08 May 2011 10:55 [Source: ICB]
A sharp rise in the price of oleochemicals has reset the baseline for surfactant manufacturing
Soap, washing powder and other products that rely on surfactants are everyday commodities. But it's likely that the cost of these little luxuries will keep on rising in the future.
"I don't think anybody has been around long enough to remember anything like this," he says. Two main raw material streams go into surfactants - oleochemicals, which are mainly derivatives of vegetable oils such as palm kernel oil or coconut oil; and those based on petrochemicals. For once, concerns over petrochemical prices have been put aside by the scale of other raw material costs.
"Rises in palm oil derivatives have far outpaced rises in crude oil," Burns says. "They're setting a price trend on their own."
He cites the huge rise in palm kernel oil prices. In October 2008, they were around $500/tonne (€337/tonne). In February of this year they had reached around $2,300/tonne, though they dropped off slightly in March.
"Most of this rise has happened since June 2010," he notes.
It is hard to predict prices, making life difficult for formulators. At the same time, being unwilling to hold excess inventory, buying raw materials is now far more expensive than ever before. "You need to carry a lot more working capital, and it puts a strain on the balance sheet," he says.
And just as petroleum prices seem to have reached an elevated plateau, he believes that oleochemicals will find a new - and permanent - price level.
"Prices won't go back to where they were," he says. "High prices for vegetable oils and surfactants are going to continue."
ASIA DRIVES PRICING
At its core, the rise in prices is a simple case of supply and demand. Developing markets, especially India and China, are seeing huge growth in demand for surfactants, leading to price increases for the most important raw materials.
"In developing countries, a growth of 5-6% is not unreasonable, but in developed economies growth will - at best - track GDP," Burns says.
The good news for developed economies is that cleaning products tend to be almost immune to economic conditions. While people may put off buying a new car, they will keep washing their clothes and hair.
"Instead, you find people trading down a brand - so they'll use 'own label' goods rather than branded goods," Burns says.
Passing the cost of these price increases on to consumers has varied according to region, he observes. It has been quite successful in North America, but less so in the more fragmented West European and Asian markets. There had been a reluctance to raise retail prices during the economic downturn. Detergent producers were keen to regain their volumes, so they absorbed the price rises themselves. But with economic conditions improving, higher prices - or smaller pack sizes - began to kick in.
Burns also sees a bright future for "co-surfactants," which are added to the mix in order to give extra mildness to products such as shampoo and liquid soap. These are growing at a faster rate than primary surfactants and tend to be used in more expensive and sophisticated products. And while they account for a small part of the market - and always will - they are likely to keep growing as these sophisticated products become more widespread. "They're used as enhancements - you'll never see laundry detergents made purely from co-surfactants," he says.
Tom Nelson, director of chemicals/customer business development at P&G Chemicals - the oleochemicals arm of US-headquartered Procter & Gamble - says there is another factor at work behind the price gains. "The emergence of fuel uses of agricultural crops is redefining the landscape," he says.
This growth in biofuels, coupled with a growing population that needs vegetable oils for both food and oleochemicals, puts additional demands on the surfactant supply chain, notes Nelson.
Procter & Gamble has a five-year plan to increase its consumer base from 4.2bn to 5bn users. Last year, it added 200m new customers and expects to do the same in each of the next four years, Nelson says.
Many of its products are based on surfactants, and so account for a significant proportion of this growth.
Last year, it launched a new product in India. Tide Naturals is a detergent for hand-washing clothes. It was designed for Indian consumers - in an affordable package, with very specific fragrances - rather than being a simple "imported" brand from the US. It incorporates sodium sulfate, rather than calcium carbonate - which the company says is less abrasive - as well as a surfactant derived from palm and coconut oil.
P&G is also planning to set up technical centers in Beijing and Singapore in order to "get a better handle on consumers in these markets," Nelson says.
And Nelson agrees that the price volatility is an unsettling factor, adding uncertainty to the market. "What looked like a high price three weeks ago might now be a bargain," he says.
END-USER SECTOR DRIVES BRAZILIAN GROWTH
One strongly performing surfactant market is Brazil.
A study from December 2010, by global consultancy Frost & Sullivan , estimates the market for anionic surfactants in Brazil at $788m (€541m) in 2010. This was a 5.8% increase on the previous year, which is attributed to a huge growth in the personal care sector.
Sulphonated surfactants (especially linear alkylbenzene sulphonate (LAS)) account for most of the market, with a 75% market share. This equates to just under 300,000 tonnes.
Frost estimates that the total market will grow by more than 5% every year, to reach $1.1bn by 2017.
"By then, the personal care sector - a strong driver in the anionic surfactant market - is likely to approach maturity in Brazil," says the company.
Alessandra Lancellotti, team leader for Frost's chemicals, materials and food division in Latin America, said the main drivers for the growth of surfactants in Brazil were the growth of end user sectors, increasing use of liquid detergents and a shift away from petrochemical derivatives.
PLAYERS SEARCH FOR NEW SURFACTANT SOURCE
Every time the price of crude oil increases, there is renewed interest in all sorts of alternative fuels - from biodiesel to solar power.
The same has begun to happen in surfactants, as major players - and many start-ups - search for new ways to make oleochemicals.
"Any kind of biomass - whether it's sugar beet, sugarcane, wheat or wood - could be used to make key building blocks," says Neil Burns, managing partners of US consultancy Neil A. Burns.
Burns is chairing the ICIS World Surfactants conference in New Jersey (May 12-13) where speakers include US-based Elevance, which uses its metathesis technology to convert biomass into chemical feedstocks.
Other major players have similar plans. P&G has a partnership with US producer LS9, to exploit its ability to convert renewable fatty acids into hydrocarbons; and theUK's Unilever has signed an agreement with US group Solazyme to develop consumer products from algae. And while it may sound like a distant dream, the technology is very close to market.
"It won't happen this year, but realistically it could happen within two or three years," Burns says.
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