India Chemicals Blog

Looking for a high-paying job? How about investing in a PhD degree first?

The Indian R&D sector is booming and so are salaries even as companies struggle to find scientists. The boom is being led by the pharmaceuticals sector with both Indian companies and multinationals expanding their R&D units to take advantage of India's scientific talent.

This report in the Business Standard says salaries in the range of Rs10-40m ($240,000-$975,000) are being paid to leading scientists in pharmaceutical companies. Salaries are steadily heading to international levels.

At this rate, how long will India enjoy the cost advantage? Not many years, I suspect. India cannot, in the future, rely only on cheap talent to draw R&D business from the West or even China.

India, I thought, had done a lot to curb industrial production and clean up its environment. I was also quite sure that the country was miles ahead of China in this area. So I was quite surprised to find that the Blacksmith Institute’s latest report on the world’s most polluted places includes two Indian cities – Vapi and Sukinda.

The list also has two cities from China and two from Russia.

I was, of course, not surprised that Vapi has been selected among the various Indian cities. The city is on Gujarat's "Golden Corridor", a 400 km belt of industrial estates, which according to the Institute has over 50 industrial estates and more than 1000 individual industries. Many of these manufacture chemicals, petrochemicals, pharmaceuticals, pesticides, dyes, fertilisers and paints.

The Institute identifies heavy metals, cyanides, pesticides complex aromatic compounds as some of the toxins contained in the waste products discharged by industries in this region.

Mercury in Vapi’s groundwater is reported to be 96 times higher than WHO
health standards. And the Institute states that effluents drain directly into the Damanganga and Kolak Rivers and there is air pollution due to the improper handling of chemicals by industries.

Vapi’s problems date back to the 1990s when the Supreme Court had stepped in to demand a clean up. It is sad to see that so little has changed after so many years.

And it is problems at places such as Vapi that tarnish the image of the chemical industry in the eyes of the common man.

The Indian government has done well to introduce western style laws related to environmental protection. But what’s the use of these laws if the government fails in implementation.

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.

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).

It is good to note that the Indian government is looking to boost R&D spend in the chemicals industry.

According to this report, agro chemical companies would be given an income tax exemption to the extent of 1.5 times their annual R&D expenditure. The benefit will be available to all locally done research by multinational companies. This scheme is currently available only to the pharmaceutical industry.

Indian chemical companies need to get serious on R&D and innovation to effectively compete globally.

There has been some debate on how much companies should expect from innovation. Mckinsey has undertaken research on whether R&D investments have translated into returns that would meet investors’ expectations.

The model used included R&D and capital expenditure costs, a molecule’s life cycle from launch to maturity, associated peak profitability and eventual erosion. On this basis, to achieve break-even return a business unit would need to see 5-9% of its sales derived from products introduced in the past five years for every 1% of its sales invested in product-related R&D. In process-related R&D, every 1% of sales invested should achieve a 2-5% reduction in total production costs.

The consultancy applied these criteria to 27 chemical businesses from Europe, North America and Asia. The research showed a rather disappointing return-on-investment performance: 60% of the chemical companies failed to generate positive returns from their R&D investments, while another 20% earned only a marginally positive return. Only 20% companies succeeded in generating a substantial return.

Ernst & Young has just released a report on the Indian speciality chemicals sector which accounts for around 24% of the US$40bn Indian chemicals industry.

The report presents a favourable outlook for the sector with growth expected to be around 15%/year as compared to a global growth of around 7%.

India's attractiveness as an outsourcing hub will be the principal gorwth driver. Ernst & Young expects merger and acquisition activity to increase as India's edge in speciality chemicals becomes more visible.

Indian speciality chemical exports are projected to grow at 22%/year from US$4bn in 2007 to US$13bn in 2013.

Indian companies, it says, are well placed to expand as profitability has improved in the last few years due to product innovation, operational efficiencies and volume growth. The EBITDA for Indian speciality chemical companies has grown by 16%/year during 2002-06 to reach US$47.7m in 2006. Net profit has gorwn by26%/year during the same period to US$25.5m. Net profit margin has increased by 270 basis points to 7%. Return on capital employed has expanded from 22.7% in 2002 to 29.4% in 2006.

