India Chemicals Blog

This had to happen. Buddhadeb Bhattarcharjee, the chief minister of West Bengal on the eastern coast of India, has decided to cancel plans for a chemical zone at Nandigram. He claimed full responsibility for the violence on March 14, when police firing left 14 protestors dead.

Bhattarcharjee has promised to build the chemicals zone at another location in the state but popular politics is going to make this a difficult proposition. Land acquisition, especially from farmers, will be a major challenge

The Nandigram debacle has already forced other states to rethink their plans for large special economic zones (SEZs). It also raises questions on the government's plans for developing mega refining and petrochemical hubs just when it had finally framed a petrochemical policy.

And what about foreign investors are showing interest in setting up plants in the country. My advice - start looking at other options.

If you can't beat them you had better join them.

After complaining for a long time on how chemical engineers are abandoning their professional training to the more lucrative IT, banking and retail sectors, chemical companies are learning that what works is money. If you want talent you have no choice but to pay for it, especially in today's competitive job market.

This report in the Indian Express talks of a chemical engineering graduate from Punjab University being offered a record annual salary of Rs11 lakhs ($25,000). The company making the offer was Shell.

Attracting talent is only a small part of the game. Any ideas on how to retain the new recruits?

The India vs. China debate has become so boring. China is miles ahead of India when it comes to manufacturing while India leads in services. Companies such as IBM have smartly taken advantage of this situation by shifting manufacturing operations to China and services to India.

Strategies such as these are increasingly getting popular. And a report in the Wall Street Journal stresses why western companies need to get smart fast to tap the potential of India and China.

What companies such as IBM do in the coming years will have big implications for the chemicals industry. The Indian government is doing its best to boost chemical manufacturing but the big jump can take place only when downstream manufacturing takes off in the country. Industry accounts for just 27% of the Indian GDP compared with around 49% in the case of China.

In the absence of a big enough domestic market, India chemical producers will have to rely on exports. And developing a globally competitive cost position will be vital to their success.

Chennai Petroleum announced last week plans for a refinery and petrochemical complex at Ennore, Tamil Nadu. ICIS news reports that the petrochemical part of the project includes a 1.2m tonne/year cracker and derivatives units. A pre-feasibility study is underway and expected to be completed next month. The company hopes to complete the cracker by 2014-15.

Chennai Petroleum's cracker joins a steadily growing project list, which at last count included eight crackers. The enthusiasm is easy to understand given the country's ongoing economic transformation. But I suspect many of the projects will remain on paper for a long time to come.

I don't dispute the demand growth calculations - India will certainly absorb greater volumes of all kinds of chemicals in the coming decade. But the projects environment is getting tricky. Feedstock cost and availability and infrastructure are the commonly touted hurdles. And then there are the growing protests against land acquisition.

It will require a great deal of commitment to see a project through and I suspect this will be in short supply.

Chennai Petroleum announced last week plans for a refinery and petrochemical complex at Ennore, Tamil Nadu. ICIS news reports that the petrochemical part of the project includes a 1.2m tonne/year cracker and derivatives units. A pre-feasibility study is underway and expected to be completed next month. The company hopes to complete the cracker by 2014-15.

Chennai Petroleum's cracker joins a steadily growing project list, which at last count included eight crackers. The enthusiasm is easy to understand given the country's ongoing economic transformation. But I suspect many of the projects will remain on paper for a long time to come.

I don't dispute the demand growth calculations - India will certainly absorb greater volumes of all kinds of chemicals in the coming decade. But the projects environment is getting tricky. Feedstock cost and availability and infrastructure are the commonly touted hurdles. And then there are the growing protests against land acquisition.

It will require a great deal of commitment to see a project through, which I suspect will be in short supply.

Is India being too hasty in introducing mandatory ethanol blending? The government is on the verge of announcing a policy of 10% blending with petrol from October 2008.

Those in favour point out that introducing ethanol to the fuel mix will cut India’s dependence on imported oil and contribute to energy security.

The move will keep the agricultural lobby happy as sugarcane farmers and sugar companies are suffering as a result of oversupply this year.

However, the experiences of other countries suggest that India needs to do some careful thinking. A big concern is whether there will be enough local ethanol supply. There are doubts on whether ethanol will turn out to be environmentally friendly as growing sugar cane, to produce ethanol, involves cultivation of vast tracts of land plus water, labour and fuel.

Some economists also question if India should look at importing ethanol rather than producing it locally.

For more on the world of ethanol and biofuels turn to Simon Robinson's The Big Biofeuls Blog.

Ever since the sub-prime crisis broke out in the US, questions have been raised on whether India can safely ride out the storm.

We have already seen the impact on the stock market and it is hard to imagine that India escaping unscathed if the crisis deepens.

However, some economists believe that the impact will be marginal chiefly because of India’s low reliance on exports and weaker linkages to the global economy when compared with other Asian countries such as Malaysia, South Korea and China.

Goldman Sachs estimates that a 1% drop in US GDP growth would shave off only 0.25% India’s growth.

At the other end of the spectrum, Morgan Stanley’s Chetan Ahya says the rise in global risk appetite had contributed to India’s growth. But if investors remain risk averse in the coming year, it would hurt India’s growth story by reducing the country’s access to risk capital and by increasing funding costs.

After enjoying the rewards of the Indian and global growth story, it is probably time to start worrying about the pain that an economic downturn will unleash.

India these days is not too slow to catch up with the rest of the world. The toy recall by US-based Mattel has prompted a Mumbai-based Consumer Welfare Association to file a public interest litigation asking for the ban on the manufacture, import and sale of all kinds of toxic toys.
The petitioner has also asked for a study to assess the levels of harmful chemicals in all toys sold in the market – those imported from China and those made locally. China accounts for 50% of the country demand.

While the petitioner should be commended on acting fast to protect consumer interests, I wonder if India has the required infrastructure to monitor contamination. And does it have the laws and the will to track and punish offenders?

China's problems with quality and chemical contamination are not new but rising global awareness could prompt companies to look at alternative sources of supply. India appears to be well placed to fill the gap. But doubts persist.

I asked a plastics converter last week if China’s quality problems represent an opportunity for Indian manufacturers to expand their presence in the global market. He was honest enough to admit that barring a few exceptions, Indian quality standards in the plastics sector are probably lower than that of China!

India’s organised retail business has a long way to go before it catches up with the rest of the world. There is a lot of interest in this sector these days with all the big Indian companies, including Reliance Industries, lining up to grab a share of the retail pie.

So how big is the opportunity? I heard at a retail seminar last week that the share of modern self service outlets is only about 8% in big cities of India, way behind the average 49% for Asia.

