The continued presence and the future of downstream industries is directly linked to the growth of extractive industries such as mining, mineral and energy companies.
Major extractive industries such as copper and coal, to name just a few, not only have a vital role to play in a country’s economic growth but also in creating an ecosystem that helps in the development of various downstream and ancillary industries.
The success of India’s petrochemical sector is a great example of what downstream industries can achieve provided they have enough feedstock from upstream companies, which are used as raw materials or inputs for the final products. It is only when the raw materials undergo a complex, multi-stage processing transformation in the upstream industries do they become intermediaries or inputs for downstream companies. Hence, downstream players are highly dependent on extractive industries such as mining, mineral and energy companies for their existence, expansion, and robust future.
Today, India has established itself as a world-class and major exporter of specialty and organic chemicals and specific agrochemicals, dyes, and pigments across the globe. India ranks sixth globally and fourth in Asia in terms of global sales of chemicals. These industries produce more than 80,000 varieties of chemicals and petrochemical products and employ more than two million people.
India has also become the fourth-largest producer of agrochemicals globally and exports almost 50% of the total production. It is also the second-largest manufacturer and exporter of dyes. In fact, the global chemicals and petrochemicals market is projected to grow from $4.6 trillion in 2021 to $ 6 trillion by 2028, while the Indian industry, currently valued at $220 billion, is expected to grow to $304 billion by 2025 and touch $1 trillion by 2040, according to the Indian Chemical News.
All this has been made possible because existing oil refineries, both in the public and private sectors, have been utilising the available naphtha, a byproduct of the refining process, to produce basic petrochemical building blocks like ethylene, propylene, butadiene and aromatics. These petrochemical intermediaries, in turn, are the primary feedstock for producing specialty chemicals, which are essential for the manufacture of many consumer and pharmaceutical and technological products.
The processing of crude oil and gas sector in the refineries is responsible for products like liquefied natural gas, gasoline, heating oil, synthetic rubber, plastics, lubricants, antifreeze, fertilizers, and pesticides, that are products which are closest to the customers.
Similarly, downstream industries can also use the country’s abundant but polluting coal reserves to produce heat, generate power or synthesize a variety of chemical products through the process of coal gasification, which facilitates the utilization of the chemical properties of coal. Hence, it can be used to produce Synthetic Natural Gas or Syn gas, which can then be used to produce gaseous fuels like hydrogen, substitute natural gas, energy fuel (methanol and ethanol), and ammonia for fertilizers and petrochemicals. These products will play a significant role in helping India move towards self-sufficiency as a part of the Atmanirbhar Bharat Abhiyaan.
In the pharmaceutical industry, downstream processing plays a very important role in the manufacture of products such as antibiotics, industrial enzymes, and hormones such as insulin, whose production and consumption have been growing because of rising cases of infectious and chronic diseases like diabetes, dengue, swine flu etc. Similarly, downstream steel products such as steel plates, steel bars, and steel sheets are all used in some way in construction, cars and other transport industries, among others.
Downstream industries have the power to transform the potential of a country’s natural resources by diversification through value-added processing, beneficiation, and the creation of strong mineral-rich linkages with other sectors of the economy. It is one of the ways to optimise the returns for the mineral and mining industries.
The processing of natural resources by downstream industries allows for the manufacture of value-added products and provides companies with higher margins and greater profitability. It also provides greater visibility and branding for these companies because they are the closest to the consumers. Thus, for many natural resources companies, the real challenge is to figure out how to add value to natural resources using the processes of downstream industries.
Hence, the closure of any such anchor industries can hurt the downstream players. The closure of the Vedanta-owned Thoothukudi refined copper plant in Tamil Nadu, for instance, led to the shutdown or reduced production of several small and large-scale downstream enterprises. These companies were dependent on the copper plant for providing them with critical raw materials such as gypsum, sulphuric acid, phosphoric acid, copper cathode and copper as inputs. These in turn impacted the production of cement, detergents, and the dye industries.
Hence, the growth of mining, mineral and energy industries have a critical role to play not only in the economic growth of the company, but also provides a lifeline for downstream industries. The robust growth of these interdependent players is vital if the government wants to meet its twin goal of a $ 5 trillion economy and Atmanirbhar Bharat.
This article is authored by Dr. Vibha Dhawan, Director General, The Energy and Resources Institute (TERI)
