Bio-based chemicals to attract $1 bn investment

The bio-based materials and chemicals industry is poised to attract nearly $1 billion in investment this year, led notably by later-stage funding rounds, according to Lux Research. The estimated $974 million investment represents a 28% increase from 2013, suggesting companies that endured the waves of economic disruption have gained maturity and regained investors’ confidence.

“Over the last two years, funding for bio-based materials and chemicals has shifted decisively toward later-stage rounds, reflecting the growing maturing of the industry and the shift from R&D to production,” said Meraldo Antonio, Lux Research Associate and the lead author of the report titled, ‘Dynamics of venture capital funding in the bio-based chemicals industry’

Further reduce drug prices

Biocon chairperson and managing director Kiran Mazumdar Shaw today raised concerns that the new government's intention to bring down prices of essential drugs by 25-40 per cent could deter manufacturing of such medicines by companies.

After taking charge, Fertilizer and Chemicals Minister Ananth Kumar had stated that he would talk to pharmaceutical companies and try to bring down prices of essential drugs by 25-40 per cent.

"Minister Ananth Kumar's mandate to further reduce drug prices can potentially deter quality drug makers from manufacturing essential drugs," Shaw said on the micro blogging site Twitter.

India’s chemical markets

India's market for chemicals is estimated at US $ 35 billion. Owing to the increasing wealth of the Indian population and accumulated needs, analysts expect further growth in the future, a new market report by Germany Trade and Invest says.

According to German Trade and Invest survey report, India's chemical industry, although on a back foot compared to the European or American industry leaders, is still on a growth curve. The country is estimated to be the world's 12th largest producers of chemicals and expected to profit from its emerging economy and consumer demand. The IIP index of industrial production for chemicals rose by 2.3 per cent within the last year.

An even higher growth is expected for the current year, mostly driven by a post-crisis rise in market demand of automotive supplies, building and construction and consumer goods.

The Ministry of Chemicals and Fertilizers estimates the country's chemicals market at US $ 35 billion (US $ 20 billion of which are the market for basic chemicals while the speciality chemicals market is rate with US $ 9 billion). The Indian Chemical Council has even projected the Indian chemical markets to reach a total US $ 68 billion market (basic chemicals US $ 33 billion, speciality chemicals US $ 17 billion). Both still expect a big potential for growth in the Indian chemicals market.

China chemical industry - Growth

The China chemical industry is maturing and will grow at a much more settled pace than during the  previous boom years. This new but stable GDP growth rate of around 7 % , along with urbanisation, rise in domestic consumption, greater demand for auto and electronic products and ambitious sustainability targets will provide ample growth opportunities. KPMG estimates that this will enable the Chinese chemical industry to grow by between 9 and 11 percent in the period 2013 to 2015.

Despite strong and stable growth in chemical manufacturing, China continues to have a net chemical deficit and is heavily dependent on imported material. This dependency makes the sector vulnerable; it has been affected by price trends in the world market caused by renewed international demand for raw materials, petroleum and other chemical inputs since last year.

Boosting the consumption of natural/shale gas can help China develop its low-carbon economy. For the chemical industry, natural gas could be used to produce synthetic ammonia and methanol, bringing economic benefits 20-30 times higher than those generated by coal and petroleum. China has approximately 26 trillion cubic metres of  recoverable shale gas, close to America’s 28.3 trillion cubic metres.

The US produced 87.8 billion cubic metres of shale gas in 2009, and if China’s output could reach one third of that, its natural gas gap of 30 billion cubic metres could be bridged.32 However, technology is a precondition for success in this sector and China has a long way to go — it needs  to promote shale gas exploration, deepen basic research in geology and improve exploration technologies before it can harness the industry’s full potential.

A trend to watch out for is the way domestic companies deal with specialty sector demand, which has grown in a spectacular manner. In 2012, the gross production value of China’s specialty chemicals exceeded RMB 2 trillion, while total domestic output exceeded 100 million tonnes.

China imported about 10 percent of its specialty chemicals and more than half of its electronic chemicals in 2012, indicating  that there is still a lot of scope for internal growth. The priority of industry managers is now on developing: a) high- performance electronic chemicals and fluoro coatings and b) high-end specialty chemicals, such as safe food additives and feed additives, eco-friendly adhesives, plastics additives and water treatment agents.

Among all specialty chemicals, China is least self sufficient in electronic chemicals, which now represent an RMB 30 billion market that has room for further growth