Indian households spend about 40% of their income on food and personal care. The corresponding figure for the US and UK is 15%. A lower figure is better for retailers as it shows that households have the money to spend on other consumer products.

India has three modern stores per million people while Japan has the highest concentration of 692/million.

India has about 6.4m traditional grocery stories and only about 3,400 supermarkets. China already has over 60,000 modern retail outlets and traditional grocery stores account for about 68% of total trade.

The West Bengal government’s determination to construct a chemical hub is commendable. The government had initially set its heart on Nandigram but after widespread resistance and violence over land acquisition (see my blog entry in March), many had believed that plans for a hub in the state had been shelved.

However, much to my surprise, the state government cabinet recently approved an alternative site –Nayachar island, near Haldia which is already home to a refinery and petrochemicals complex.

Nayachar appears to be an excellent choice as it carries no political risk. The 11,000 acre island belongs to the government and the only residents likely to be displaced are about 2500 poor fishermen who are in any case illegal residents. Government files classify the island as uninhabited.

The fishermen have welcomed the government’s plan. This report quotes one.

“We know we are living on government land. We have to move out whenever they tell us. But we hope the government will provide jobs to our sons in the factories that come up.”

That should surely be music to ears of the West Bengal chief minister. However, I suspect the going will not be easy. Nayachar is a coastal island and environmentalists are protesting. The opposition party has already named the project a ‘killing hub’ and warned of severe environmental pollution.

I know innovative solutions are needed to manage the talent squeeze in India. And trust Reliance Industries to find one.

According to this report, the company is now turning to its employees to fill the vacuum. Faced with a shortage of pilots to run its proposed cargo airline, Reliance has turned to its young employees and children of its older employees.

The offer is to train them and in return they would have to sign a bond to work for the company for five years. If the candidates do not join Reliance after the training or leave midway, they would have to repay the training cost which is an estimated $75,000.

The offer does not yet extend to fund education of chemical engineers. But maybe Reliance and other companies should start thinking in this direction.

An interesting article in today’s Mint on how high natural rubber prices are forcing Indian tyre manufacturers to turn to synthetic rubber.

Natural rubber prices have risen by 13% since May as Indian production has been affected by rains and an outbreak of Chickungunya virus which affected the health of workers at rubber plantation in Kerala.

Natural rubber output is now projected to reach 743,000 tonnes for the year ending March 2008, down from last year’s 853,000 tonnes. Government officials have played down the impact of lost production citing sufficient stocks and healthy imports.

However, it appears from today’s report that the tyre industry has taken measures to alleviate the margin squeeze. Natural rubber is said to account for about 50% of costs for a tyre producer. And prices of synthetic rubber are on an average Rs6/kg lower than natural rubber.

The report states that the average ratio of synthetic to natural rubber was 79:21 last year. This has now changed to 74:26.

Despite India’s stellar economic performance there are signs that the country’s polyolefin surplus will not disappear very soon.

In a presentation at last week’s Asian Chemical and Petrochemical Conference, Raj Datta of Haldia Petrochemicals Ltd drew out three scenarios.

In the first case, India would have a surplus of 2m tonnes of polyethylene (PE) and 1.27m tonnes of polypropylene (PP) in 2011 if demand grows at 8%/year. The surplus would ease to 1.7m tonnes of PE if demand grows at 12%/year. And the surplus would disappear only if demand grows at 19%/year.

India will be adding about 5m tonnes of PO capacity over the next 5 years. There are capacity expansions by Reliance Industries, HPL and Gail. And the new entrants will be Indian Oil Corp with its new plants at Panipat and Oil and Natural Gas Corp (ONGC) with its cracker and derivatives complex at Dahej.

I am bullish on India but find it difficult to imagine sustained annual demand growth in excess of 15%/year.

A large chunk of the emerging surplus, especially for PP, will be with Reliance which is best placed to take on global competition. But what about the smaller Indian players and more importantly the many new projects that are in the pipeline. Will the financials of these projects work if a significant percentage of the output has to be exported?

This is one more reason why the various state governments planning the many petroleum and chemicals and petrochemical investment region (PCPIRs) need to look beyond commodity petrochemicals.

As for Asian and Middle Eastern companies looking to export to India, maybe it is time to rework those calculations.

A few months back I had referred to an article in the Indian press which raised doubts on the economic viability of ONGC’s refinery and petrochemicals project at Kakinada, Andhra Pradesh.

A few readers have posted comments arguing that the project is good for the local economy and should go ahead. I have no doubts that the project will go a long way in development of the region but I am still not convinced whether India needs yet another export-oriented project and also if such projects will be viable in the long run.

But it appears that the state government is quite focused and Andhra Pradesh appears set to be first state to get a PCPIR.

Their plan is to develop the entire coastal belt stretching from Visakhapatnam to Kakinada (see map)

This places the proposed zone close to the recently discovered and soon to be commercialised Krishna Godavari gas fields. It is also well located to serve the Indian solvents, paints, pharmaceuticals, plastics and agrochemical industries.

According to the Andhra Pradesh Industrial Infrastructure Corp, 77% of land for the proposed 150 000 acre zone has already been acquired. Land to the extent of 8800 acres is already available for allotment.

The plan is to have five special economic zones within this area including two for pharmaceuticals and one for textiles.

The anchor investors would be Hindustan Petroleum which has plans to expand its existing refinery at Visakhapatnam and join hands with Gail, Total and Mittal for a new refinery and petrochemicals complex. The $6bn complex would have the capacity to process 15m tonnes/year of crude and produce 1m tonnes/year of olefins and aromatics.

The second major investor would be ONGC with a 15.5m tonnes/year refinery and an associated 450,000 tonnes/year polypropylene (PP) unit. ONGC also has plans to invest $5bn to develop the KG basin gas field and produce 25mmscmd of gas by 2025.

These projects have the power to transform Andhra Pradesh and revitalise the eastern coastal belt of India. What is needed is speed and this will go a long way in attracting more investors.

There is fresh competition for Indian engineers. After IT, it is the turn of the legal outsourcing sector with engineers being recruited to work in the area of patents and intellectually property rights, says this report.

Engineers are being hired to carry out research in biotechnology, pharmaceuticals industrial chemicals, electronics and telecommunications, evaluate existing IP portfolios and determine their worth.

The average annual salary for fresh engineering graduates at legal process outsourcing firms ranges from Rs400,000 to Rs700,000 (US$10,000-17,500).

With 2007 heading to a close it is time to start forecasts for 2008. And the first of the forecasts arrived in my Inbox today.