But the major concerns are poor infrastructure, shortage of power and high power costs and the cost of complying with Reach.

Ernst & Young recommends that companies should ramp up R&D expenditure to offer high value added and differentiated products and practice systematic cost management and innovation programs to remain globally competitive

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 EU has included many chemicals, petrochemicals and plastics in the negative list that is part of the FTA discussions. Products on the list would not get any duty concessions.

The move is a major obstacle for Indian companies eyeing the European market for future growth.

But it is early days yet as discussions on the FTA are in the initial stages. The industry still has the chance to lobby against the inclusion of chemicals on the negative list.

I have often talked about the resistance that new chemical projects are likely to face in certain parts of the country. Cuddalore in Tamil Nadu is also on the list.

I recently came across the SIPCOT Area Environmental Monitors website that lists out environmental problems in Cuddalore which allegedly are the result of chemical manufacturing operating in that area.

A citizens’ movement has also been formed to deal with problems arising from air and water pollution.

The website goes beyond Cuddalore to cover other chemical zones in Tamil Nadu. The most recent news update on the site is about fishes dying in the river Kaveri at Mettur, the site of Chemplast Sanmar’s PVC facility.

Chemplast is also building a new PVC facility in Cuddalore . At least that project appears to be on track for completion in the second half of this year

Business is booming in India’s custom research and manufacturing services (CRAMS) industry thanks to the country's strong process chemistry skills, low operational costs and the availability of a skilled workforce.

Frost & Sullivan values the Indian CRAMS market at $890m, and expects it to expand by 40% in 2008. It estimates the market for outsourcing in the pharmaceutical and biotechnology industries at $100bn in 2006, which is likely to reach $168bn by 2009. Manufacturing of active pharmaceutical ingredients (APIs) was the largest contributor, followed by clinical research and drug discovery.

But the rapid growth has created many challenges that are testing the management skills of the 25 or so Indian companies in the CRAMS space.

Wages are rising by 15-20%/year and are likely to continue at that pace for the next two to three years.

Despite India's large pool of skilled labour, getting the right people is a big problem. An even bigger problem is retaining them. This is a major issue in the contract research area, as it can impact sponsors, says Shivani Shukla of Frost & Sullivan. Knowledge management has become critical.

In addition, global acquisitions in the last few years have resulted in the need for a new breed of managers - those with a global vision and the ability to understand different cultures.

With job-hopping becoming common, companies are being forced to hike salaries to retain employees rather than reward them for performance, says Jai Hiremath, vice chairman and managing director of Hikal, which recently signed a deal with the US's Pfizer for manufacturing APIs.

The government needs to invest more in education while industry, too, must make chemistry an attractive choice for university students. A recent research study showed that only 15% of school students chose to pursue science in 2006 - down from 32% in 1950.

The other issues confronting Indian companies include the appreciation of the rupee, rising costs, and managing the supply chain, particularly from China. Many India companies rely on China for supplies of intermediates and the supply chain was badly hit last year after the Chinese government introduced a number of new policies.

There is also a fear that Indian companies may be getting overconfident.

If one company slips up on quality, resulting in product recalls, it could create a backlash similar to the one China experienced last year. There are people waiting to say that India supplies cheap products by cutting corners, says a second source.

Despite global success and around 80 US Food and Drug Administration-approved plants in India, there is a still a perception that Indian quality is not good and that operations in the country are too bureaucratic. Companies have to fight it out, advises Shukla.

Industry players are clear that they can no longer rely on cost arbitrage for growth.
"To some extent, the US and European companies understand the cost structure of the service providers - quality and project management are critical," points out Bharat Shah, president of Calyx International, a manufacturer of APIs and intermediates that entered the CRAMS space in 2001.

Comparisons with China are inevitable as China is picking up faster than expected and Indian companies better watch out.

China's strength in contract manufacturing of APIs is likely to continue. But Chinese companies are also extending their reach by building capabilities in biologics, bioinformatics and molecular biology. As Chinese companies do not face regulatory issues on the use of higher animals for tests, Shukla expects China to play a big role in supply of biology-based services.

However, one industry source points out that China has its own share of problems.
"The country has good process chemistry available and companies are strong in running their plants. But there is a lack of financial clarity. What will happen if the government subsidies go away?"

