Surfactant Producers Take a Cautious Path

27 January 2003 00:00  [Source: ICB Americas]

The surfactants market has gone through a complete cycle. Several years ago confronted by tight supplies of n-paraffins and detergent-range alcohols, the market now faces oversupply and pressure from emerging surfactants.

The surfactants industry has dealt with several major issues over the last several years, including consolidation, the restructuring of supply, overcapacity, the introduction of new surfactants, the increasing impact of environmental regulations, and changes in the product value chain, says Joel Houston, president of Colin A. Houston & Associates Inc. (CAHA), a Brewster, N.Y-based consulting firm.

Worldwide consumption of surfactants is expected to grow at an average annual rate of 3 percent from 10.5 million tons in 2000 to 14.3 million tons in 2010, according to CAHA, with Latin America and Asia experiencing the highest growth rates. There are five primary surfactants: linear alkylbenzene sulfonates (LAS), alcohol ethoxysulfates (AES), alcohol sulfates (AS), alcohol ethoxylates (AE) and alkylphenol ethoxylates (APE). LAS continues to be the most widely used synthetic surfactant, but it is growing more slowly than the alcohol derivatives.

In North America nearly 6.5 billion pounds of surfactants were produced in 2000, with ten accounting for 64 percent of this volume, according to Menlo Park, Calif.-based SRI Consulting. LAS has lost market share during most of the 1990s at the expense of AES and other surfactants. However, its volume and share increased significantly in 2000.

Another industry source indicates that the total North American merchant and captive market for anionic surfactants in 2002 is smaller, reaching 1.8 billion pounds, with AES capturing a 52 percent share, followed by LAS at 25 percent and AS at 20 percent. In addition, the captive market is identified as totaling over 60 percent of the overall market. The merchant anionic surfactant market is pegged by this source to be 627 million pounds, with AES and LAS in the lead (34 percent and 32 percent, respectively) and AS not far behind (29 percent).

As a result of consolidation over the past decade, there are currently less than a dozen major suppliers of commodity surfactants remaining. Major deals have included Sasol's acquisition of Condea, the breakup of Albright & Wilson into separate businesses absorbed by Rhodia and Huntsman, the spin-off of Cognis by Henkel, and Dow's acquisition of Union Carbide. In specialty surfactants, Stepan Company, which makes anionic, cationic, nonionic and amphoteric surfactants, is expanding its global capabilities, most recently with the acquisition of the biocidal quaternary, amine oxide and betaine business of Pentagon Chemical Specialties in the UK. This move is complimentary to the acquisition of the Degussa Italy biocide and amine oxide business in 2001.

Most successful players are focusing on integration and looking to new market strategies to maintain and expand their current positions, according to CAHA, which expects further consolidation. "Industrial market demand has certainly slowed down in the last two years, so it's been a struggle for many suppliers, and I think companies have been trying to stretch their resources as much as they can," says Mr. Houston.

New capacity for detergent-range alcohols and linear alkylbenzene (LAB) is threatening to create a surplus of intermediates and drive prices down, according to CAHA. It is estimated by some that there is as much as 300,000 tons per year in oversupply when both synthetic and natural alcohol capacity is considered. "In response, detergent reformulations are already shifting some consumption from LAS to alcohol derivatives," notes Mr. Houston. "Changes in the surfactant intermediates market will benefit some surfactant producers and negatively impact others." Reduction of LAS levels in Quick-Dissolve Tide and the increased use of AS in powdered detergents are two examples.

BP Chemicals cut synthetic alcohol capacity in the fourth quarter of 2002 in response to the current situation. BP exited the linear alcohols industry and therefore has closed its 60,000 ton-per-year alcohol production at Pasadena, Tex. Shell Chemical LP announced last October that it planned to idle 100,000 tons per year of Neodol alcohol capacity later in 2003 at its Geismar, La., facility for an indefinite time. Shell says the reduction will not impact the company's ability to supply its full product range and meet customer needs.

Kao Corp. also started an expanded 165,000 ton-per-year natural fatty alcohols plant in Malaysia in mid-2002, which included an additional 50,000 tons of capacity. Although not confirmed by the company, Sasol's newly commissioned 120,000 ton-per-year coal-based oxo alcohols plant in South Africa is believed to be up and running, with the new product being introduced to customers for evaluation. It is also believed that Sasol is still considering an expansion of roughly 200,000 tons of lauric oil-based fatty alcohols capacity in Asia despite current market conditions.