This one is by Goldman Sachs on the Indian economy. The key takeaways are:

• Economic growth is projected to moderate in 2008 due to high interest rates, rapid currency appreciation, weakening global demand and high oil prices. After a record 9.2% growth in the first half of calendar 2007, Goldman Sachs forecast 8% GDP growth in fiscal 2009 and 8.3% in fiscal 2010.
• However, Goldman Sachs believes the Indian economy is structurally strong and fears of a hard landing are exaggerated. This is a result of India’s reliance on domestic demand and lower external linkages. Exports constitute only 17% of Indian GDP as against 40% for rest of Asia excluding Japan.
• Goldman Sachs also believes that investment demand will be robust powered by capacity expansion and the need to build infrastructure.
• Exporters can expect further appreciation of the rupee. Goldman Sachs expects capital inflows to remain strong which would put pressure on the rupee. Their target for end fiscal 2009 and fiscal 2010 are Rs37.7 and Rs37.0 to the US dollar.
• Not surprisingly the biggest risks to these forecasts are politics and the instability in neighbouring countries such as Pakistan, Sri Lanka and Nepal.

But to end on a positive note, Goldman Sachs believes that concerns of a bigger slowdown along the lines of the one experienced during 1997-2001 when economic growth stalled to less than 5.5% are misplaced as the Indian economy is structurally much different than 1997.

I have always been a little sceptical about the Indian government’s plans to build mega chemical hubs across the country. And recent reports have only reinforced some of my doubts. Not only will the scale of these projects be challenging but getting land and convincing the local people on the long-term economic benefits of these projects will become increasingly difficult.

Fresh evidence of this is available in this report on Daijiworld (a portal linking the west coast of India to the rest of the world) which states that the proposed Special Economic Zone (SEZ) and Petroleum, Chemicals and Petrochemical Investment Region (PCPIR) at Mangalore are facing opposition from local farmers. The report states that the farmers “would not be handing over their fertile lands for the projects at any cost”. There also appears to be confusion on how much agricultural land would be needed to develop the SEZ and PCPIR.

The major projects in Mangalore are a refinery expansion and a new aromatics facility by Mangalore Refinery & Petrochemicals Limited (MRPL).

The comments posted at the end of the Dajjiworld report are even more interesting and they clearly show how divided the local community is on these mega projects. Lack of information is also evident with one commentator fearing that toxic emissions from the refinery would not leave any healthy children in the region. Another comment states that it is not only farmers that are opposing the project and other people have questions on the concessions that will have to be granted to make the projects viable.

Poor communication is at the heart of this problem. And I am quite clear that the chemical industry and local governments will have to join hands if they are serious about building hubs.

A new year brings in new resolutions and this time around ONGC appears to have recommitted itself a refinery project in Kakinada, Andhra Pradesh, despite doubts about its viability. And over in West Bengal, the state government is determined to move ahead with a chemical hub at Nayachar.

ONGC’s resolution, however, appears to be a forced one - a result of political pressure from the Andhra Pradesh government. The government fears that ONGC’s absence from Kakinada will derail its plans for a mega chemical hub in the state.

ONGC had decided in 2006 that the proposed 7.5m tonnes/year refinery was unviable. But it has now been forced to undertake yet another study, this time for a 15m tonnes/year refinery. It is now bargaining for incentives such as 950 hectares of free land and sales tax exemption on petroleum and petrochemical products, free power and water supply during the construction phase and road and rail connectivity.

I would rather ONGC takes a firm stand against the project if it fails to provide adequate returns and instead focus its resources on more profitable opportunities. But that’s probably wishful thinking. The chemical industry certainly needs government support but not interfering politicians.

I have already had quite a few people posting comments on why the Kakinada project is needed, especially for the local economy. I don't dispute this. But my argument is that the project should be judged on its own merit especially if we are keen on making public sector units globally competitive. And surely offering free land is not in the interests of the local people.

In West Bengal, chief minister Buddhadeb Bhattacharjee started 2008 by forming a steering committee to oversee the chemical hub project at Nayachar. The hub will be developed over the next 15 years by Indonesia’s Salim Group.

Will it now be the turn of Buddhadeb to drag a reluctant public sector company to invest in Nayachar?

How big is the opportunity for Indian active pharmaceutical ingredients' (API) manufacturers? Here is an estimate presented by Satish Khanna, group president, API, Lupin Ltd, at the Speciality Chemicals Conclave in Mumbai last week.

To develop his estimate, Khanna first examined the health care spend in India vis-à-vis developing and developed countries. The per capita spend in India is only $22 as against $54 in China. The average spend for Brazil, Argentina, China, Egypt and Hungary together is $212 which indicates the potential for growth in India.

Healthcare spend in India is currently about $26bn and can grow to $100-300bn by 2015. If we take the midpoint ($200bn) and assume that the pharmaceutical market is 25% of the health care market and the API component is 30% of the pharmaceutical market, then the API segment has the potential to grow to $12bn by 2015 from about $2bn in 2007.

Khanna expects 80% of API demand to be met locally, which would result in a $10bn market.

But this excludes the outsourcing opportunity which could be as much as $10bn, says Khanna.

With most Indian API companies operating at full rates there is a need for new capacities. However, companies are currently dealing with many challenges including rising raw material costs as a result of high oil prices, manpower shortage, appreciation of the rupee against the US dollar and the over dependency on imports of key chemicals such as sulphur and phosphorus.

The US financial crisis has taken its toll on Orchid Chemicals & Pharmaceuticals. The active pharmaceutical ingredients (API) manufacturer saw its stock price decline by about 44% since the start of the week after Bear Stearns decided to sell a million shares in the company.

The market value of the company has fallen to a third of what it was two months ago and made it vulnerable to a takeover, says another media report.

The company appears to have strong business prospects but the recent development has shaken investor confidence. It will be interesting to see if the management can overcome this crisis in confidence.

China’s move to clean up Beijing ahead of the Olympics is likely to have far reaching repercussions for the Indian chemicals industry.

ICIS news reported today that the Chinese government was regulating the production and sale of more than 257 chemicals around Beijing - a move that could result in the closure of a number of plants.

The list includes basic petrochemicals such as propylene, ethylene and diethylene glycol as well as derivatives such as unsaturated polyester resin and other dyes.

It is quite obvious that this move will impact the market and create problems for Indian companies relying on Chinese intermediates.

But more interestingly, Chinese chemicals companies are scouting for alternative manufacturing locations and Gujarat is one of the favoured destinations, says the Business Standard. Recently, Ahmedabad-based Kiri Dyestuff tied up with Zhejijang Lonsen Co for a 180,000 tonnes/year intermediates plant in Gujarat. Other Chinese companies have also visited the state to evaluate investments, the report adds.

There is an opportunity for mid-sized Indian companies to expand through joint ventures with Chinese companies. But for non worldscale and uncompetitive small players, the Chinese threat would be moving closer.

