27 November 2006 00:00 [Source: ICB]
THE SURFACTANTS market has not quite got the washday blues. But, like many commodity chemicals, margins are tight and growth low. While oleochemicals are faring better than petrochemical-based products, a few niche products and applications are offering a brighter business.
Oleochemicals have seen lower feedstock costs and improved demand, thanks to their environmental image. But the glut of production in Asia, due on stream in the middle of 2007, is likely to have a dulling effect in Europe, as cheap imports arrive.
Plans for the restructuring and sale of businesses are under consideration. More than a year ago, Sasol said it intended to sell its surfactants business, which is centred in Germany. The Olefins & Surfactants arm is a global supplier of detergent raw materials, including linear alkyl benzene, alcohols, surfactants and detergent ingredients. Sasol's portfolio also includes oleochemicals.
There is also speculation that Cognis may offload its surfactants operations.
Mahesh Kumar, senior research analyst at Frost and Sullivan, notes that the surfactants market has stable demand, but the big problem is profitability. The European market for commodity surfactants is 2.4m tonnes/year, with 1.4m tonnes being nonionic products, such as ethoxylates, and 1.14m tonnes are anionics, including alkyl sulphonates and fatty alcohol sulphonates. The rest of the market comprises cationics, with an 8-10% market share, and amphoterics, with a 2-5% cut. Kumar expects growth in each product area to be 2%/year, with anionics achieving 2.7%/year.
The International Association for Soaps, Detergents and Maintenance Products (AISE) says that in 2005 the value of the EU industry was €29.3bn ($37.1bn) (see charts).
The industrial and institutional (I&I) market was valued at €6.3bn.
Kumar says that this sector is the only commodity area displaying strong growth. Surfactants used in the oil industry are doing better than average. Otherwise, he says, there is little stability for commodity products.
Shell Chemicals estimates that more than 1.3m tonnes of alcohol-based surfactants were used globally in household detergents last year. It expects alcohol surfactants growth to continue at 3%/year.
The trend is towards mildness and biodegradability, especially in the personal-care market, favouring products such as Kao's ethoxylated carboxylates and glycerides. But, Kumar notes, such lines represent low volumes - although the added value is high.
Surfactant producers struggle to pass on ethylene price rises to customers, and tend to take the price increases on themselves, squeezing their margins as a result.
Beate Ehle, group vice president, performance chemicals for detergents and formulators Europe at BASF, says: "The market continues to face volatile and escalating raw-materials costs. Feedstock costs have risen dramatically in the past two years. This has resulted in significant margin compression for suppliers."
BASF believes that sustainable innovation and value creation are the answers to battle depressed margins associated with the production of commodities.
"Chemical suppliers and detergent producers face a dilemma, with the need for constant innovation and cost reduction. Cost reductions that result from adapting or changing raw materials are sometimes necessary, but are only short-term solutions," she says. BASF believes that innovation is the driver for the future growth and success of the detergent industry in the long-term.
A key factor for maintaining price and, as a result, profitability, is the biodegradability of a surfactant. But even here, Kumar notes that producers have not been able to leverage much of a price premium over less biodegradable products.
As well as experiencing tight margins, global ethoxylation capacity is tight. The situation is especially difficult in Europe, says Rob van der Meij, Shell Chemicals global business manager, alcohols and alcohol derivatives business. Recent industry-wide ethylene oxide maintenance shutdowns, including Shell's, have affected the market.
Next summer the company will restructure its ethoxylation operations, with the closure of units in Carrington, UK, transferring production to its Wilton, UK facility. The company says that the move will improve its net cost structure for ethoxylates.
Kumar agrees: "There is demand for additional ethoxylation capacity - but the large investment needed, for what is also a hazardous process based on ethylene oxide, is a barrier for most manufacturers."
BASF, a leading global supplier of nonionic surfactants, says that demand and output seem to be balanced, and that the limiting factor for future growth in Europe might be the availability of ethylene oxide.
In the ethoxylates market, Shell sees good demand growth for alcohol ethoxylates (AE), which is used in hard surface cleaning products. In the near-term, AE is set to benefit from declining demand for nonyl-phenol ethoxylates (NPE), which are suffering from environmental and safety concerns.
