After two decades of outperformance, the global chemical industry has entered a structurally different operating environment. Since late 2022, global chemicals have trailed the broader market, with total shareholder return (TSR) turning negative. This shift is driven by inventory destocking and China’s structural overcapacity putting pressure on prices. Global petrochemical operating rates have fallen to approximately 70 percent, considerably below pre-COVID-19 averages of approximately 80 percent,1 and rising US tariffs (now averaging 18 percent)2 are reshaping competitive dynamics and accelerating supply regionalization.
While these headwinds compress near-term margins, they also present opportunities for leaders to reposition for long-term advantage. India’s strong domestic demand, competitive cost base, and expanding role in global value chains offer structural resilience relative to many other markets. Indian companies that act boldly—focusing on high-growth sectors, building differentiated capabilities, and streamlining capital deployment—could be well positioned to drive the next phase of the industry’s evolution.
The global chemical industry: A new paradigm
The industry has shifted from a phase of broad-based value creation to one of structural capacity imbalance. Following strong TSR during China-led expansion and the COVID-19 upcycle, the global chemical industry now faces declining returns—TSR of 1.2 percent over the past two years3 as capacity additions, particularly in China, have exceeded demand and depressed global utilization rates. Over long-time horizons, commodity and specialty chemicals have delivered similar average returns, while diversified chemical companies have consistently lagged by an average TSR of 0.5 to 2 percent.4 Although specialty chemicals continue to outperform on a relative basis in the current cycle, returns have moderated given customer destocking, China’s overcapacity, and weakening pricing power. Petrochemicals are the most affected, as sustained oversupply has pushed utilization to multiyear lows and delayed margin recovery.
Headwinds confronting India’s chemical industry
Over the past decade, Indian chemical companies have delivered a TSR CAGR of approximately 17 percent,5 two to three times the return of most global peers and outpacing the Sensex. A changing world order has, however, softened value creation, with base chemicals experiencing sharper declines than specialty chemicals over the past one to two years.
Industry revenue growth over fiscal year 2019 to fiscal year 2025 has tracked nominal GDP growth of 6 to 7 percent, yet EBITDA margins have compressed across multiple segments.6 Value creation has become noticeably bifurcated: A limited set of winners combine double-digit growth with margin expansion, while the broader cohort remains mired in modest growth with flat margins. These pressures have slowed capital expenditures momentum, with utilization rates across specialty chemicals averaging 60 to 75 percent and new lines operating at just 20 to 30 percent.7
Raising global ambitions for the Indian chemical industry
India’s chemical market is projected to expand at 8 to 9 percent CAGR over the next five to six years, reaching $230 billion to $255 billion from the current $155 billion to $165 billion and potentially outpacing the GDP growth rate.8 Trends indicate a significant growth opportunity for companies willing to look beyond domestic demand and scale capabilities to compete as global suppliers.
At a macro level, McKinsey research has identified 18 distinctive arenas of growth that could generate $1.7 trillion to $2 trillion in revenue for India by 2030, led by technological advancements and sustained investment.9 Of these, eight select arenas, including construction, semiconductors, renewables, and automotive, have significant usage of chemical inputs and could add $30 billion to $35 billion to chemical revenues by 2030, as downstream capacity expands through government funding, policy incentives, and supply chain localization.10 In parallel, India’s approximately $31 billion chemical trade deficit in 2025 highlights a substantial import substitution opportunity, particularly in inorganics and polymers.11
How Indian chemical companies could create value
Amid global volatility, overcapacity, margin pressure, and trade fragmentation, profitable growth is likely to depend on sharper choices around portfolios, capabilities, capital allocation, and execution. Focused moves across seven levers could help build resilience and global competitiveness for Indian chemical companies:
- Build domestic platforms with global reach. Eight select arenas can now support global-scale chemical operations in India. Even individual segments offer significant near-term opportunities, highlighting the importance of timely investments and strategic partnerships.
- Create global operating capabilities in priority markets. With only an approximately 3 percent share of global trade,12 Indian companies could build global operating capabilities to enhance growth and pricing power.
- Institutionalize programmatic partnerships. As global deal activity accelerates and asset valuations reset, Indian companies could drive partnerships to access technology and markets that may otherwise require prolonged organic development.
- Turn innovation into a growth engine. There is scope to transform R&D from a process-focused technical function into a strategic growth engine through technology development, application-led innovation, customer-embedded creation, and accelerated commercialization—independently or in partnership.
- Integrate AI into the operating model. We estimate that AI and advanced analytics could deliver eight to 12 percentage point EBITDA improvements across procurement, manufacturing, and supply chain, without heavy capital spend.13
- Build resilient supply chains. Recent disruptions, including pandemic-related shutdowns and logistics bottlenecks, underscore the need for more resilient supply chains such as distributed warehousing, regional inventory positioning, and vertical and horizontal integration or partnership arrangements.
- Strengthen the balance sheet and P&L. Amid geopolitical turmoil, maintaining balance sheet headroom and active management of working capital, foreign exchange, and energy exposure are important, not only as defensive necessities but as strategic enablers.
While challenges may persist, these seven levers could help Indian chemical companies to reignite growth while maintaining profitability amid heightened global volatility. Firms that prioritize structurally attractive markets, develop specialized capabilities, and deploy capital with discipline can lead India’s chemical industry into its next phase of global prominence, with early movers not only achieving superior scale but also shaping competitive dynamics for the decade ahead.