Current fatty alcohols capacity, excluding newly started production, is estimated at roughly 2.1 million tons, with utilization pegged at less than 80 percent. Europe leads with 36 percent of total global capacity, followed by North America with 33 percent and Asia with 31 percent. If the additional expansion mentioned above takes place, total fatty alcohols capacity is expected to be roughly 2.6 million tons by 2005, with capacity utilization projected at 75 percent, according to one source.

When considering total capacity of fatty alcohols, the type of product must be considered. The newer capacity is for mid-range alcohols and often is more limited in the carbon chain length (C14-C16), rather than including a broad range (C12-C18). Some of the plant closures have been for shorter-length fatty alcohols (C8-C10), so excess supply should not be a factor for these products. In addition, while the fatty alcohols market is global in nature, plants typically provide product to the region in which they are located

One key issue for manufactures of synthetic detergent alcohols is the price of coconut oil in 2003. In general, it is projected that there will be upward pricing pressure for fats and oils as a result of tightening supplies. If prices rise high enough, the synthetic suppliers will not have to compete as hard against the natural oleochemicals, says Mr. Houston.

Both Procter & Gamble and Cognis Corp. announced price increases for fatty alcohol products in the fourth quarter of 2002. Cognis also announced in August 2002 that it is closing its Hoboken, N.J., site for the production of surfactants because its location in a residential area precludes any large-scale expansion. Cognis will be expanding operations at its state-of-the-art facility in Kankakee, Ill., to provide increased efficiency to the company's supply chain.

Western Europe has been faced with overcapacity for some time, and CAHA projects little change in the near future, as producers are reluctant to shut down sulfation and ethoxylation plants. In Asia the situation is more positive. Most sulfation/sulfonation facilities are integrated with detergent producers, and market growth has supported the producers.

Methyl ester sulfonate (MES) is one of the new surfactants being developed. Huish recently brought on stream an 80,000 ton-per-year MES plant in Houston, Tex., in order to replace LAS and other primary surfactants in its private label detergent products. Don Huish, the company's president, says the plant is producing very well, and the company expects to be completely switched over to MES by the end of the first quarter.

Normal paraffins, a key raw material for LAS, is also under oversupply pressures. Worldwide consumption of normal paraffins is expected to grow at an average annual rate of 3 percent from 2.4 million tons in 2000 to 3.2 million tons in 2010, notes CAHA. "After four years of tight supplies that drove prices to levels not seen since the early 1990s, the n-paraffin market is coming into balance," says CAHA's Mr. Houston. "However, if all planned new plants and expansions proceed, n-paraffin capacity could greatly exceed demand after 2005."

Specifically, the n-paraffin market is facing two unprecedented developments: the potential for large new production associated with gas-to-liquids (GTL) projects, and a modified version of LAB developed by P&G that could radically impact the use of n-paraffins, Mr. Houston explains. GTL projects primarily designed to produce liquid fuels from natural gas or coal via Fischer-Tropsh (F-T) technologies can also produce non-fuel hydrocarbons such as n-paraffins.

Over two dozen GTL projects are planned worldwide over the next decade, representing a potential of nearly 5 million tons per year of additional n-paraffins by 2010. "Even though all of these projects are not expected to succeed, the new technology could still overwhelm chemical markets with by-product materials," notes Mr. Houston. Shell is less bullish and has projected volumes from GTL plants to be substantial but more in the range of meeting overall market growth.

The modified linear alkylbenzene sulfonate (MLAS) being promoted by P&G reduces surfactant requirements in detergent products, but offers advantages to potential producers in terms of feedstock efficiencies, according to CAHA. While MLAS could develop into a significant competitor to conventional LAS, the largest market for n-paraffins, no commercial scale plants have been announced.

Roughly 70 percent of n-paraffins are consumed in the production of LAB, the precursor to LAS. Other uses are for secondary alcohols, internal olefins, chlorinated paraffins, paraffin sulfonates, oil field chemicals, rolling oils and other applications.

Most producers of n-paraffins are either back-integrated with captive kerosene or forward-integrated into the production of LAB or other derivatives. Leading producers include Sasol and Petresa in Western Europe, ExxonMobil in the US and Isu in Korea.

