The commodity chemical industry has experienced a challenging period during the second quarter of Calendar 2023, with prices of various chemicals witnessing a downward correction. This correction has impacted key players in the market, as demand from Latin America, Europe, and the US has declined, compounded by the concerning trend of China dumping chemicals in these regions.

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Ethanol and Acrylonitrile

During Q2CY23, prices of ethanol and acrylonitrile each declined by a significant 16 percent quarter-on-quarter (QoQ). This downward trend can create difficulties for companies heavily reliant on these chemicals for their operations, impacting their profitability and growth prospects.

Phenol/Acetone

Another notable decline was observed in the prices of phenol and acetone, which dropped by 13.3 percent and 14.2 percent month-on-month (MoM), respectively. This dip in prices is particularly relevant for companies like Deepak Nitrite as it is a major product for the company. For Clean Science and Vinati Organics, as these chemicals serve as raw materials for their production processes.

Acetic Acid

Acetic acid prices reached their lowest point since 2021. While this may benefit some manufacturers such as Laxmi Organics, Jubilant Ingrevia, who utilize acetic acid as a raw material or end product, the overall weakness in chemical prices presents challenges for the industry as a whole and would specifically impact GNFC as it is the producer.

TDI - Toluene Spreads

The TDI (Toluene Diisocyanate) - Toluene spreads witnessed a decline of 16.7 percent MoM and 13.9 percent QoQ. This negative trend can adversely impact GNFC.

Caprolactam Benzene:

On a more positive note, caprolactam benzene prices remained relatively stable, with a 3.5 percent increase MoM and no significant change QoQ. This development is encouraging for GSFC, as it indicates a potential advantage for their business operations.

EDC

Prices of ethylene dichloride (EDC) increased by 16 percent QoQ. This rise can have implications for Chemplast Sanmar, a company heavily dependent on EDC as a raw material.

Gujarat Alkalies

Caustic soda prices experienced a decline of 6.2 percent MoM and 25 percent QoQ. Such a downward trend can present challenges for Gujarat Alkalies, which operates in the caustic soda market.

Overall, the weakness in chemical prices has been a significant concern for commodity chemical companies. Lower demand from Latin America, Europe, and the US, coupled with China's practice of dumping chemicals in these regions, has exacerbated the challenges faced by industry players. This unfavorable market environment puts pressure on profitability, growth prospects, and the overall financial health of the commodity chemical sector.

According to Parthiv Shah of Tracom Stock Brokers, Aarti Industries and the entire chemical space is facing a very tough time. "The outlook is little hazy for the next six months. But I think long-term these are quality companies with quality management, and as and when cycle turns around, the swiftness in the price movement will also be quick to help the investor to exit in a profitable manner," he said.

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