He believes contract manufacturing for products with low value addition will go to China, while companies seeking value addition will make their way to India.

Despite these challenges, the overall mood is one of optimism.

Shukla foresees expansion in new areas, including contract manufacturing of injectables, which is currently a minor segment because of the need for sterile facilities and specialized technical knowledge.

And biology-based services are gaining momentum as is evident in the rapid rise of companies such as UK gel documentation firm Syngene, integrated systems biology platform company Avesthagen and biotech firm Reliance Life Sciences, both of India.

The next three years will be good for the industry, says Shah of Calyx.

"There is significant room left [for growth]. The R&D [research and development] budgets have not been fully exploited by India and China," he says. "There will be competition and Indian companies will have to figure out a way to differentiate."

Some strategic shifts are already evident, with Indian majors moving up the value chain and entering into partnerships involve early-stage licensing and risk sharing.
Nicholas Piramal India Ltd (NPIL) signed an agreement with US pharmaceuticals giant Merck last November to carry out an integrated drug discovery program that would give the pharma giant an option to advance the most promising drug candidates into late stage clinical trials and commercialization.

NPIL will be eligible for payments on completion of certain milestones and royalties on sales of any products resulting from the collaboration.

I am quite surprised at the West Bengal government’s commitment to the chemical hub at Nayachar. The latest news is that PCR Chemicals, a joint venture between the West Bengal Industrial Development Corp and New Kolkata International Development, will be developing the infrastructure at the hub.

New Kolkata has been promoted by Indonesia’s Salim Group, Unitech Ltd and Universal Success.

Land has also been transferred to the state government’s industries department for development.

Where is the green lobby? I have not yet heard of any major protests.

India is seeing a rapid growth in the outsourced R&D business but the country still trails behind China and much of the developed world in this sector.

This was evident in the numbers presented by the science and technology minister to the parliament yesterday. India has 150,000 researchers compared with China’s 800,000-1m.

The number of researcher per million of population is only 156 for India, way behind 7,000 in Scandinavian countries and 4,700 in the US.

India’s R&D spend as a percentage of GDP is only 0.8% compared with 3% for developed countries.

And despite growth in business, the private sector trails behind the public sector which accounts for 80% of R&D spend in India. This is vastly different from US and even China where the public sector share is only 30%.

The government also appears to have recognised the need to improve the education system to produce more researchers. Funds allocated to scientific departments during the 11th Plan period (2007-2012) have been raised three fold to Rs753bn (US$19bn).

For more on Indian R&D, I recommend this report. It reviews major developments and identifies future prospects for this sector.

Hikal is busy consolidating its position in the Indian CRAMs (contract research and manufacturing services) space.

It recently secured a long-term contract with Bayer CropScience for supply of active ingredients for crop protection chemicals. And now Hikal plans to invest Rs 2bn (US$50m) in setting up four new manufacturing facilities in Bangalore and Mumbai and an R&D centre in Pune.

The facility at Mumbai will be a multipurpose one to meet Bayer’s requirement while the one in Bangalore will supply APIs (active pharmaceutical ingredients) to Pfizer and Alpharma.

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.

I am back from my holiday and have discovered no earthshaking developments in the last few weeks. But the following news articles caught my eye.

First, Dow Chemical’s European arm and GACL have agreed on a 50:50 joint venture to produce 200,000 tonnes/year of chloromethanes at Dahej, on the west coast of India. The plant is likely to start in 2011. State-owned GACL would supply chlorine, power and lease land to the joint venture while Dow would license its technology and also bring its marketing and sales experience.

The project indicates Dow’s growing interest in India and the government’s desire to attract foreign investors. But both sides may find the going difficult as the Bhopal issue has yet to be fully resolved and continues to attract NGO attention. It was only a couple of months back that Dow faced strong opposition to its planned R&D centre at Pune.

This article from today’s Business Standard indicates that while some government officials are keen to close the Bhopal chapter, others would like it to end only if Dow cleans up the site. It also quotes the chemicals, fertilisers and steel minister as saying that he is against doing any business with Dow until the liability issue is resolved.

