexanelactam (Caprolactum) Japan, EU, Nigeria and Thailand.

69 Flexible Slabstock Polyol China, Korea, Taiwan and Brazil

70 Cyclohexanone Taiwan, EU and USA

71 Propylene Glycol USA, Singapore, Korea and EU

72 Poly Vinyl Chloride (PVC) Korea, Saudi Arabia, EUPaste Resin

73 Rubber Chemicals China

74 Rubber Chemicals EU, Taiwan, USA

75 Acrylonitrile Butadiene Rubber EU (excluding Germany)Brazil & Mexico

76 Sodium Cyanide Taiwan

77 Citric Acid China, Ukraine and Korea

78 Polytetrafluoroethylene (PTFE) China

79 Sodium Formaldehyde ChinaSulphoxylate (SFS)

80 Ethylene-Propylene-Non- European Union, USA, ChinaConjugated Diene rubber (EPDM) and Brazil

81 Pentaerythritol China and Sweden

82 Para Cresol China

SOURCE: Anti-Dumping Cases in India – Product Profiles, Ministry of Commerceand Industry, Government of India

(Contd...)

Sl. No Item Country

78

Sl. No Select CTHA Average Applied Average BoundCountries Duty (%) Duty (%)

1. Australia 1.8 9.0

2. Bulgaria 7.3 11.6

3. Canada 2.8 4.4

4. China 6.8 6.7

5. Ecuador 7.5 11.1

6. EU 4.5 4.6

7. Hong Kong 0.0 0.0

8. Japan 2.6 24.7

9. Jordan 2.6 5.0

10. Republic of Korea 5.8 5.8

11. Mongolia 5.0 5.8

12. New Zealand 12.9 21.7

13. Norway 0.0 2.5

14. Panama 4.1 6.1

15. Qatar 4.8 7.6

16. Singapore 0.0 5.1

17. Taiwan 3.3 2.8

18. UAE N.A 7.1

19. USA 3.2 2.9

* CTHA – Chemical Tariff Harmonisation Agreement

SOURCE: World Trade Organisation.

ANNEXURE 3: MFN APPLIED AND BOUNDTARIFFS FOR CHEMICALS ANDPRODUCTS IN SELECT CTHA*COUNTRIES

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America RegionArgentinaBrazilCanadaChileColombiaEcuadorMexicoPeruVenezuelaUruguayUSA

Africa RegionMoroccoSouth Africa

Asia-PacificAustraliaHong KongIndiaIndonesiaJapanKoreaMalaysiaNew ZealandPhilippinesSingaporeTaiwanThailand

ANNEXURE 4: LIST OF COUNTRIES THAT HAVEJOINED THE RESPONSIBLE CAREINITIATIVE

West AsiaIsraelTurkey

European UnionAustriaBelgiumBulgariaCzech RepublicDenmarkEstoniaFinlandFranceGermanyGreeceHungaryIrelandItalyLatviaLithuaniaNetherlandsPolandPortugalSlovakiaSpainSwedenUK

Other European CountriesNorwaySwitzerland

SOURCE: International Council of Chemical Associations

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Target Name Acquirer Value of UltimateTransaction Seller(US $ Bn)

Innovene INEOS 9.00 BP

IMC Global Access Industries 5.70 BASF, Royl

The Chatterjee Group Dutch Shell Group

Lanxess Existing shareholders 3.21 Bayer

Borealis International Petroleum 2.01 StatoilPetrochemicals Investment CompanyGroup (IPIC) OMV

UCB (surface Cytec Industries 1.84 UCBspecialty business)

Dyno Nobel Macquarie Bank 1.70 Ensign-Bickford(formerly Dyno IndustriesIndustrier)

Great Lakes Chemical Crompton Corporation 1.55 ShareholdersCorporation

Thai Petrochemical PTT (31.5%), 1.41 CreditorsIndustry (61.5%) Vayupak Fund (10%),

Government PensionFund of Thailand (10%),Government SavingsBank (10%)

Seminis Monsanto 1.40 Fox Paine

Huntsman Corporation Market Purchase 1.40 HuntsmanCorporation

Chr. Hansen PAI Partners 1.34 Chr. Hansen(food ingredients)

British Vita Texas Pacific Group 1.28 British Vita(UK)

Waker-Chemie Dr. Alexander Wacker 1.24 HoechstFamiliengesellschaft mbH

Flink Ink Corporation CVC Capital Partners, 1.21 Family FlintXSYS Print Solutions

BP Solvay BP 1.05 Solvay

SOURCE: PriceWaterHouseCoopers, Mergers and Acquisitions Activity in the GlobalChemicals Industry 2003-2005.

ANNEXURE 5: MEGA DEALS IN GLOBALCHEMICAL SECTOR IN 2005

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ANNEXURE 6: SELECT FOREIGN ACQUISITIONSBY INDIAN COMPANIES IN THECHEMICAL SECTOR

Target Company Country Acquirer Activity Value(US$ Million)

SCIB Chemicals SAE Egypt Asian Paints Paints 5.00

25% stake inmidland fumigations USA United Phosphorous Pesticides NA

50% stake in KAW USA United Phosphorous Pesticides NAValley Corp.

Dashiqiao Chemical China AV Birla Group Carbon Black 8.51Company

Oryzalin Herbicide USA United Phosphorous Agrochemicals 21.30Business of DowAgroscience

Aciflorfen Compound Germany United Phosphorous Pesticides NAof BASF

Taubmans Paints (Fiji) Fiji Asian Paints Paints and 1.40Varnishes

Cropserve South Africa United Phosphorous Caustic Soda NA

AG Value Inc USA United Phosphorous Pesticides 35.75

Basell USA Purendu Chatterjee Petrochemicals NA(along with USbased AccessIndustries)

Trinity Laboratories USA Jubilant Organosys Chemicals 12.25Inc (64%) Ltd

C6 Manchester Dishman Chemicals 20.00Pharmaceuticals andChemicals

Reposo Argentina United Phosphorous Crop 11.00Protectionchemicals

UCC Dubai Pidilite Industries Construction

Chemicals NA

Chemson Asia (75%) Singapore Pidilite Industries Chemicals NA

Brunner Mond UK Tata Chemicals Chemicals NAGroup Ltd. (63.5%)

Kansas (Soap Unit) USA VVF Ltd Oleo Chemicals NA

Cerexagri France United Phosphorous Agrochemicals 135.00

Sintesis Quimica Argentina Punjab Chemicals Chemicals 10.00

SOURCE: Complied from Mergers and Acquisitions, March 2007; Centre for Monitoring

Indian Economy, Mumbai.

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