Consumer Durables News

Untapped potential

Pakistan Chemical Expo 2022 held at Lahore during July 19-20 has showcased the status of domestic chemical industry, and highlighted potential of trade and investment in the sector. At this crucial juncture and depressing environments when the country is facing severe economic crisis adversely impacting industrial activities in particular it was a very reassuring event, said to be the first of its kind, which was participated by some 70 local and 10 international exhibitors.

Globally, chemical industry is one of the largest and fast-growing sectors — a market of about four trillion dollars with over 70,000 products. It is recognized as the “mother of industries” since it is vitally important for industrial development and self-reliance as a major raw material provider. Many of the chemicals are part of our daily life, whereas others are main constituents of practically all the manufacturing processes. Industrial chemicals, in solid, liquid and gas form, are commonly used almost in all industries including pharmaceuticals, rubber, soap & detergent, cosmetics & toiletries, food & beverages, cement, fertilizer, ceramics, glass, sugar, pulp & paper, iron & steel, oil & gas, leather & tanneries, coatings & inks, textiles, and engineering industries, to name only a few.

Thus, chemical industry also provides key linkages in terms of product technology to several industries such as automotive, engineering, consumer durables, food processing, and petrochemicals. About seventy percent of overall industrial chemicals—basic, formulated and intermediates—are consumed by the manufacturing sector. For this reason, growth of industrial chemicals sector worldwide is directly proportional to the growth of overall manufacturing sector. The broad and varied ranges of chemicals are classified and sub-classified as agricultural chemicals (such as fertilizers, pesticides & insecticides), petrochemicals, (such as lubricants, oil, grease), explosives, paints & coatings, industrial gases, absorbents, acids, alcohol, ammonium compounds, hydroxides, catalysts, organic chemicals, inorganic chemicals, oxide compounds, adhesives & sealants, soaps and cosmetic chemicals, metallurgical chemicals, general chemicals, specialty & fine chemicals, and numerous solvents, pigments, stearates, resins, plastics and polymers etc.

The organic chemicals are organic acids, carbon tetrachloride, chemical color, dyes, organic pigments, ethylene glycol, phenol, styrene, vinyl chloride, etc. On the other hand, inorganic chemicals include inorganic acids, aluminum hydroxide, calcium chloride, inorganic chemical color, chloride of lime, chlorine, fluoride, fluorine salt, hydrochloric acid, hydrogen peroxide, nitric acid, nitrite, phosphoric acid, inorganic pigments, sodium bicarbonate, sodium carbonate, sodium hydroxide, sulfuric acid, zinc oxide, zinc peroxide, and sodium.

Pakistan’s chemical industry, despite facing global competitive markets and lack of policy support from the government, has grown progressively over the years, and is considered one of the robust industries having seen many ups-and-downs in the past. It also had setback in 2020 due to Covid-19 pandemic like other industrial segments, but soon recovered. It contributes to 3 percent of the Gross Domestic Product (GDP). Currently, there are 28 listed companies engaged in production and marketing a large variety of chemicals, employing thousands of work-force. In addition, there are many units operating in non-organized sector.

Industrial chemicals are produced by converting raw materials such as fossil fuels, minerals and metals, and water, most of which are indigenously available. The domestic industry produces a broad range of industrial chemicals for various applications, classified as leather & textile chemicals, paints, inks, coatings, dyes, pigments & solvents, pharmaceuticals & active pharmaceutical ingredients, pesticides & insecticides, adhesives & resins, petrochemicals & intermediates (including polyvinyl chloride PVC), chlor-alkali such as soda ash (sodium carbonate), alkali & salt products including caustic soda (sodium hydroxide), industrial gases, oleo-chemical products, acids, hydrogen peroxide, mineral processing & chemicals, water treatment chemicals, silicon sealants, construction chemicals, soap & cosmetics, and paper chemicals.

Generally, the industry makes huge profits based on high demand of products and low competition, and profits are increasing as its earnings have grown 24 percent per year over last three years, and revenues 15 percent per year. Engro Polymer & Chemicals has commissioned another PVC plant in December 2021 thereby enhancing its PVC production capacity to 295,000 tons annually. Descon Oxychem’s project for increasing production capacity of hydrogen peroxide at existing facilities has recently been completed, whereas Engro plans to enter into production of hydrogen peroxide. Likewise, Nimir Industrial Chemicals is investing Rs 1.6 billion for upgrading and expanding its existing production units.

With the exception of multinational players, the chemical industry has low level of production, unable to maintain consistency in production and quality, and most of products are low-value-addition items. The industry has not focused on diversification of products, particularly of industrial chemicals, and remains narrow-based, though due to various constraints. Its exports in the year 2020-21 were nominal at $1.15 billion, to Afghanistan, Bangladesh, UAE, Vietnam, Turkey and other countries, which constituted 4.54 percent share in total national exports. Products exported included plastics materials, pharmaceutical products and other industrial chemicals. Top exporters are ICI Pakistan, Nimir Industrial Chemicals, Engro Polymer & Chemicals, and Sitara Chemical Industries.

There is tremendous potential for the development of chemical industry in view of great demand of industrial chemicals, which is reflected in the fact that during 2020-21 Pakistan imported industrial chemicals valuing $8.6 billion, which included plastic materials, medicinal products, insecticides and other items. The huge imports of industrial chemicals, both in terms of value and volume, show the importance and need for capacity expansion and product diversification of the domestic chemical industry. It is projected that Pakistan market value of chemicals is expanding fast and could reach $20 billion. As the domestic Large-Scale Manufacturing (LSM) sector grows, with an average growth of seven percent on year-on-year basis, logically, market for industrial chemicals expands. There are promising prospects for increasing exports also.

The situation justifies additional investment in the sector in a big way for the reasons of import substitution and boosting exports. It is thus imperative for the government to support chemical industry through a policy framework, and action plan to include creation of conducive environments for investment, such as (i) lowering energy cost, (ii) stabilizing foreign currency exchange rate, (iii) rationalization of tariffs, (iv) extending low-interest loans, (v) encouraging joint ventures with foreign investors, and (vi) providing incentives for technology development. Indeed, the long-awaited integrated Industrial Policy covering proposed action plan for chemicals industry, should be finalized and implemented by the government without further delay.

The writer is retired chairman of the State Engineering Corporation 

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