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Specialty chemical companies within our coverage universe are expected to deliver revenue growth of 11.2% YoY, although revenue is likely to decline 2% QoQ. Volumes are expected to improve across most coverage companies, except those with exposure to the domestic agricultural segment. EBITDA margins are expected to increase by 84bps YoY, but decline by 198bps QoQ, as most companies benefited from low-cost inventory in Q1FY27, which supported margins. Companies with exposure to the Middle East are likely to face near-term disruptions during the quarter, as geopolitical tensions affected trade flows, leading to shipment delays and higher freight costs. Key refrigerant gas prices remained elevated and broadly flat QoQ, continuing to support earnings for companies exposed to the fluorochemicals value chain

Raw material costs have increased for most coverage companies following the West Asia crisis, although most have started passing on the higher costs to customers. Ongoing headwinds in the agrochemical segment continue to persist, although companies such as SRF have indicated that customer engagements have improved. DGTR anti-dumping investigations could provide meaningful relief once implemented, benefiting several domestic players. Overall, we expect performance to improve YoY but decline marginally on a QoQ basis.

Key feedstock prices showing mixed trend:

Crude oil (Brent) averaged USD97/bbl in Q2FY27, up 42% YoY but down 7% QoQ, with the latest price at USD97/bbl. Crude derivatives such as phenol and benzene increased 28% and 38% YoY, respectively, while PET prices rose 32% YoY. Acetic acid and ethyl acetate prices increased 44% and 17% YoY, respectively, whereas caustic soda and soda ash declined 11% and 7% YoY. Sulfuric acid surged 171% YoY, while phthalic anhydride increased 47% YoY. Ammonia rose 32% YoY but declined 17% QoQ. R-22 prices declined 34% YoY but increased 14% QoQ, with the latest price at RMB23,333/tn. Freight costs remained elevated, with the Baltic Dry Index rising 54% YoY and 11% QoQ. Natural gas prices surged 616% YoY and 25% QoQ, while rapeseed oil declined 13% QoQ.

Volume recovery expected:

During Q1FY27, volume growth was impacted by disruptions arising from the ongoing West Asia conflict, which led to raw material availability issues, shipping route disruptions, longer transit times and logistical bottlenecks across global supply chains. Most companies mitigated the impact by diversifying their sourcing across multiple suppliers, and supply-chain issues have now largely been resolved, supporting a recovery in volume growth going forward. However, domestic agrochemical and fertilizer players such as PI and Paradeep Phosphates are expected to witness some volume pressure, given below-normal rainfall and feedstock availability constraints during the quarter.

Baltic Dry Index:

Freight costs remained elevated during Q2FY27, with the Baltic Dry Index (BDI) rising 54% YoY and 11% QoQ, driven partly by higher shipping costs amid disruptions and rerouting risks arising from the Middle East crisis. The elevated freight environment continues to put pressure on logistics costs for chemical exporters/importers, particularly on longer-haul trade routes.

Domestic demand provides stability:

Domestic demand has provided a degree of stability for chemical manufacturers during the quarter. Demand from sectors such as specialty chemicals, refrigeration has remained relatively resilient. This has helped partially offset weakness in other end-user industries and supported overall business performance amid a challenging external environment.

Ongoing anti-dumping duties could provide potential relief for Indian chemical companies:

The potential imposition of anti-dumping duties (ADD) could provide meaningful relief to Indian chemical companies. Within our coverage, Vinati Organics, Laxmi Organics, Gujarat Fluorochemicals, Deepak Nitrite, and SRF are also likely to gain from the implementation of ADD on key products like Para-Tertiary Butyl Phenol, Sodium Nitrite, Antioxidants, Methyl Acetoacetate, PTFE, (2,2,6,6-Tetramethyl-4-Peridyl) Sebacate (UV 770) and HFC blends.

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