Market outlook: Reach lower tonnage deadline looms

17 May 2013 09:48  [Source: ICB]

The next phase of Europe's chemicals legislation will affect many smaller manufacturers

According to Geert Dancet, the executive director of coordinating body European Chemical Authority (ECHA), dossiers for 7,600 chemicals are expected to be submitted by 31 May.


As nearly everyone reading this issue of ICIS Chemical Business should be aware, the next deadline for Reach - the European Commission's chemical registration programme - arrives at the end of this month.

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Targeted at chemicals produced in quantities of 100 tonnes or more, the deadline is expected to feature more small companies than the previous milestone, which was for tonnages of 1,000 or more.

"We have a prediction that there would be 25% SMEs [small and medium-sized enterprises]... but it's closer to 20% at present. But that's rather normal, because we have more members that will join in the registration work towards the end, so that percentage should increase," Dancet said

Although the ECHA claims that the industry is better educated than it was for the previous deadline on 1 December 2010, producers are still coming to terms with the level and quality of data they are expected to provide, according to Leena Yla-Mononen, the ECHA's director of registration for Reach.

She said: "Adapting to the data requirements is [a] stumbling block in many cases, so really companies perhaps haven't put enough effort in building the scientific rationale for the adaptation and documenting it clearly in the dossiers."

"I think that... the industry perspective is also that this was some sort of surprise, that the requirements are higher than they had expected," she added.

While the impact of Reach is yet to be fully felt, it is starting to accelerate a shift that was already taking place in Europe, from commodity chemicals towards specialties.

Europe's share of the global chemicals market has fallen by 11 percentage points between 1999 and 2010 to 21% as a result of growing competition from faster-growing markets such as Asia.

Regulation and the US shale gas boom have squeezed EU commodity chemicals producers even further.

"It appears, therefore, that the EU chemical industry is doing much better in innovation-driven sub-sectors (eg specialty products) than in more cost-orientated sub-sectors (eg commodity products)," the European Commission said in its report on the progress of Reach so far, released earlier this year.

The Commission noted that specialties producers are coping with the costs of Reach registration, but that the commodities producers - already struggling with emerging markets competition and the US shale gas boom - are finding margins eroded even further by Reach.

The continual erosion of production margins could potentially reach the point where Europe is no longer the place to produce commodities, according to Dancet.

"That is generally my conclusion," he said. "That does not mean that we have to discontinue overnight all the commodity chemicals. There is definitely a need to see how long companies can remain competitive, but you do see some premature departures from companies that wish to cut their losses."

Reach could also make companies more competitive, according to Dancet, as the cost of registration - estimated at €25,000-250,000 per chemical - forces producers to think about which materials in their portfolio are profitable, and potentially to drop those that are not worth registering.

He said: "In a way, Reach has focused companies very much on to looking more at their portfolio of chemicals much more strategically than they used to do.

"And that can also be an advantage in a way, that they can take earlier decisions to concentrate on the profitable part of the business, and thereby have a bigger overall survival of the companies than they would otherwise have had. They can also themselves relocate certain productions to areas where it is much more competitive to do so," he added.

The process of discontinuing production of certain materials may also have led to an increase in prices, according to the Commission.

Dancet does not dispute that Reach has caused some companies to draw back from certain chemical markets, but argues that a reduction in the number of market players does not necessarily reduce competition.

He said: "I think we definitely have fewer suppliers per chemical now than we used to have, but I don't see this as necessarily bad, or that it has necessarily has driven up the price of the chemicals.

"The point is that generally if you have 40 suppliers or you have 10 suppliers of the same chemical, it does not necessarily lead to a higher price, because in the end you simply need sufficient competitive interaction between the companies, and if they know their competitors and you can count them on your hands, then it is also something that you can better take account of," he added.

This was not the intention of Reach, he admitted, but added that the loss of competitors may be due in part to the fall in the number of companies bringing in cheap, loosely regulated materials of uncertain origin from other markets.

These materials were often employed as intermediates by European manufacturers, making it difficult to determine the safety of a wide range of products.

"You could [have been] exposed to all sorts of chemicals because someone is trying to get some financial advantage by importing unknown chemicals, thereby exposing us unnecessarily to risks that should not be permitted," he added.

However, the issue of commodity chemicals production shifting away from Europe does have potential to conflict with Reach's goals of transparency and safety.

Although international companies marketing chemicals for import into Europe will be subject to the same registration obligations as a local company, that level of disclosure is not required for the imported finished products.

If the whole production chain of an article was shifted outside of the EU, then scrutiny of those products upon entry to the region would be much lighter, according to Dancet.

He said: "As long as [outside producers] import substances and mixtures, they are subject to Reach. [However] the import of articles is much less controlled than our own article production. We have certain elements [for controlling outside substances], but they are focused on the SVHCs [substances of very high concern].

"Even there, the tonnage threshold on the article needs to be met before there is even an obligation for them to notify. There is never going to be an equal balance on the articles [compared with substances]," he added.

By: Tom Brown
+44 208 652 3214

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