"NPE demand is going down, especially in North America, partly because of the phase-out of NPEs in cleaning products," says van der Meij.
Among surfactant types, anionics and nonionics account for a major proportion of volumes in Europe. A general trend from end-product manufacturers is to reformulate or blend surfactants to optimise performance and price of the finished products. Kumar notes that this trend has tended to reduce the volume of surfactants used in end products. Detergent manufacturers look for a lack of colour and strength in surfactants.
They may opt for the reformulation strategy if the surfactant prices become too expensive to accommodate, therefore prices are unlikely to increase to significant levels, says Kumar.
The anionic surfactant methyl ester sulphonate (MES) is making headway against linear alkylbenzene (LAB) and linear alkylbenzene sulphonate (LAS). Its key selling point is that it is more effective in hard water. Kumar says that MES is cheaper and shows similar cleaning characteristics to LAB or LAS, which are the traditional workhorses of the detergents sector.
In oleochemicals, where producers have had good margins, there has been significant investment in natural fatty alcohol production. By mid-2007 it is anticipated that Asia will produce more fatty alcohol than is needed, and much of that oversupply will be exported to Europe and the US. This will affect European producers Oleon and Cognis, which will face cheap competition - but who do not have access to cheap feedstocks. "This will certainly lead to consolidation," says Kumar.
However, he says that the move by surfactant manufacturers to oleo-alcohols makes sense.
A shift to oleochemicals-based products is likely to stabilise prices and regulatory pressures for manufacturers. The use of these environmentally friendlier products will also encourage greater uptake of products' key applications, providing significant business opportunities to market participants.
With more plants being built in southeast Asia, oleo-alcohol capacities have improved. "This has helped [to] minimise the use of alcohols derived from petrochemicals sources, thereby changing the raw material composition in the anionic surfactants market," says Kumar.
"The lesser-priced feedstock also has the potential to increase the usage of commodity surfactants."
To take advantage of these prospects, anionic surfactants manufacturers have to establish a global presence and enhance their distribution structure, he says.
Oleon acquired the oleochemical division of Akzo Nobel in October. The facility in Emmerich, Germany, adds to its units in Belgium and Norway.
Shell does not expect the oncoming deluge of global oleochemical-based alcohols capacity to affect its margins. "It won't be pretty, but it will not be as bad as some think. It is not about the alcohols business but more about the ethoxylates business, which is a different ball game," says van der Meij.
He adds: "From a portfolio perspective, we are focusing more around product attribute rather than straight molecule competition. Shell's Neodol alcohols are 80% linear with light branching. This structure, while ensuring biodegradability, provides unique physical properties that many competitive products can't match."
Oleo-alcohols are nearly 100% linear molecules, which limit formulation flexibility in some end-use applications.
Shell has launched several new surfactant products in the past few years, not only for the household market but also for personal care as part of its diversification strategy, says Victoria Meyer, global marketing manager, alcohols and derivatives. Personal care products consume close to 500,000 tonnes of alcohols and alcohol derivatives, with demand growing at 10%/year.
BASF is investing in the markets for sustainable products, such as those made free of alkylphenol ethoxylate, and is developing cutting-edge surfactants.
Kumar says that the focus for nonionics will be on ethylene-oxide-free products, along with a trend towards alkyl polyglycosides (APGs), ethyoxylated carboxylates and glycerides. In anionics, the market looks particularly good for MES.
The revised EU Detergents Regulation, which came into force in 2005, requires surfactants used for domestic detergents to be ultimately biodegradable. Many anionic and nonionic surfactants have proved their primary biodegradation, and a majority of surfactants used in detergents, including cationic and amphoteric surfactants, have fulfilled more stringent requirements on ultimate degradation.
The regulation requires proof of the ultimate biodegradation for all groups of surfactants used in domestic detergents. Detergents used in the industrial & institutional sector (I&I) may continue to use some surfactants that are primarily, but not ultimately, biodegradable. These applications are only permitted if they have obtained a derogation based on risk assessment and benefits evaluations.
This strong requirement for biodegradability is having little impact on the market, as most companies already used biodegradable products, says the International Association for Soaps, Detergents and Maintenance Products.