Cracks in the Chinese textile and clothing export machine have started showing with shipments to the US in the first quarter of this year declining by nearly 10% from the same period in 2007.

A new report from Textiles Intelligence states that the country is losing its competitive edge in this industry on the back of rising input costs, lowering of export tax rebates, new labour laws and other regulations and tighter credit availability.

At least seven Asian countries can now offer lower costs than China which are as high as $1.08/hour in the coastal provinces. In comparison, wage costs in Vietnam, Pakistan, Cambodia and Bangladesh average $0.38/hour, $0.37/hour, $0.33/hour and $0.22/hour respectively.

Additionally, the Chinese government is keen to move to a new economic model. This one will be focused on domestic consumption and exports of high value products. China clearly does not want to be a factory for the world for low end products.

A drift in textiles has in the past signalled the start of a wider change in global manufacturing. I have been increasingly coming across reports of companies looking at alternative locations for products ranging from plastic toys to leather goods. And a question that is also being asked is if the US can bring back jobs from China

China's diminishing competitiveness and is good news for Indian exporters if they can overcome the many hurdles standing in their way. Indian companies too face rising input and wage costs but probably not on the same scale as China. And the industry needs to find a skilled and productive workforce of the kind that made China an export powerhouse. And even more important, a supportive government policy would go a long way in helping the Indian industry expand its global market share.

There are a few optimistic companies that are betting on growth in the midst of inflation, rising crude oil prices and a worldwide economic slowdown.

Some custom research and manufacturing services (CRAMS) players believe that the pressure on costs will result in more outsourcing opportunities.

This view is spurring investments with Dishman Pharmaceuticals and Chemicals planning a Rs1.5bn greenfield facility in Shanghai by end of this year. CRAMS is expected to account for 85% of Dishman's revenues by 2010, up from the current level of 75%.

Dr Reddy's too expects to see CRAMS account for a bigger share of its revenue, moving up from 10% to 25-30% over the next three years.

But success will not be easy. The CRAMS business is littered with stiff but not insurmountable hurdles that will test the management skills of Indian companies.

India is known to move slowly. So it is perhaps not surprising to read that most local companies have yet to formulate strategies to face the challenge of climate change.

KPMG recently released a report on a study carried out earlier this year to understand if Indian business leaders are aware of the climate change issue, its implications for the economy and their businesses and their readiness to respond to the impending changes.

Only 41% of respondents thought they had a good understanding of the issue and have a clear strategy in place.

While a number of Indian businesses claim to be aware of the need to reduce their carbon impact and believe that they are taking steps towards it, most companies have not taken the first step of measuring their carbon footprint, says KPMG. Only 21% of respondents indicated that they fully measure their carbon impact while 16% of respondents don't see the need for such an analysis.

The full report is available here.

The Indian government's war on inflation appears to be making its way to the world of chemicals as a proposal to ban exports of soda ash and trim excise duties on major petrochemical inputs is being considered.

Soda ash prices have spiralled this year on the back of rising energy costs with product costing more than Rs14,000/tonne, up from around Rs10,000/tonne last year.

User industries are hoping that an export ban will force producers to lower prices and divert material to the domestic market. A final decision on the proposal has yet to be taken with the government waiting for feedback from the Alkali Manufacturers Association of India.

But there are no prizes for guessing what the association will have to say about this proposal.

India and Asean are all set to implement an FTA (free trade agreement) from 1 January 2008. Both sides completed six years of negotiations yesterday and a final agreement is due to be signed in December this year.

Over 400 products are on the sensitive/negative list and some chemicals have been included. But I understand that polyethylene (PE) and polypropylene (PP) do not figure on the list. Tariffs on PE and PP imports from Asean would be phased out over the next two years, thus opening the door for product from Singapore and Thailand just when new export-oriented plants get commissioned.

With tariffs on the two products currently at 5%, Indian producers say they will not be too badly affected but they do expect increased competition in the local market.

But a bigger threat is looming as India will soon resume talks for an FTA with the GCC (Gulf Cooperation Council).

Indian petrochemical producers are once again lobbying to ensure their products figure on the negative/sensitive list. Meetings have been held with government officials but I understand the outcome has not been positive.

The Indian cabinet has approved a national biofuel policy that is likely set a higher blending target.

Details of the policy have not been announced but it has been reported that the government will mandate 20% ethanol or biodiesel blended petrol by 2017. Currently, the country has 5% ethanol blending which would rise to 10% from next month.

Experts have already started questioning the wisdom of the new policy. Will enough land be available for biofuel crops such as jatropha? And what implications would this policy have on India's food production?

Higher use of biofuels will intensify the debate on the use of farmland for fuel in India, and encourage farmers to reduce grain cultivation for food, says TK Bhaumik, an economist with Assocham, a leading business chamber.

"Land is not elastic. If there is more pressure to grow oilseeds or corn to derive biofuels and farmers get a good price for them, they will obviously neglect grain production," he adds.

There is no way that Indian chemical companies can escape from the global financial crisis. Tough times lie ahead as companies will be hit on all fronts - high cost of credit, falling demand as the global economy slows down and increased supply once new capacities in Asia and the Middle East get commissioned.

Product prices have fallen sharply in the last month. Ethylene is close to a 3-year low and benzene has fallen to $900/tonne fob Korea, a level last seen in January 2007. With buyers holding back purchases inventories are rising across the chain.

Companies are being hit in other ways too. One executive complains of expensive credit with international banks quoting Libor plus 900 basis points, up from Libor plus 100-200 basis points six months back. Indian banks are said to be quoting 18-20%, up from 9-11%.

International business is getting more difficult and riskier to transact as companies have to also deal with volatility in foreign exchange rates.

ICIS news reports that Indian base oils buyers and sellers of base oils are worried about the high level of credit scrutiny which is making an already difficult business environment even tougher.

"LC limits are frozen and there is no credit available for the love of money", said a baseoils buyer.

It has been a few weeks since my last post and market conditions have only worsened. The business outlook has grown bleaker as recession looms over much of the developed world and GDP growth rates in China and India have been trimmed. Chemical companies are grappling to find a solution to stem the rapid erosion in profitability and demand.

But some companies appear to be looking beyond the current crisis to plan for the future. It was reassuring to read Akzo Nobel's announcement of its plan to build a coil and speciality plastics coatings plant in Hoskote, near Bangalore for the high performance steel and aluminium construction markets in India and neighbouring countries.

The construction industry in India is currently in a mess but there are no doubts that more homes, roads, ports and airport will need to be built. Demand will eventually return.

The deplorable terror attacks at Mumbai threaten to further shake business confidence in India at a time when companies across industrial sectors are struggling to cope with severe erosion in demand and profitability and the economy is straining to overcome the pressure of the global economic crisis.