Meanwhile, yet another SEZ is facing public ire. This time it is the Visakhapatnam-Kakinada corridor on the east coast of India where the state government plans to develop a mega refining and petrochemical hub.

Locals are reported to have demonstrated in front of the district collector’s office at Visakhapatnam as they believe the industrial activity on the coast would ruin the livelihood of fishermen, destroy mangroves and cause ecological damage.

At Paradip, also on the east coast of India, environmentalists have voiced concerns over the dredging operations being carried by Indian Oil Corp (IOC) for its refinery and petrochemicals project.

And in Tamil Nadu, the Tatas have reportedly shelved their titanium dioxide project because of problems related to land acquisition.

But there has been some progress in Mangalore where the first phase of a proposed SEZ has received environmental approval. The SEZ includes an aromatics and olefins complex as well as a refinery expansion by MRPL. This SEZ had faced strong public opposition which I had highlighted in my previous entries.

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.

Indian demand for caustic soda has been steadily expanding thanks to the alumina sector but investments in new chlor-alkali facilities are being held back by limited demand growth for chlorine.

As is usually the case, India’s low per capita consumption suggests immense opportunity for growth. India’s per capita chlorine consumption is only around 1.85 kg as against China’s 13 kg. This figure can grow only if the industry invests heavily in vinyls – the key end use market for chlorine.

Globally, around 39% of chlorine finds it way to the vinyls chain. The other big end-uses are isocynates and propylene oxide.

India imports around 400,000 tonnes of PVC annually but except for Chemplast Sanmar’s new plant due this year, no new investments have been announced. A big headache for prospective investors is securing ethylene at the right price.

The local market for many of the other end-uses is still too small to support worldscale investments. And unfortunately India has not been able to build a chlor-alkali hub which would link all chlrine users along the lines of what has been developed in Geismar, US, or Botlek in the Netherlands.

I think one Indian site that has the potential to develop as a chlorine hub is Dahej where Gujarat Alkali and Chemicals Ltd (GACL) plans to link its chlor-alkali facility with an investment in chloromethane in joint venture with Dow Chemical. Reliance Industries already has a cracker at the site and ONGC is planning one which should have ethylene to spare for a vinyls unit. All that is needed is to bring in a few more investors to complete the chlorine chain. Other chlor-alkali facilities at the site include one operated by Reliance Industries and a second being built by Meghmani Organics.

At last week’s one-day seminar on chlorine derivatives organised by the Alkali Manufacturers’ Association of India (AMAI), there were plenty of fancy charts and optimistic growth projections. But it was hard to detect any serious commitment towards new investments.

Indian papers and news channels are once again buzzing with reports about Dow Chemical and Bhopal. This time it is about the law ministry's view on whether the company should clean up the Bhopal site.

The law ministry's comments on a note to the Prime Minister's office were obtained by activists who have for long been asking the government to hold Dow responsible for the site after its acquisition of Union Carbide.

According to one report, the law ministry has stated that irrespective of the manner in which Union Carbide has merged or has been acquired by Dow, if there is any legal liability it would have to be borne by Dow.

A second report adds that the law ministry can decide on the extent of Dow's liability only after checking on the details of the Dow-Carbide deal to see if the transaction had specifically excluded liabilities arising out the 1984 Bhopal gas tragedy.

A copy of the note is available on the Bhopal.net website.

Some 50 victims of the Bhopal gas tragedy are currently in Delhi attempting to draw government attention to their problems.

The Bhopal issue has continuously hampered Dow's expansion plans for India (see previous posts). And it obviously raises questions on the company's investment plans for the country, estimated by one newspaper at $1bn.

Are Indian chemical companies ready for Reach? Apparently not, says this report in today's Mint.

The problem appears to be not only lack of awareness about the EU programme for registration, evaluation and authorisation of chemicals (Reach) but also a shortage of labs certified for good laboratory practices (GLP), a standard developed by the OECD.

Under Reach, during a six-month period from 1 June through 30 November, foreign firms exporting to the EU must pre-register any of some 30,000 substances that are shipped to Europe as chemicals or as components in intermediate or end-user products.

The formal process of testing and full registration of all 30,000 substances will begin next year and run through a series of stages and deadlines to June 2018.

