New Delhi [India] June 9 (ANI): Despite global uncertainties and ongoing challenges, the long-term outlook for Indian chemical companies remains optimistic, driven by opportunities in speciality chemicals, import substitution, and growing exports under the China+1 strategy adopted by global customers, according to a recent report by BP Equities.

The report highlighted that the chemical sector experienced a subdued pricing environment in May, continuing to grapple with multiple headwinds such as weak global demand and pressure across major end-user industries.

While the anticipated recovery in the second half of FY25 did not fully materialise, the sector saw some relief in the fourth quarter (Q4FY25) with early signs of volume recovery and margin improvement, aided by operating leverage.

'Despite continued pressure on pricing, operating margin delivery has improved sequentially in Q4 FY25, primarily driven by cost rationalisation measures and increased utilisation levels,' the report noted.

The agrochemicals sub-segment continued to face delays in recovery, which were attributed to elevated channel inventory and Chinese overcapacity that led to dumping, coupled with a higher interest rate environment.

However, the Contract Development and Manufacturing Organisation (CDMO) segment for pharmaceuticals demonstrated strong growth momentum, supported by a robust order book and stable demand.

The report pointed out that although green shoots are emerging in a few sub-segments, a meaningful sector-wide recovery will hinge on global demand normalisation, price stabilisation, and a reduction in competitive pressures from Chinese exports.

On the international front, the European chemical industry is struggling with subdued competitiveness due to weak demand and uncompetitive energy prices. This has particularly impacted commodity products and petrochemicals, where China holds a significant advantage.

The European Union (EU27) chemical sector continues to face challenges stemming from declining business confidence and sluggish demand.

Despite these global headwinds, Indian chemical firms have delivered a relatively resilient performance in Q4FY25.

'While macro factors such as tariff issues, supply Chain, and Chinese overcapacity are beyond management's control, Indian chemical companies have performed well in Q4FY25 amid global uncertainties,' the report stated.

Looking ahead, companies have revised their capex guidance for FY26 in response to the market environment. This adjustment will help them focus on scaling up recently commissioned projects and improving the quality of their earnings. (ANI)