US Tariffs Slow India’s Chemical Export Recovery, Says Ind-Ra
India’s chemical sector faces renewed pressure as higher US import tariffs threaten to derail an anticipated recovery in exports and margins, according to a report by India Ratings and Research (Ind-Ra).The agency said a 50 per cent increase in US tariffs could lead to a single-digit decline in revenue for Indian chemical manufacturers, with profitability hit by up to 15 per cent of EBITDA margins. The US accounts for around 15 per cent of India’s chemical exports, of which nearly half falls under the exempted category.
“Domestic demand is likely to be healthy in FY26, but companies with large exposure to non-exempt products in the US will feel the pinch,” said Siddharth Rego, Associate Director at Ind-Ra. “Firms undergoing major capex or those with limited liquidity, particularly MSMEs, could face short-term challenges.”
The report noted that the Indian chemical industry had shown signs of stabilisation after two weak years, with margins improving to 14 per cent in the April-June quarter of FY26 from an average of 13 per cent in FY25. However, the new tariff regime, effective from 27 August 2025, has disrupted momentum, threatening the sector’s near-term prospects.
Exports to the US have slowed since September as companies negotiate cost-sharing mechanisms with buyers. Although chemicals often constitute a small portion of total product costs, allowing partial pass-through, India’s higher tariffs compared with competitors such as China, Canada, and Mexico could erode its cost advantage.
The report highlighted that organic chemicals and agrochemicals form the largest share of Indian exports to the US, while dyes and inorganic chemicals have limited exposure. However, a decline in global textile demand could indirectly affect dye consumption.
Ind-Ra said the sector’s revenue loss would likely remain confined to single digits, but entities with substantial exposure to non-exempt products could see declines extending to low teens. “The direct impact of tariffs on profitability will depend on how much of the cost is absorbed by suppliers versus passed on to customers,” the agency said.
China’s share in US chemical imports fell to about 10 per cent in 2023-24 from nearly 13 per cent in the preceding five years, while India’s share stayed largely stable at around 4 per cent. Despite expectations that India could gain from China’s declining role, Ind-Ra said the tariff disadvantage may limit that opportunity.
While the reversal in tariff differentials with China has reduced India’s appeal as an alternative supplier, it also lowers the risk of cheaper Chinese chemicals flooding the domestic market. Ind-Ra expects lower price erosion and steady domestic demand to cushion the sector’s overall profitability in FY26.
The agency projected that bulk chemicals such as soda ash, caustic soda and carbon black are likely to perform well, while polyvinyl chloride and phthalic anhydride may face pricing pressure. It said government measures, including anti-dumping duties or minimum import prices, would be key to sustaining competitiveness amid external shocks.
Capital expenditure in FY26 will remain focused on cost optimisation and ongoing projects, with many firms deferring early-stage plans. Ind-Ra noted that lower shipments could ease working capital requirements, but slower orders may prompt some players to extend credit periods or raise inventory levels.
Despite the tariff headwinds, most Ind-Ra-rated chemical companies maintain comfortable liquidity and manageable leverage, the report said. However, firms executing large capital projects and MSMEs with tighter financial flexibility could struggle if tariff pressures persist.
“While large corporates are better positioned due to easier access to funding, smaller entities lack such cushions,” Ind-Ra said, adding that continued high tariffs could gradually weaken balance sheet strength across the sector.
The agency said it would continue to monitor the evolving geopolitical environment and assess its implications for India’s chemical exporters.
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