The Indian Chemical Council estimates that about 1000 Indian companies exported 700,000 tonnes of chemicals to the EU in fiscal 2007. But India has only about a dozen GLP-approved labs, half of which belong to pharmaceutical majors. The few independent labs face a daunting workload which is likely to leave Indian companies struggling to meet the EU deadline.

Atul has successfully secured a contract manufacturing deal with Stamicarbon and DSM Licensing Centre for phosgene-based polymer performance additives used in polyamides.

Atul will manufacture the additives based on guidelines given by Stamicarbon with DSM marketing the product worldwide under its brand name.

And this could just be the start as DSM has proposed to strengthen the relationship with Atul for more custom synthesis and development work, says Jagdish Shah, executive director at Atul.

ICIS news also reported that within a year Atul would set up a new plant fully dedicated to the manufacturing of these polymer performance additives as it expected an increase in demand following the long-term contract with DSM

I love mangoes but news reports such as this one make me want to give up this king of fruits. Traders looking to make a quick buck are using calcium carbide to ripen mangoes

It appears that the practice of using calcium carbide has been going on for quite a while and is quite widespread in the country. There are plenty of health hazards which the consumer rarely knows.

Calcium carbide reduces the ripening period from 7 days to 3-4 days. What's worrying is that the artificially ripened fruit often looks better than the one that has gone through the natural process.

This is yet another instance of a chemical being misused. Government efforts to cub the use of calcium carbide have failed. Is the green brigade on its way or should I turn to organic mangoes?

The big news today is Daiichi Sankyo's acquisition of a controlling stake in Ranbaxy, India's largest pharmaceutical company, for $4.6bn.

Analysts have been quick to predict many more such deals which will see international pharma majors entering the generic space.

Indian generic players have been steadily expanding their presence in markets in the developed world, which had for long been the preserve of international pharma majors. Falling prices have put pressure on these giants to looks for low cost manufacturing opportunities and also expand their footprint in developing markets.

At the same time, Indian companies have realised that they need to develop as research-based organisation to grow bigger and this requires huge investments. The earlier strategy of copying drugs does not work in the new product patent regime and many Indian companies are currently struggling with legal battles.

Indian companies are also facing a cost push as prices of chemical intermediates have hit record highs. Margins for the small players are said to have fallen from 25-30% to 10%. Prices of drugs are fixed by the central government making it difficult for Indian companies to pass cost increases.

Consolidation makes sense especially if it marries the strengths of two companies.

It is time for the Indian chemical industry to wake up to the threat of increased flow of downstream chemicals from the Middle East.

Countries such as Saudi Arabia are aggressively pushing for the development of a petrochemicals industry that goes beyond olefins and polyolefins. State-owned and private companies are busy planning a host of derivatives.

Tasnee Sahara Olefins Co and Rohm and Haas have signed a 75:35 joint venture agreement for the production of 200,000 tonnes/year acrylic acid in the Kingdom. The Saudi Arcylic Monomer Co is likely to be operational by 2011. Rohm and Hass would take the majority of the output while Tasnee has the right to sell some of the production in the GCC.

This project raises questions on the future of two planned acrylic acid projects in India. The first is by Essar Chemicals with Arkema and the second by Reliance Industries with Rohm and Haas.

And Tasnee is looking well beyond acrylic acid. One of the products being considered is acetic acid. India is again an importer of this product.

PetroRabigh, the joint venture between Sumitomo Chemical and Saudi Aramco, are studying a host of derivatives (styrene butadiene rubber (SBR), MMA, PMMA and EPDM to name a few) for their second phase. The first phase, which includes a cracker and polyolefin and MEG plants, is set for commissioning at the end of this year.

Saudi Aramco's mega joint venture with Dow Chemical includes propylene oxide, polyurethane, epoxy resins, polycarbonate, amines and glycol ether.

And Abu Dhabi's multi billion dollar Chemicals Industrial City is likely to house plants for phenol, cumene and other derivatives.

I was at a petrochemicals conference in Bahrain earlier this week and the desire as well as the government pressure to move beyond upstream petrochemicals to speciality chemicals was clearly evident.