The planning, scale and execution of the attacks, which have left over a hundred dead, are mind boggling. By targeting two major hotels and taking hostages, the terrorists have sent a clear signal that they have moved beyond serial bombings.

While Indian corporate leaders are putting up a brave front, I suspect there are many are questioning the government's ability to contain such attacks.

The attacks in Mumbai comes after a series of bombings at other cities across India in the last few months. Many have criticised the government for not having stricter anti terrorism laws. And this is likely to emerge as a major issue in the general elections that are due next year.

There are expectations of a further depreciation of the rupee which has lost 13% of its value against the US dollar in the last three months. And the stock market could also fall when it opens for trading tomorrow, say many analysts.

Foreign investors could turn cautious and delay investments till they have greater confidence in the economy. This would be at a time when the country is looking to boost capital flows.

Let's hope that the government has learnt a valuable lesson and acts swiftly to contain the damage of this dreadful attack.

A steep drop in petrochemicals demand had dragged down naphtha prices in the last two months. But low prices have stinulated demand, not only from crackers but also from fertiliser and power plants.

With naphtha below $300/tonne, some Indian fertiliser and power plants are moving away from liquefied natural gas (LNG), says this report. Imports of spot LNG in the country have fallen and two cargoes were returned last month as there was no space to unload the tankers.

Spot LNG prices are currently at around $10/mmbtu, well above the naphtha equivalent price of around $7/mmbtu.

Consultancy Purvin & Gertz expects India's average monthly naphtha surplus to decline next year to 245,000 tonnes from 448,000 tonnes during September-November 2008.

And another media report estimates that India's naphtha consumption rose by 2.3% (0.79 m tonnes) in November as against the same month last year. The cumulative growth for April-November was 0.7% (5.8m tonnes). In comparison, LNG sales in November declined by almost 15% to 0.6m tonnes.

In 2007-08, local naphtha sales had fallen by around 15% 8.8m tonnes, largely on account of replacement by LNG the consumption of which grew by 28.9%.

But is this is the start of a long term trend? I doubt it. LNG prices are likely to keep falling match that of crude oil. And higher naphtha demand will only push up prices making in once again uncompetitive in the power and fertiliser sector. In the longer run, crude oil prices are expected to rise once the global economy recovers. This would further support higher naphtha prices.

December closed with ominous signs for the industry.

Dow Chemical's proposed commodity petrochemicals joint venture with Petrochemical Industries Co (PIC) was scrapped after strong protests from Kuwaiti opposition leaders who believed that the deal was overpriced at a time when oil prices were falling.

This is a major setback for Dow and raises questions about its planned $13bn acquisition of Rohm and Haas. This report summarises some of the difficult choices that Dow faces.

LyondellBasell with $26bn in debt is struggling to escape from bankruptcy. The company has held discussions about entering Chapter 11 bankruptcy protection internally and with banks.

One Wall Street analyst pointed out that LyondellBasell's situation was an example of the challenges faced by leveraged chemical companies as they encounter a tough combination of soft end markets, inventory destocking and sharply higher cost of capital.

There was also news that Qatar has put on hold a planned joint venture between Qatar Petroleum and Honam Petrochemical for a cracker and derivatives complex because of "international market turbulenece".

But this turbulence has not deterred ONGC from taking forward its cracker project at Dahej. Linde and Samsung Engineering have secured a contract to build the 1.1m tonne/year cracker and benzene and butadiene units. Bids for polyethylene (PE) and polypropylene (PP) plants downstream of the cracker are due to be submitted next month.

ONGC, Gail and other government companies are set to hold close to 50% stake in the project with the balance likely to be offered to a strategic investor or to the public through an IPO once financial market conditions improve. ONGC had offered a 9% stake to Gail but the latter is interested in raising its holding to 19%.

So it appears that ONGC has, for now, abandoned plans for a foreign investor. It is also probably safe to say that prospective foreign investors are no longer keen on this project as they have many more pressing issues to worry about.

Yet another sector is suffering from of the global economic turmoil. The export-dependent dyestuff industry is projecting nil growth this year, down from 20% in 2008, says this report.

Export orders have fallen by 50% in the last four months for this industry which ships about two-thirds of its output to the US, Europe, Northeast and Southeast Asia.

There is not much hope from the domestic market too. The $52bn Indian textile industry, one of the largest end-use sectors for dyes, has also seen orders fall especially from the US and Europe. The industry is expected to record a 5% decline in total exports this fiscal year.

A bigger worry is India losing its competitive edge to other Asian countries which offer more competitive wages.

India's apparel exports to the US dropped 11% in rupee terms during October to December last year. But apparel exports to the United States from Vietnam jumped 35% in dollar terms while those from Indonesia were up 8.44%. Even exports from Bangladesh were up 6.6%.

Protecting local companies during these difficult times is back on the Indian government's agenda. Antidumping investigations are on the rise with companies working hard to prove that low priced imports are hurting their businesses.

The government recently decided to extend by six months the effective date for definitive anti-dumping duty (ADD) on flexible slabstock polyol imports from China, Taiwan, South Korea and Brazil.

ADD on imports from these countries was imposed in January 2005 and was scheduled to expire at end-January 2009.

Earlier this month, the government decided to extend ADD on melamine imports from China until 1 October 2009. India had imposed a definitive ADD in November 2004 for five years, with retroactive effect from April 2004, which was when the provisional ADD was imposed.
And also in January, the government decided to impose ADD on nitrile rubber (NBR) from South Korea. The tariff protection will benefit the country's sole NBR producer, Eliokem India Private Limited (EIPL), a subsidiary of France's Eliokem.

In December, ADD was introduced on caustic soda and rubber chemical imports from South Korea and China.

Producers of various other chemical intermediates are also keeping a close watch on imports and international prices to assess if product is being dumped in India.

An interesting report on antidumpingpublishing.com identifies India as the top user of antidumping measures during 1995-2008 with 520 cases lodged.

Turkey topped the list with 13 investigations during the first six months of 2008 followed by the US and India with 11 investigations. The main target of investigations during this period was China which also faced maximum investigations during 1995-2008.

Interestingly, the chemicals sector accounted for 20% of investigations during H1 2008, behind metals (25%), textiles and footwear (24%). But the chemicals sector was at the top of list for 1995-2008 with a 33% share of total investigations.

So the government has finally approved three Petroleum, Chemical and Petrochemical Investment Regions (PCPIRs). Now comes the difficult part. Who is going to undertake mega investments at a time at a time when the global economic outlook is uncertain, demand for key chemicals has crumbled and not many are willing to stick their neck out to make an optimistic forecast.

The three favoured locations for PCPIRs are Dahej in Gujarat, Nayachar in West Bengal and Visakhapatnam in Andhra Pradesh. Of the three, I think only Dahej is going to come up in the near future. And that is because the hub include ONGC's planned cracker and derivatives complex which has been in the pipeline for a few years now.