Regulatory concerns continue to impact the surfactant industry, particularly in Europe. A new detergent regulation is in development in the European Union that will revise rules for the free movement of detergents and will also replace the five existing directives on biodegradability of surfactants. The regulation will include new definitions for detergent and surfactant and will strengthen the methods for measuring biodegradability. Faced with additional testing costs, both surfactant and detergent producers may elect to discontinue less profitable product lines.

Also, the value chain has experienced a significant shift, as large retailers such as Walmart have become highly influential and now dictate terms to detergent manufacturers, says CAHA. Surfactant producers are impacted as they are forced to absorb the increasing costs of raw materials because price increases are rejected by the large retailers.

Raw Material SuppliersProceed Modestly

Petresa, with its global LAB capacity of 560,000 metric tons, remains in 2003 one of the largest global LAB marketers and manufacturers, with facilities in Spain, Canada and Brazil. During 2002, Petresa Spain further expanded its n-paraffins capacity in order to become a more integrated company in its raw materials, according to Mark Quintyn, commercial director, Petresa Global Business. Its current n-paraffins capacity is close to 400,000 metric tons.

"Increased n-paraffins availability has put pressure on market price levels, which have dropped from the low $580-$600 to $450, mainly driven by increased availability and lower demand," says Mr. Quintyn. "For the immediate future, we do not see any major changes in n-paraffins market conditions unless the Middle East situation escalates and, as an immediate result, kerosene prices increase rapidly. Then we might see a strengthening of n-paraffins pricing under pressure of escalating crude oil prices," he adds.

Petresa has also observed a drop in LAB demand of about 15 percent in North America. "In order to neutralize the further reformulation trend, the LAB industry reacted by decreasing LAB market price levels," notes Mr. Quintyn. He adds that Petresa has seen the same trends in the rest of the world, but in these instances the changes are mainly driven by the volume-oriented sales strategies of competitors in India, Korea and China.

"The LAB market has turned from a balanced market to a long market mainly triggered by reformulation in favor of detergent alcohols as well as increased LAB production due to higher availability of n-paraffins," says Mr. Quintyn. "We estimate LAB production to exceed demand by as much as 7 to 10 percent, which will keep further pressure on LAB market conditions in the foreseeable future," says Mr. Quintyn. Additional LAB/n-paraffins capacity in the Middle East and Asia will definitely not contribute to a better product balance and will keep LAB price levels low. Mr. Quintyn does believe that the new n-paraffin capacity coming from future GTL projects will guarantee the competitiveness of LAB and derivatives in detergent formulations versus alternative actives and non-integrated manufacturers.

Petresa believes the whole surfactant chemical industry will be faced with continuous pressure on sales prices and profitability. "The only hope we have is that lower LAB sales conditions will help the product to return to a more healthy growth pattern in areas like Asia, Africa and South America," notes Mr. Quintyn. Petresa does not plan any new plants and/or expansions or joint ventures, but does not exclude the possibility of forming alliances with specific industries.

Pilot Chemical, a supplier of anionic surfactants, including LAS for detergents and alcohol sulfates and alcohol ether sulfates for shampoos and liquid soaps plus some laundry applications, has focused new product activity to take advantage of lower cost feedstocks, say Neil Burns, vice president of marketing.

For Pilot, the market was average in 2002 as it was the year before, with chemical companies hit hard by energy prices resulting in a huge toll on profitability. However, Pilot's Mr. Burns views the increase as more of a spike than a long-term problem that is behind them now. "We are seeing a softening in the feedstock market for alcohols, LAB and olefins," says Mr. Burns. "Of course, we have to remain aware of a potential rise in oil prices due to the unstable conditions in the Middle East."

In 2003 Pilot will be focusing on its current product portfolio, and according to Mr. Burns, it is in a good position with plenty of capacity to meet future customer needs. No major capital investments are planned. However, the company will consider smaller acquisitions that will complement existing offerings and enable Pilot to broaden its product line.

