A disruption in China’s power supply has led to a sharp increase in the prices of basic chemicals in India as the power outage in the neighbouring country is impacting nearly 25 percent of chemical production.
The plants of chemicals like chlor alkali, formic acid, phthalic chemicals have been impacted following which there has been a price hike of almost 5-40 percent in several basic chemicals in the last 15 days. Few of the agrochemical companies have also been impacted.
Chemical industry firm United Phosphorus Limited (UPL) has said that two of its chemical manufacturing plants have been shut down because of the power outage problem, which in turn has led to yellow phosphorous prices soaring substantially. This has further caused a severe shortage of raw material for products like glyphosate, glufosinate and oyrethroids. All these products are manufactured by companies in the listed space, including UPL, Bayer CropScience and Heranba Industries.
In a note, Kotak said these companies are saying the disruptions in China will cause medium-term challenges for downstream producers but will benefit all the base chemicals and all the bulk commodity suppliers.
The frequent supply disruptions in China further strengthen the case of quality for all chemical producers. The impact on downstream chemical companies is three-fold— there will be non-availability of raw materials; raw materials will be available but at a significant price premium; raw material-led price increases will impact consumer demand.
Therefore, overall, it will be negative for downstream consumers but positive for upstream consumers. According to Kotak, the disruptions will be positive for the likes of Aarti Industries, SRF and Tata Chemicals while the downstream players like UPL, Bayer CropScience will be impacted.
Watch the accompanying video of CNBC-TV18’s Sonal Bhutra for more details.