Hindustan Petroleum Corp (HPCL) is to be the anchor tenant at the Visakhapatnam hub with a refinery and petrochemical complex. But the outlook for this project is uncertain as one of the partner, Mittal Investment, appears to have backed out. The other partners in the project are Gail and Total.

The Nayachar hub has been described as the West Bengal chief minister's "showpiece project". But after the Tata debacle in Singur, it is doubtful if companies will queue up to invest in the state.

The approval for the PCPIRs comes barely a week after China's announcement of a huge stimulus plan for the country's refining and petrochemical sectors.

The Chinese government has promised construction of large-scale projects such as refineries and crackers. Details are still sketchy and it is not clear at this stage how many of the projects will be new and related to core petrochemicals.

However, I am confident in the Chinese government's ability to push through investments through Sinopec and PetroChina. Somehow, I can't see that happening in India.

If China's plan includes a lot of petrochemical capacities the country's dependence on imports will decline rapidly. At the same time, India's need for imports will grow going by current projections.

I was at the Plastindia trade show earlier this month and I was pleasantly surprised to see everyone quite confident about the long term prospects of the Indian plastics industry despite a disastrous Q4 2008.

I suspect the optimism was party due to the sharp recovery in prices in December and January.

Agriculture and infrastructure are expected to be tomorrow's growth drivers. Farmers have been making good money and are expected to spend more while the government is allocating more funding for agriculture including investing in irrigation projects that would support demand for pipes.

The old argument of India's low per capita consumption as an indicator of the country's potential was still doing the rounds. And so were projections of the country emerging as the third largest polymer consumer in the world by 2012. I really doubt this will happen as Indian demand is currently only around 5.5m tonnes. To reach the No 3 slot, demand would have to more than double to 12m tonnes over the next four years.

The Indian government is reportedly planning a stimulus package for chemicals. But I don't think this can be called a stimulus package as the proposals seem to be mainly about tariff reduction.

The department of chemicals and petrochemicals is once again seeking a reduction on the 5% duty on naphtha that was introduced in last year's budget. It has also asked for duty reduction on captive power plants and spares from 7.5% to 5%.

Tariff reduction on inputs will surely be welcome. But the industry also needs government support to boost local demand. This is something that China is working on.

I think the Chinese government's subsidy programme for purchase of home appliances in rural areas is a smart idea. The program offers a subsidy equal to 13% of the price of home appliances ranging from colour TV sets to washing machines.

And China needs to urgently stimulate rural demand as export demand is fading. Figures for 2008 show that appliance production growth slowed to 13.9% in 2008, compared with 26.1% in 2007. Export rose by only 13.7%, down from the 25% growth registered in 2007.

India is aggressively moving to protect domestic companies with more news trickling in on safeguard and antidumping duties. The government is planning to initiate safeguard duty investigations on Chinese imports of 12-13 products from the chemicals and base metals sector, says this report in the Business Standard.

This comes after the government decided on 30 January to impose a safeguard duty of 31% on soda ash imports from China. A consortium of companies, which included Tata Chemicals, claim that Chinese imports which had averaged 4,041 tonnes during April-October 2008 had sharply increased to 10,000 tonnes in November 2009 and 15,000 tonnes in December 2009.

The government also introduced a 25% safeguard duty on phthalic anhydride (PA) imports which will last until 26 August 2009.

And the government is considering levying provisional antidumping duty of $0.84-$0.92/kg on imports of all grades of nylon tyre cord fabric from Belarus. The country's antidumping authority is also separately recommending the levy of definitive ADD on NTCF imports from China.

An antidumping probe has also been launched on polypropylene (PP) imports from Saudi Arabia, Singapore and Oman.

So how do you reconcile this news with the recent statement by the G20 finance ministers that the countries would make efforts to end trade protectionism?

It's the turn of the Confederation of Indian Industry (CII) to highlight the threat of cheap Chinese imports. "The threat of dumping of cheap Chinese products in India is real and serious," says Venu Srinivasan, the new president of the CII.

This is something that's been worrying many Indian companies for a while now.

If demand from China's traditional markets continues to fall the country's exporters will have no choice but to turn to new markets and this includes India. Given the massive global scale capacities that China has built up over the last decade, exports from the country have the potential to wipe out Indian producers across a number of sectors.

The Wall Street Journal (WSJ) carried a good report last week on the rising trade tensions between the two countries.

"We've always said the world is large enough for India and China, but we have a problem with a surge in exports that hurts Indian industry. It's a cause for worry," said the Indian commerce secretary, Gopal K. Pillai, in an interview with the WSJ.

Pillai said Beijing subsidised exporters, obstructed Indian farm imports and supported Chinese companies who preyed upon vulnerable Indian industries.

India is said to have about a dozen antidumping cases against China outstanding at the WTO, including investigations into export surges of truck tyres and industrial chemicals.

This post is for all my Indian friends who still have their jobs. ECA International expects India to see an average salary increase of around 10.8% this year, down from the double-digit growth seen in the last few years but still the highest in Asia Pacific.

The average pay hike for the region is expected to be only 4.8%, down from 6.9% in 2008. Globally, average salaries should increase 4.7% this year, compared with 6.2% last year.

ECA also estimates that a quarter of the world's companies plan to freeze salaries this year.

The Hay Group expects a more moderate salary increase of 7.25% in India this year. And it says the biggest concern for Indian companies is still attraction and retention of talent.

ONGC has taken a difficult but sensible decision. It has finally shelved plans for a new 15m tonnes/year refinery and petrochemical complex at Mangalore. The project had been facing considerable resistance from the local population. In addition, questions were being raised on the viability of the project.

The sharp change in the global business environment since last year probably forced ONGC to reconsider the project. But the decision also suggests that the company may no longer be keen to extend its focus beyond oil exploration and production. Mangalore is the second refinery project that ONGC has shelved. In June 2008, the company had said that it would not participate in a refinery project at Kakinada on the east coast of India.

ONGC has taken a difficult but sensible decision. It has finally shelved plans for a new 15m tonnes/year refinery and petrochemical complex at Mangalore. The project had been facing considerable resistance from the local population. In addition, questions were being raised on the viability of the project.

The sharp change in the global business environment since last year probably forced ONGC to reconsider the project. But the decision also suggests that the company may no longer be keen to extend its focus beyond oil exploration and production. Mangalore is the second refinery project that ONGC has shelved. In June 2008, the company had said that it would not participate in a refinery project at Kakinada on the east coast of India.

Trevira was Reliance's first global acquisition and was expected to be the start of a wider programme to extend Reliance's global reach through mergers and acquisitions.