However, for some companies this has meant new opportunities. For example, the cleaning of heavily soiled road trucks traditionally depended on powerful cationic surfactants.
The legislation requires the replacement of cationic surfactants because of their poor biodegradability. Zschimmer & Schwarz has developed a surfactant based on biodegradable fatty acid derivatives.
The product can be used in applications such as alkaline metal degreasing, car and truck cleaning products, all-purpose alkaline cleaners and workshop cleaners.
The detergents industry is expecting far-reaching consequences from the Globally Harmonized System of Classification and Labelling of Chemicals (GHS), a new system from the UN. The system, which the EU is hoping to introduce in parallel with its new chemicals policy, Reach, addresses the classification of chemicals by types of hazard, and proposes harmonised hazard communication elements, including labels and safety data sheets.
GHS aims to ensure that information on physical hazards and toxicity from chemicals is available, to protect human health and the environment during the handling, transport and use of these chemicals.
At a recent stakeholder meeting of the International Association for Soaps, Detergents and Maintenance Product (AISE), participants discussed the potential impacts of GHS. It was noted that a bottle of washing-up liquid is not subject to safety labelling. However, GHS would require such phrases as "causes severe eye damage", "causes skin irritation", "keep out of the reach of children" and "avoid contact with skin and eyes", to appear on the bottle. There could also be a requirement to have a child-resistant closure. AISE is seeking better dialogue between stakeholders to ensure that labelling is appropriate, building on its long-running HERA initiative. This programme has filled any data gaps in risk assessments of the ingredients of cleaning products, then sought to present that data to consumers in a meaningful way.
Veronique Scailteur, of Procter & Gamble, says: "There is no single answer to the challenge of developing communications about chemicals, but multiple answers through multiple channels is a practical way forward."
At present, the debate centres around the use of hazard or risk presented by a chemical. While GHS allows for a risk-based labelling option for chronic endpoints in consumer products, the EU's commitment to hazard may make it difficult to pursue this. Takis Daskaleros, health and consumer director general of the European Commission, notes that its work indicated that consumers should be given information to help them use products safely.
Based on hazard, liquid detergents containing less than 0.1% ethanol and 10% surfactants would have to be labelled "Danger: may damage fertility or the unborn child causes eye irritation". Based on hazard and the likelihood of injury, that label would just read: "Warning: causes eye irritation".
The AISE has developed a series of safe-use pictograms, which it says could work better than some of the hazard symbols currently used, which aim to indicate the hazard, but do not advise on safety precautions.
The introduction of falling film sulphonation (FFS) reactors has led to better quality and cost-effective production of anionic surfactants. As the market for anionics becomes large-volume, FFS has the potential to produce surfactants for new applications in areas such as textiles, oil field and petroleum refinery, says Mahesh Kumar, senior research analyst at Frost and Sullivan.
Cepsa and UOP have developed Detal, a new solid catalyst. This produces better-quality linear alkylbenzene (LAB) without the hazard or expense of handling hydrogen fluoride. The process makes LAB with less colour and a higher 2-phenyl content - this provides better detergency and the potential to produce linear alkylbenzene sulphonate that can be used in a wide range of applications.
In another development, Ballestra has developed a wiped film process, which has been installed by Huntsman in its sodium lauryl sulphate plant in Castiglione, Italy.
Meanwhile, Shell Chemicals is planning to strengthen its surfactant feedstocks position by adding more gas-to-liquids (GTL) normal paraffin (n-paraffin) to its portfolio by 2010-2011.
GTL n-paraffin will provide a more cost-effective feedstock for LAB producers compared to kerosene-based n-paraffin, says Rob van der Meij. "LAB producers no longer have to worry about sufficient kerosene being available to run their n-paraffin plant. GTL n-paraffin frees them from the competition for kerosene between the aviation, domestic heating and petrochemical markets."
Shell is planning to produce 260,000 tonnes/year of GTL n-paraffin from its Pearl GTL project currently being built in Qatar. The company already produces GTL n-paraffin at its plant in Bintulu, Malaysia.
The first batch of GTL n-paraffin, at around 130,000 tonnes/year, will be available to LAB producers by 2010. Shell is already negotiating term contracts for its supply with several LAB producers.
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