Natural surfactant raw materials on a slippery slope?

20 April 2012 10:41  [Source: ICB]

Even though price levels for natural surfactant feedstocks have moderated, they remain at historically high levels, which has damaged demand in some markets

 Copyright: RexFeatures

The price of natural feedstocks such as palm oil kernels has increased dramatically

Copyright: RexFeatures

The estimated $25bn market for surfactants is important to many industries. But consumer products in fabric care and personal care are the most important, accounting for about 65% of total global use. The core surfactants used for these products have a high dependency on raw material costs. Today, about 66% of them come from natural fats and oils, with the remainder coming from synthetic raw materials from petrochemicals.

Surfactants for consumer products are quite straightforward: if they create value for the consumer in use by delivering the right performance at the right price, then the consumer will buy the products. This is an equation that has held over the whole history of surfactants. There have been various raw-material revolutions that have helped consumer companies achieve that end and generate large businesses.

This value seems to have been traditionally generated through the use of by-product raw materials. Tallow, internal olefins/alpha olefins and palm kernel oil (PKO) all came from processes that generated these materials as co-products and, in succession, they have generated value that has maintained the use of surfactants in consumer products at reasonable levels.

The last revolution was in the early 1990s, as palm became an important commodity in Malaysia, growing from about 5m tonnes/year in 1980 to more than double that in 1990. Today, Malaysia and Indonesia account for about 50m tonnes of palm oil production annually. In the early 1990s, palm kernel suddenly became a commercially attractive product and was seen as a new lauric oil potential for surfactants. Today, PKO production is estimated at being 6m tonnes annually and about 60% of the lauric oil market, but now, it is seen as anything but a "by-product." This culminated in last year's spike up to levels of $2,200-2,300/tonne from levels of $700-800/tonne historically.

The manufacturers of the core natural raw material for surfactants, lauryl alcohol, had little choice other than to follow the market, and this led to unprecedented price levels on these alcohols to $3,500-4,000/tonne in early 2011. The increases rolled on down through the supply chain, and the consumer companies had to swallow large price increases just at a time when the economy was affecting the growth of these products, especially in the mature markets of North America and Europe. Consumers were looking for higher value and lower prices.

While PKO has returned to better levels in 2012, and the price of fatty alcohols has returned to levels of $2,200 or thereabouts, even these levels represent a sizable increase compared with historic price levels of fatty alcohols from about $1,200-1,500/tonne.

The impact has been to spur the users of surfactants to look for better efficiencies and new products to mitigate dependence on volatile raw materials. This includes de-formulation and the resultant demand destruction that often happens when prices get out of line.

Predictably, the end result is that fatty alcohol usage is down and there is much spare capacity, with more coming, perhaps up to 1m tonnes/year in the next couple of years. Alpha olefins have again come into vogue as a potential replacement, and there are new technologies from companies that are promoting new routes to potential surfactant raw materials from biomass, algae and sugar.

What many are missing is the revolution that is taking place in North America on energy and natural gas with the fracking process. In a few short years, the US has gone from an expected shortage of natural gas to a huge surplus that is expected to be maintained for many years to come. Natural gas is likely to be a low-priced commodity for the foreseeable future in North America and the fact that petrochemical companies are investing billions in downstream activities bodes well for the future competitiveness for this route to many products. While the focus has been on more traditional petrochemical products, history will repeat the 1960s and 1970s when these routes yielded interesting by products for surfactant use.

Many are relying on sustainability or the need for natural products to hold the up mantle for natural raw materials. But even these need to be combined with some petrochemicals to be effective surfactants. There is more justification and savings to be made in meeting sustainability needs with more effective packaging, better and more efficient manufacturing and more efficient in-home use of products than just relying on natural products.

Neither natural nor synthetic raw materials for surfactants will go away, but the next few years will supply some interesting dynamics in terms of delivering value on surfactants to the consumer. Natural raw materials have been in the forefront for the last decade or so. However, they will be on a slippery slope unless the oleochemical industry finds new ways to deliver value.

Norman Ellard is director of Singapore oleochemicals consultancy Rohen and managing director of trading company IPSpecialties Asia. He spent 34 years with US oleochemicals group P&G Chemicals.

Author: Norman Ellard

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