But just five years later Trevira is once again on the block after filing for insolvency with a German court. Reliance has pumped in Euro55m to clear outstanding bank liabilities but it is clear that it will distance itself from Trevira.

Trevira has blamed the economic crisis for its problems. The textile and auto industries, two key end-use segments, have been hit hard by the crisis resulting in falling orders amid growing competition from Asia and Eastern Europe.

Trevira's new managing director, an insolvency expert, has said that Reliance does not plan to be "engaged with" Trevira any longer. It would eventually be sold to a suitable investor who could offer a long-term future.

She has also said that Trevira has good products and is 'basically competitive'.

But if that's the case why does Reliance, the largest integrated polyester producer in the world, want to exit from Trevira? Surely Reliance with its deep pockets can afford to ride through the crisis.

If Reliance with its strong management capabilities has failed to make Trevira work other companies are likely to struggle. I suspect it will be tough for Reliance to find a buyer willing to pay a high enough price for this business in the current economic climate.

Indian information technology (IT) companies may no longer be queuing up at campuses for fresh graduates but engineering students continue to rank this sector above all others, according to the latest Nielsen Campus Track T-Schools study.

Chemicals, not surprisingly, does not figure on the list although oil and gas was seen as the 'industry of the future'. Other promising sectors, as identified by students, were nanotechnology, power, telecom and IT services.

The survey also showed that half of the 2010 graduates planned to move out of their first job in three years or less, with 51% citing higher studies as a reason for leaving. Better career opportunities, better salary, better designation, and job satisfaction are some other reasons for moving out.

But students are willing to stay back if the employer pays them well (39%), if they are satisfied with their job (34%), if their job provides a good work environment (32%), and if the employer is willing to sponsor their higher education (31%).

And what do graduates want from their first job?

"The soon-to-be engineers want to work for a technically sound company when they pass out, ranking it the highest on the list of drivers that influence choice of an employer. They want to work on sophisticated and state of the art technology, where there is good learning on the job and want to work in a growing industry, where they get 'hands on' exposure to projects," says The Nielsen Company.

Indian chemical companies should be able to offer this but can they match salaries offered by IT companies?

India's synthetic fibre and fibre intermediate produces will be happy to know that the textile industry is likely to soon receive a number of incentives from the government. A stimulus package, due to be announced next month, would include subsidies on interest and additional funds for technology upgradation, says this report.

This is needed as other incentives announced by the government earlier this year have failed to revive the industry, says the Confederation of Indian Textile Industry

Textile exports have been declining since September 2008 and industry players have complained that the Indian government has not matched efforts put in by governments in China, Pakistan and Bangladesh to support local producers.

India's textile exports in fiscal 2009 were estimated to be around $22bn, a long way from the government target of $110bn in fiscal 2012.

The new textile minister appreciates the huge task facing the industry. He said recently that the industry needed an annual investment of Rs300bn to maintain growth momentum. He has promised a helping hand from the government - something that the industry has been seeking for a very long time.

I have been hearing that the Indian government will soon announce preliminary antidumping duty (ADD) on polypropylene (PP) imports from Saudi Arabia, Singapore and Oman. A few lucky producers/exporters have escaped but there are many who face a stiff duty of as much as a few hundred dollars, say my friends from the industry.

Polymer processors and producers from the affected countries had strongly protested against the investigation, which was launched in early March. But it looks like the government has been sympathetic to the producers' case.

The ADD on PP, when announced, will be added to a long list of chemicals that has attracted protection in the form of ADD or safeguard duty in the last few months. I have been told that while the government is unwilling to listen to requests for upward revision of import duty, it willing to act fast if producers can produce evidence that cheap imports have hurt their business. And that's keeping many producers busy these days. So don't be surprised if you hear investigations being launched on many more chemicals.

It appears cheap imports are hurting Indian industry across all sectors. A recent survey by the Federation of Indian Chambers of Commerce and Industry (FICCI) shows that small and medium sized companies are most worried about Chinese imports which are 10-70% cheaper.

"Trade and industry have reported that with western markets losing their appetite for imports, Chinese manufacturers are increasingly looking at alternative markets to offload their wares. India is an obvious first choice in such a scenario given its geographical proximity and the fact that it is still growing at an appreciable 6.5-7.0%," says FICCI.

Indian companies have expressed concerns on quality and safety of Chinese imports. "Immediate imposition of severe testing requirements on imports from China is a must as these include basic items of consumption and even vaccines," adds FICCI.

The 100-day fever is fast spreading and the Ministry of Chemicals & Fertilisers is the latest casualty. A very bland press release outlining what the ministry plans to achieve over the next three months has come my way.

I started reading the release with a great deal of scepticism and was convinced at the end that my doubts were not misplaced.

So what does the ministry want to achieve? On the fertilisers front, it plans to upgrade the fertiliser monitoring system to ensure timely availability of fertilisers and quick disbursal of subsidy, develop options to revive closed urea units, introduce an attractive investment policy and create a road map for restructuring of sick public sector units through financial restructuring and/or changing feedstock from naphtha to gas.

The PCPIR (Petroleum Chemicals and Petrochemicals Investment Region Policy) dream is still alive. The aim now is to sign a memorandum of agreement with Andhra Pradesh, Gujarat and West Bengal before 30 August.

Other targets for the department of chemicals include speedy implementation of Gail's cracker project at Assam and to start a plastic waste management centre at Guwahati, Assam and a plastics technology institute at Jaipur

There is nothing really new in what the ministry has planned. Many of these targets should have been achieved in 2008 or even earlier. The prime minister's 100 day reforms mantra is laudable but I think the industry needs something more than just honouring old promises.

With the budget offering little to the chemicals industry it is time to pile on to the rural rickshaw and hope for a trickle down efect from the enhanced spending that the government has planned in this part of India.

Photo by BriceFR

This is entirely possible. More money in the hands of the rural population through various schemes including one that offers guaranteed employment should boost demand for a wide variety of products. We have already experienced the power of the rural market. During last year's crisis, demand from the rural population had saved many companies.

Another plus should be the increased allocation of funds for the Jawaharlal Nehru National Urban Renewal Mission (JNNURM). This programme will among other things, invest in new water and sanitation pipes in 65 cities around the country. It is estimated that investment in each city would result in 4000-5000 tonnes of additional polymer demand for pipes.

But I was surprised at the government's decision to double excise duty on manmade fibres (polyester, acrylic and nylon) and yarn to 8% especially as the industry has been pushing hard for a level playing field with cotton. They had been asking for removal of excise and customs duty on these fibres.

The increase comes at a time when the textile industry has been battling hard to overcome reduced demand from the export market. The move, big negative for companies such as Reliance Industriesand Indorama Synthetics, has drawn strong criticism from the industry. But is the government listening?

