The chemical industry is currently grappling with a sharp rise in the cost of raw materials imported from China, presenting a significant challenge to the recovery of Gujarat’s chemical sector. As Gujarat accounts for 70% of India’s dye chemicals manufacturing capacity, the state is particularly vulnerable to the impact of escalating raw material costs if the situation continues to worsen. While the year has proven challenging for the sector, signs of recovery have begun to emerge. However, the looming threat of further cost increases raises critical concerns about the sustainability of this recovery. Let’s explore the situation further below.
How Will Gujarat’s Chemical Sector Overcome The Rising Raw Material Cost?
India heavily relies on imports from China, particularly raw materials essential for various types of production. In the past two months, the prices of basic chemicals and intermediates have surged by 15-20%. The primary driver behind this price hike is the rising cost of sulphuric acid and oleum. Additionally, there has been a notable increase in demand for dyes, both domestically and in export markets. This surge in raw material costs threatens to significantly squeeze the margins of manufacturers and suppliers. If prices continue to rise, it could lead to a situation where profitability becomes unattainable. However, if prices stabilize, businesses may find better prospects for growth and stability.
The ongoing fluctuations in prices are significantly affecting the growth of the industry. According to Nilesh Damani, Vice President of the Gujarat Dyestuffs Manufacturers Association, the primary impact of these price fluctuations is being felt in the volume of orders. Raw material costs have surged by 15-20%, causing the prices of all products imported from China to rise by the same margin. However, there is some positive news on the horizon, the demand for dyes has increased, which is expected to lead to more orders. This surge in demand could make it easier for manufacturers to navigate the challenges of rising costs. There is optimism that, with this boost in demand, manufacturers will be able to overcome the situation.
However, the rise in prices has placed significant pressure on MSMEs, compelling them to increase their working capital requirements. The need for additional working capital to import raw materials has become more pronounced. Bhupendra Patel, Chairman of CHEMEXCIL Gujarat Region, also highlighted that this price surge could place considerable strain on the margins of MSMEs, further complicating their ability to maintain profitability in the current circumstances.