Growing SAP market reshuffles

13 March 2006 00:00  [Source: ICB Americas]










Degussa AG’s recent acquisition of Dow Chemical Company’s superabsorbent poly-mers (SAP) business has rearranged the market completely. Once top dog, with 24% of the SAP market in 2004, BASF AG has been pushed back as the combined Degussa-Dow SAP unit tallies 32% of the market. Meanwhile, Nippon Shokubai—which once split second place with Degussa—has been shoved to the third-place spot. But neither BASF or Nippon Shokubai are taking this sitting down.

Considered a largely recession-proof market, SAPs are driven by diapers: 77.5% of SAP produced globally is used to make children’s diapers, says the Malvern, Pa.-based consultancy TranTech Consultants Inc. About 10% of SAP is used in adult incontinence products, and 4% in feminine hygiene. The nonpersonal-care applications for SAP include agriculture (3.8%) and construction (1%). SAPs can absorb 200 to 1,000 times their weight in liquid; absorbent cotton absorbs only about 10 to 20%.

First commercialized in 1978, SAP capacity by 2004 stood at 1.3 million metric tons globally, says TranTech, with 33% of capacity in the US, 29% in Japan, and 27.5% in Western Europe. Participants in the SAP market estimate its 2005 value at between $2 billion and $2.2 billion.

With a global market share of 12% in 2004, Dow was lagging. “It was becoming increasingly difficult to justify the product and process research investments needed to satisfy large, global [SAP] customers,” says Ted Cosse, Dow’s business vice president for acrylics, solvents and intermediates.

In February, Degussa agreed to buy Dow’s global SAP business for an undisclosed sum. Among other things, Degussa will be getting Dow’s superabsorbent facility in Rhein­muenster/Baden-Baden, Germany, and a toll manufacturing arrangement with Dow’s SAP facility in Midland. “Over the next few years, we intend to adequately participate in the accelerated growth of this attractive market,” says Degussa chairman Utz-Hellmuth Felcht. Degussa’s superabsorber business unit generated €432 million ($513.4 million) in sales in 2004.

Additionally, Degussa and Dow will enter into a long-term agreement where Dow supplies glacial acrylic acid (the primary raw material) to Degussa. Degussa points to the importance of the acrylic acid deal with Dow, “in light of fluctuations in the availability of raw material.”

Acrylic acid proximity and the resulting savings that would occur are some of the reasons why BASF is shutting down two SAP plants and building a new one that will be next door to its acrylic acid production facility. BASF’s SAP plants in Aberdeen, Miss., and Portsmouth, Va., will shut down, and their combined 160,000 metric tons per year of capacity will be replaced by an SAP unit in Freeport, Tex., which is expected to be up and running by early 2007.

“The key goal with Freeport is establishing the future SAP plant right next to BASF’s acrylic acid complex,” says Frithjof Netzer, BASF’s business director for SAP and acrylic monomers in the Americas. BASF is completely vertically integrated in regard to SAP, including acrylic acid precursor propylene.

“Part of the reason Aberdeen and Ports-mouth are being shut down is because they are not near our acrylic acid supply,” says Netzer. “We are compelled to get every single ounce of efficiency out of our operations because the SAP business has become tough, with a lot of margin pressure. Raw material prices are up—crude oil and propylene don’t look like they will come down in price soon.”

Demand for diapers is “soaring” in China, Southeast Asia, Latin America and the Middle East, says the Japan Hygiene Products Association (JHP), and Degussa also cites Eastern Europe as “particularly promising.”

San-Dia, a 60/40 joint venture between Sanyo Chemical and Mitsubishi Chemical, has specifically stated that its capacity expansion of 20,000 metric tons per year to 50,000 metric tons is to meet growing demand in China. The JV projects China’s SAP growth at 10% per year.

JHP says that Nippon Shokubai and the other two major Japanese SAP producers, San-Dia and Sumitomo Seika Chemicals, have all increased capacity in 2005, and are intending to do so again either this year or next.

Global demand is forecast by TranTech to increase 6% per year until 2010. But SAP demand will not only be driven by consumer needs or by new regions entering into the market, but by loading levels as well.

“Depending on the climate or local customs, the design of a diaper can change as you go around the world,” Netzer says. “This can impact SAP loading levels, as some parents might want a diaper that looks bigger and appears more fluffy and comfortable for the child. But there are other circumstances when a person wants a diaper that can be worn under clothes and cannot be seen. If you increase the SAP load, you can get rid of portions of the fluff.”

In 2004, SAP sold for about $1.66 to $1.90 per kilogram. TranTech says that SAP prices increased by about 10% in 2005, primarily due to increased acrylic acid prices.

By: Ivan Lerner
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