The government also appears to be paying scant attention to yet another demand - removal of 5% import duty on naphtha used for polymer production.

Have Indian fertiliser companies been able to break a stranglehold that major producers have on the global potash market? Indian papers are full of reports on how Indian companies have succeeded in doing this by securing a contract price of $460/tonne for supplies in 2009-10, about $165/tonne lower than the previous contract.

The drop comes after Indian and Chinese buyers had reluctantly accepted a steep hike of $355/tonne and $400/tonne respectively in 2008. These hikes were based on an over-stretched supply position, strong demand and firm spot prices.

But the situation has reversed this year as a fall in crop prices since 2008 has seen demand slump leaving potash producers with heavy stocks. Global capacity utilisation is estimated at 40-50%.

Indian companies have successfully taken advantage of this position. But producers, who have seen erosion in profits, are hoping for a quick reversal in fortunes. Potash Corp has warned that a looming global food crisis will result in increased demand for potash and other fertilisers. US-based Mosaic has predicted that low inventories will soon bring Chinese buyers to the import market.

China imported 9.5m tonnes in 2007 and 5.5m tonnes in 2008. The Chinese government is reported to be limiting 2009 imports to about 7m tonnes. India is expected to import about 4.5m tonnes of potash in the year ending 31 March 2010 and it has already booked 3.2m tonnes, reports ICIS news.

Producers might well be trying to talk themselves out of a difficult market situation. But if their predictions come true Indian companies could find that the stranglehold has not been broken.

China, India and Indonesia are powering Asia's economic recovery this year prompting one economist to club the three to form Asia's "next growth triangle".

A recent report by CLSA, titled Chindonesia: Enter the Komodo, estimates that the three countries will generate $10 trillion of wealth for investors by 2015.

"Together, China and India are increasingly becoming the biggest marketplace for almost everything sold on the planet," writes Nicholas Cashmore of CLSA.

He is also calling for Indonesia's inclusion among the BRIC economies. "As a leading supplier of commodities, Indonesia is leveraged to the growth of Chindia," says Cashmore referring to China and India. "Indonesia is ready to rise in the world economic hierarchy and take its place alongside China and India."

The importance of the three countries is already evident in the polyolefins market. China's imports of polyolefins have soared in the first six months of this year providing much needed succour to the global market. HdPE imports were up 62% at 1.92m tonnes; ldPE up at 94% at 689,000 tonnes, lldPE up 52% at 1.13m tonnes and PP up 50% at 1.96m tonnes.

A fair bit of imports is probably being held as stocks and easy availability of credit has lured speculators to the polyolefins market. But three are not many who doubt that China's massive economic stimulus program has played a big role in boosting domestic demand.

Indonesian PE and PP demand are forecast to growth by at least 4-5% this year. "The last two months have been very good and all resin manufacturers are running at 90-100% of capacity," says Budi Sadiman of the Indonesian Olefin & Plastic Industry Association (INAPLAS). Support is coming in from all end-use sectors except automobiles, building and construction.

India was one of the few countries that did not see a drop in demand last year. And it should be easy to deliver a growth of at least 10% this year in PE and PP with the key drivers being the packaging and pipe sectors.

So watch out for 'Chindonesia' this year.

The economic crisis has led to one favourable result for the chemical industry. After years of seeing graduate chemical engineers migrate to more lucrative sectors such as IT or finance the chemical industry is now proving to be attractive.

I recently had an opportunity to meet Professor GD Yadav of Mumbai's Institute of Chemical Technology (ICT) and Professor Ghosh of the Centre of Polymer Sciences at IIT Delhi and both confirmed this trend.

There are several reasons for this, explained Professor Yadav. "Earlier IT was seen as a white-collar job. The sector was attractive as it offered good jobs and salaries. But that initial attraction has gone," he said.

With IT companies leading the way in shedding jobs students have become wary of joining the sector. Additionally there are not too many jobs on offer. At the same time salary levels in the chemical industry have improved.

The 2010 recruitment season has started at the Institute of Chemical Technology and students have been placed at chemical companies with a starting salary of Rs600,000/year. The highest salary offered is Rs1,400,000/year.

Professor Ghosh also highlighted another trend - students who drifted to IT are now looking to get back to their core discipline.

He cited the example of a polymer engineering graduate who wants to return to the chemical industry after working at a large IT company for a couple of years. But compromises will have to be made as two years of industry experience has been lost.

Graduates are, for the time being, valuing job security over salary. Chemical companies should welcome them even as they battle to keep trim costs and boost profits.

With the threat of drought looming large over most of India its time to ask another decoupling question. Can the Indian economy escape from the effects of a drought?

I found some answers in Niranjan Rajadhyaksha's analysis in today's Mint. Most economists estimate that the drought will shave off economic growth by one percentage point - a figure that India can live with especially if the ongoing recovery in the manufacturing sector takes root. This would also be in sharp contrast to the droughts experienced in the 1965 and 1972 when economic growth had plunged by 10%. But droughts in 1987 and 2002 led to only a two percentage point reduction in GDP growth.

Rajadhyaksha suggests three possible reasons to explain the decoupling: the contribution of agriculture to the overall economy has dropped significantly, the rural economy has diversified sufficiently that households have alternative sources of income when agriculture fails and the growth experienced in the last few years had few links to the rural poor.

The last is a little difficult to understand especially as rural incomes are supposed to have become important demand drivers for a wide variety of products. This was also one of the reasons cited for the very healthy polymer demand that India experienced last year despite the global economic crisis.

Chemical companies are constantly adapting to external challenges and this is clearly evident in a comparison of the ICIS listing of top chemical companies in 2008 and 1998. Three companies that figured in the top 10 list for 1998 have disappeared - ICI, Hoechst and Rhone Poulenc - as a result of mergers and acquisitions while Bayer, Elf Group and Akzo Nobel have fallen from the top 10.

Only BASF, Dow Chemical, DuPont and Mitsubishi Chemical are still in the top 10 although they are being challenged by new entrants such as Sabic, Sinopec, Ineos and LyondellBasell.

Sabic leads the pack in terms of sales growth during the last 10 years with sales rising from $4.9bn to $40bn.

But it is BASF which heads the ICIS top 100 table for 2008 with sales of $87.8bn. ExxonMobil pushed ahead of Dow Chemical to capture the number two spot with sales of $58.1bn. Dow came in third with sales of $57.5bn. Only one Indian company figures on the list - Reliance Industries which is ranked at No 34

Last year's financial crisis left its mark on the industry. Of the top 100 companies, 23 posted net losses in 2008 and overall profits fell 53% year-on-year.

A full listing of the top 100 chemical companies is available here.