Tariffs, competition may lead to further downgrades for chemicals sector

The imposition of tariffs by the US is a negative for the chemical industry.

- DEVANGSHU DATTA

Retaliatory tariffs add to the risk. The US tariffs will lead to slowdown in gross domestic product (GDP) growth, especially in key end-users like automotive, construction, and consumer durables, in addition to agrochemicals and pharmaceuticals. It will intensify competition in markets outside America and may lead to renegotiations with US-based customers.

Valuation downgrades are likely to be widespread.

Industry confidence is below pre-Covid levels with order books down since January 2022. Global production levels have also trended down. The Indian chemical sector is experiencing slow recovery on volume growth. Pressure from Chinese imports persists despite anti-dumping tariffs.

Some Indian chemicals companies may give good Q4FY25 performance on a low base. There is restocking demand in agrochemicals, normalization of demand in fluoropolymers and better pricing in refrigerant gases. But the 2024-25 March quarter (Q4FY25) results may move the market less than the projected impact of tariffs.