The key issue for Shell is the idling of Neodol alcohol capacity. Shell Chemicals manufactures Neodol alcohols and ethoxylates with principal manufacturing sites in Geismar, La., and Stanlow, UK. Neodol alcohols are high purity, high linearity primary alcohols with both even and odd numbered carbon chains that are typically 75 to 85 percent by weight normal alcohols. The ease of ethoxylation and sulfation by conventional means makes the derivatives suitable for a broad spectrum of surfactant applications, which include laundry products, light duty liquid detergents, hard surface cleaners and personal care applications. By adjusting the ratio of the Neodol surfactants, and sometimes by combining with other surfactant types, formulations can be optimized for such features as detergency, foam profile, builder type, enzyme stability, cold water performance and product multi-functionality, says the company.

Idling of the 100,000 tons per year of Neodol alcohol capacity at Geismar will allow Shell to gain higher returns elsewhere in the value chain, according to Dave Naugle, vice president for higher olefins and derivatives. "Idling capacity is part of an ongoing process to improve efficiency and shareholder return while maintaining quality service to our customers," says Mr. Naugle. He says Shell remains committed to being a leading supplier of linear alcohols and surfactant intermediates, and the reduction in capacity will not impact the company's ability to supply its full product range and meet the existing and future needs of its customers.

Huntsman Surface Sciences makes a full range of alkoxylates and specialty chemicals for the personal care, household, industrial and institutional detergent markets. The company's commodity surfactant line consists mainly of alkylphenol ethoxylates and alcohol ethoxylates but also offers a full complement of nonionic, anionic, cationic and amphoteric surfactants. Huntsman Surface Sciences also has a 200,000 ton LAB plant in Chocolate Bayou, Tex.

In 2003, the company plans to continue capitalizing on all the synergies that its acquisitions in Europe, Asia Pacific and the Americas bring to a global surfactants business. "Huntsman Surface Sciences has integrated its alkoxylate and LAB marketing structures to capitalize on the ever-changing surfactant market dynamics," says Albert de Celis, commercial director. The company also plans to strengthen its portfolio in surfactants through acquisitions and expansions that will complement its existing product lines. The plan is possible with financial strength provided by its newly acquired equity partner Matlin Patterson Global Opportunities Partners.

P&G Chemicals is one of the world's largest marketers of base oleochemicals used in surfactants, supplying both internal P&G customers and others in the business. P&G supplies a full range of fatty alcohols, fatty acids, methyl esters, glycerine and tertiary amines from production facilities in Asia, Europe and North America. All products are available globally.

P&G's integrated manufacturing network is focused on producing and shipping consistently high quality oleochemicals for a wide range of industries consuming these products, including the surfactant industry. This manufacturing network includes the world's largest methyl ester plant and a fatty alcohol plant in Kuantan, Malaysia (a joint venture with Felda), a methyl ester/fatty alcohol and light cut acid plant in Sacramento, Calif., and the world's largest tertiary amine plant in Kansas City, Kan., where capacity was doubled in 2000.

"Although raw materials for natural oleochemicals are expected to continue to be volatile, P&G Chemicals expects to continue to offer long-term customers supply dependability and strives to be one of the lowest cost producers in the world," says P&G chemicals director of global sales Norm Ellard.

Dow Chemical Company's commodity surfactants product line consists of its Tergitol nonylphenol ethoxylates (NPEs) product family. Dow's product line, 18 grades of NPEs with varying degrees of ethoxylation, is sold into a variety of end use markets with a focus on household cleaning, industrial and institutional cleaning, paints and coatings, emulsion polymerization, textile, agriculture, metal working and oil field chemicals. Dow says that it is constantly evaluating various hydrophobes to try to match or improve the optimized cost/performance combination that can be found with NPEs. Its other surfactant product lines include Triton alkylphenol ethoxylates and Dowfax specialty anionic surfactants.

This month Dow introduced a new line of low-foaming surfactants under the Triton product line. "Following the merger with Union Carbide, we felt we gained strength in hard surface cleaning technology, and this product launch is a product of that technology," says David Ford, global business director of surfactants. He says that the company is not adding any new surfactant capacity, but instead will be evaluating asset use in its surfactants manufacturing capacity, particular in light of the merger with Union Carbide. The majority of Dow's surfactants manufacturing assets are still in the US, but Dow now has a major facility in Asia from the merger. The Optimal plant in Malaysia, which is part of a joint venture with state oil company Petronas, has two 30,000 ton-per-year plants for a variety of surfactant products.

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