High input costs are likely to erode profits for chemical companies

ET Intelligence Group: Escalation of the US-Iran conflict threatens to erode the profits of Indian chemical producers as rising crude oil prices lead to internal costs and shipment delays put pressure on operations. India imports two-thirds of its methanol requirement from Gulf countries, a major food commodity. Methanol is used in the manufacture of industrial intermediates such as formaldehyde, acetic acid, amines, and solvents. Hence, supply disruptions have raised the risk of higher costs.

India faces this conflict due to its dependence on the Gulf countries and West Asia for its fertilizers and various petrochemicals. According to the Kotak Institute, the country imported $3.6 billion worth of petroleum products (including LPG, Naphtha), $1.8 billion worth of polymers, and $1.7 billion worth of nitrogen fertilizers from the GCC (Gulf Cooperation Council) and West Asia in the fiscal year.

For many commodity chemical companies, raw material and solvent costs are tied to raw material derivatives such as naphtha, ethylene, benzene, propylene, methanol, styrene and vinyl chloride monomer. When crude oil prices rise, these feedstocks also become more expensive. Brent crude is up nearly 74% year to date in 2026.

Companies such as Deepak Nitrate, Phenolics Industries, DCM Shriram, Supreme Petrochem, Styrenics, LG Polymers, GNFC, Balaji Amins, RCF, Chemplast Sanmar, Aarti Industries and Atul are expected to be affected.

The rising tensions have also raised risks along Gulf shipping lanes, leading to shipping delays. Recycling not only raises shipping costs but also adds war risk insurance premiums, increasing working capital requirements for chemical companies.

According to ICICI Direct, a prolonged geopolitical logjam is likely to lead to higher raw material and freight rates, which will result in margin compression given the limited ability to pass on costs to customers in a challenging environment.
According to Emkay Global Financial Services, major Asian refiners are rationalizing existing output and may be running at 20-30% lower production levels if the current situation continues. The fertilizer industry is facing a double whammy of tightening supplies of ammonia, DAP, and urea from Gulf countries and the suspension of LNG production from Qatar. India relies on imports for almost half of its LNG needs. Although ammonia is an important nutrient for fertilizers, supply constraints can affect producers of agrochemicals, including Chambal Fertilizer, Deepak Fertilizer, and Gujarat Narmada Valley Fertilizer (GNFC).

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