Repercussions of US President Donald Trump’s tariffs on China will likely be felt not just in several domestic sectors but also in key export destinations for Indian companies as Chinese firms turn to less-taxing geographies.
Other than domestic sectors such as steel that will likely be affected by the US’ decision to impose 20% tariffs on all Chinese imports into the country, industry experts say Indian chemical exporters will also be in a tough spot.
This is because the US tariffs could force Chinese chemicals companies to flood other markets with cheaper products, depressing global prices and causing stiff competition for Indian chemical exporters.
The US was India’s largest importer of chemicals, at $2.9 billion in 2023-24, accounting for about 14% of India’s total chemical exports of $20.4 billion that year, according to the Union commerce and industry ministry’s Chemexcil (Basic Chemicals, Cosmetics & Dyes Export Promotion Council).
Brazil, the Netherlands, Saudi Arabia, Indonesia, the UAE, Japan, Germany, and China account for the rest of India’s chemical exports, according to a report by PL Capital analysts.
“Chinese companies do not look at cutting down their capacities… to keep their practice running they will keep on churning their products. And if they can’t sell in the US, they will sell in non-US markets,” said Swarnendu Bhushan, co-head of research at PL Capital, a broking and trading firm.
“Some (Indian) companies might benefit as far as the US is concerned, but in the non-US areas there might be increased (competition), so net-net there might not be any benefit. In fact, there might be (an) adverse impact,” Bhushan added.
While the additional US tariffs on China could benefit some Indian companies by leveling the playing field for them, “the drawback is that end-demand may weaken amid price inflation, and then price wars could break out in other geographies,” Kotak Institutional Securities analysts said in a recent report.
Aarti Industries, Vinati Organics, Navin Fluorine and PI Industries did not respond to Mint’s queries emailed on 11 March.
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US heat on India
Among India’s top chemicals exporters, Aarti Industries Ltd shipped 24% of its exports to the US in FY24, followed by 18% to the UAE, and 9% to Russia, according to the PL Capital report.
For Vinati Organics Ltd, the US accounted for 39% for its total exports, and Europe for 30%. The US accounted for 35% of Navin Fluorine International Ltd’s total exports in FY24, and the Netherlands for 29%.
“There will be repercussions of these tariff barriers (US tariffs on Chinese imports) on other markets,” Suyog Kotecha, chief executive and executive director of Aarti Industries, said in an earnings call with analysts last month. “The competition intensity in other markets may increase as people try to push their capacities, and that could have an implication when it comes to pricing and margins in some of the other markets.”
Indian chemicals companies might also feel the heat of potential reciprocal tariffs by the US. India levies a 10% tariff on organic and miscellaneous chemical product imports, while the US levies lower tariffs at 3-4% on the same categories.
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According to the principle of reciprocity espoused by the Trump administration, the US could raise import tariffs on these products by 600 basis points, according to the Kotak analysts.
Indian chemicals companies with significant exposure to the US could take a hit on their profitability. PI Industries Ltd and Vinati Organics, which have the highest exposure to the US, would be impacted worst.
According to Kotak, the estimated impact on ebitda would be 9.8% for PI industries and 1-5% on other companies. Ebitda, or earnings before interest, taxes, depreciation and amortization, is a key measure of operational efficiency.
According to Citi Research, the estimated ebitda impact could be 12% for PI industries, 5% for Navin Fluorine, and 4% for SRF Ltd.
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A tailwind?
India’s chemical industry, which was valued at $220 billion in 2022, is projected to reach $300 billion by 2026. According to Chemexcil, the country’s chemical exports are expected to surpass $30 billion by the end of this fiscal year.
Vinati Saraf Mutreja, managing director of Vinati Organics, said in a recent interview with CNBC-TV18 that the company does not anticipate any significant impact from potential reciprocal tariffs by the US since its products are in niche segments with few competitors.
Aarti Industries, too, expects some tailwind for some of its segments.
“Polymer and additives is a segment where we have significant exposure to the US market… [which] could ideally see tailwinds because there we compete against China for most of our products going into the US market,” CEO Kotecha told investors last month.
PL Capital analysts expect that the US’ 20% tariffs on Chinese imports will compel American firms to find an alternative supplier for chemicals.
“Back in 2018 when the first trade war between USA-China began, India was a beneficiary… its total exports to USA increased from $57 billion before the war period to $73 billion during the trade war,” they said.
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