Putting together these projects is not easy. The Middle East does not have a large enough home market and so the burden of logistics costs will be high. Getting skilled manpower is a problem that shows no signs of easing. Technology for many of the derivatives is closely held and getting western companies to part with them is another challenge. Some of the foreign companies present at the conference were also not impressed with the economics of these projects in the Gulf. Their current focus remains China but they admitted that they would be keeping a close watch on opportunities in the Middle East.

So what does this mean for India? With an FTA being planned with the GCC the threat of cheap exports of a wide variety of chemicals is very real. The growing Indian market will be an obvious destination for many of the projects.

Yes, the GCC countries face many hurdles in going downstream but there is a strong government commitment. And importantly these countries have the money to ensure that the strategy works.

Reliance Industries is reported be looking at sourcing technology from India's National Aersospace Laboratories (NAL) to build a 4000 tonnes/year carbon fibre plant at Vadodara.

NAL had set up a 20 tonnes/year plant in Bangalore in 2006 with the material used for light combat aircraft, missile and space programmes.

Carbon fibre is certainly a good business to be in. The product is said to be short globally on increased consumption by the passenger aircraft sector, especially by Boeing and Airbus. Frost and Sullivan expect demand for carbon fibre composites from the aerospace industry to hit 35,800 tonnes by 2010, up from 7,260 tonnes in 2007.

Most of the big manufacturers of carbon fibre have lined up expansion plans. Toho Tenax, a wholly-owned subsidiary Teijin, plans to raise capacity by 1,700 tonnes/year at an existing plant in Germany by 2009.

The company had started up a new 2,700 tonnes/year line in Japan earlier this year. This line raised the company's total capacity to 11,800 tonnes/year. Toho Tenax has projected a 15% global demand growth in the coming years with consumption expected to exceed 40,000 tonnes in 2010.

Japan's Toray plans to invest $149m in the business to meet rising demand from aviation and industrial application. A new calcination and precursor line producing 1,000 tonnes/year of polyacrylonitrile (PAN)-based carbon fibre are due to come onstream in July 2009. This would boost Toray's global capacity to 18,900 tonnes/year.

Toray is increasing its PAN-based carbon fibre capacity at its plants in Alabama, US, and Abidos, France, both of which are scheduled to come online in December 2008. And the company would like to take its total capacity to 25,000 tonnes/year by end-2010.

Toray has also projected a 15% annual increase in global demand but its figure for 2010 is higher at 53,000 tonnes.

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.

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.

India's Foreign Investment Promotion Board (FIPB) has deferred making a decision on a proposed chloromethanes joint venture between a subsidiary of Dow Chemical and Gujarat Alkalies and Chemicals Ltd (GACL) as the government would like more time 'to examine the proposal', reports ICIS news.

The joint venture plans to build a 200,000 tonne/year chloromethanes plant at Dahej, Gujarat state. The project is scheduled for financial closure by late 2008 and commissioning in 2011.

The Dow subsidiary that would participate in the joint venture, Dow Europe, is owned by Dow Europe Holding of the Netherlands. Dow Europe Holding is, in turn, owned by Dow Chemical, which is struggling to get past the Bhopal legacy in India.

Wonder if that has influenced the government's decision on the chloromethanes joint venture?

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.

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.

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%.

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.

It is good to be back to some good news. The election is finally over and the UPA has been voted back to power with promises of stability and more reforms. But the chemicals industry will have to deal with a new minister as Ram Vilas Paswan was not be voted back to parliament.

This report suggests that the chemicals and fertilizers portfolio is likely to be given to MK Azahgiri of Tamil Nadu's DMK, one of the parties supporting the Congress in the UPA coalition. It also warns that the ministry's functioning could move from Delhi to Madurai in southern India where Azahgiri has been elected from.

The long trek aside I wonder whether the new minister's position will be on chemical investments in Tamil Nadu. A very active environment lobby has been attempting to block investments in the Cuddalore chemical zone and making life difficult for companies that already have manufacturing facilities in this area.

And it is not just Tamil Nadu. The new minister needs to look at investments in other parts and decide how to kickstart the much talked about PCPIRs and attract foreign investment.

Dr Sukumar recently posted a detailed analysis of the government's PCPIR plan which clearly outlines the challenges that the government faces.

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?

Jubilant Organosys appears to be taking one more step in transforming itself into a pharmaceutical company. The company is looking at selling its industrial and performance products division and expects to realise Rs3.0-3.5bn from the sale, says this report in today's Economic Times. There was no official confirmation on this from the company.

The division, with sales of around Rs12bn, includes acetyls, PVA, adhesives, animal nutrition, fertilisers and agrochemicals. Jubilant has been steadily expanding its presence in the fast growing pharmaceuticals and custom research and manufacturing services (CRAMS) space over the last few years through mergers and acquisitions.

Selling the 'non core' business makes sense and the news was welcomed by the stock market. But will Jubilant be able to find a single buyer for the diverse products that make up the industrial and performance products division?

I was at a Dow Corning press conference yesterday for the launch of an expanded Xiameter platform in India, another step in its effort to tackle commoditisation of the silicones business.

The no-frills Xiameter, a web-based ordering service, was launched a few years back as customers had become familiar with silicone products and were no longer interested in paying for expensive technical service.

Now as competition for standard grades gets stronger and more speciality grades turn into commodity, the number of products offered via Xiameter is being doubled to 2,100, nearly one third of the company's 7,000-strong product portfolio.

The successful Xiameter business model helps differentiate price-driven customers from innovators, explained Jean Paul Mollie, region president for India, Middle East and South Africa at Dow Corning.

While the Xiameter brand offers standard silicones at market prices, the Dow Corning brand offers speciality products and new applications for customers wanting customized solutions and technical support. Interestingly, nearly 40% of sales of the two brands is now web-based.

The expansion of the Xiameter platform illustrates an ongoing challenge facing speciality chemical companies. As no product remains a speciality forever how should companies handle commodity products without diluting the essence of the specialities business - innovation and service? Should portfolios be continuously reassessed to reduce focus on maturing products? How much time and money should be invested in developing new business models to maintain cost-leadership in commodity grades? How can commodity markets be serviced most efficiently? Is Internet the answer?

Mollie declined to estimate the size of the Indian market for silicones and would only say that the country was seeing strong double-digit growth. Dow Corning will be focusing on opportunities in the transportation, construction, solar energy and life science sectors in the country.

Dow Corning has a strong focus on solar power globally and has plans to expand capacity by 90% within the next four years. A new solar solutions application centre is being set up in South Korea to cater to the Asian market.

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.

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.

Green chemistry is gaining ground in India with alert companies following the global trend to make products from renewable feedstocks, reduce waste and energy consumption.

Pradip Kadakia, Abhishek Nigam and Ashwin Rao of Tata Strategic Management Group (TSMG) say that Indian chemical companies are making good progress in lowering the industry's environmental footprint by adopting green chemistry strategies.

They point out that growing environmental consciousness has resulted in increasing demand for green products and processes such as green buildings. These buildings cost 3-8% more than conventional buildings but payback in less than three years through operational savings. More than 300 green buildings have already been constructed in India and 700 more are due to be built by 2010. These buildings materials will spur demand for products such as high performance glass, low VOC paints and fly ash blocks.

India with its huge arable land area has a good potential for bioresources. And despite concerns about using land for non food applications, national laboratories, academic institutions and companies are actively pursuing biodiesel, bioethanol, bio-surfactants, biopolymers and biopharmaceuticals. They cite the example of Godavari Biorefineries that has started manufacturing products from renewable resources forming an entire value chain from sugarcane to sugar to other products such as ethanol, chemicals and biofertilisers.

But though green chemistry has taken off more support will be needed from the government. And companies too need to plan out their strategy carefully rather than simply following a global trend. TSMG suggests building clear sustainability goals that can be translated to market facing goals. And companies also need to assess life cycles of existing products and look for opportunities to introduce green products.

And opportunities can come up in unexpected areas. A recent report in ICIS Chemical Business highlights the move by sporting good manufacturers to incorporate chemicals based on renewable resources.

For example, Merquinsa, a Spanish thermoplastic polyurethane (TPU) producer, is collaborating with Brooks Sports, a Washington, US-based sports equipment company, to develop sustainable performance running footwear. The bio-TPUs are renewable-sourced, with 20-90% bio-content, says Merquinsa.

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.