Overcapacity and waning demand keep tags in check
By Gordon Graff -- Purchasing, 2/5/2004 2:00:00 AM
Prices for linear alkylbenzene sulfonates (LAS) have remained stable since early 2003, and few dramatic changes in the tags for these key surfactant ingredients in laundry detergents are expected this year. Demand for LAS continues to slowly shrink relative to competing surfactants, but industry observers say LAS markets are in no danger of serious decline.
Sulfonation glut
LAS is produced via the sulfonation of linear alkylbenzenes (LAB), which are derived from such basic feedstocks as benzene and long-chain hydrocarbons called n-paraffins. The major producers of LAB are Spain's Petresa, South Africa's Sasol, and Huntsman Corp. in the U.S. About three million metric tons of LAB were produced worldwide in 2002, nearly all of which was converted into LAS, reports SRI International, Menlo Park, Calif. (About 0.7 lb of LAS is produced per pound of LAB consumed.) Currently there is "surplus capacity" in LAB worldwide, which has led to downward pressure in prices, according to Sasol.
The moderation of LAB tags in the past few years, except for a brief spurt early in 2003 as crude oil rates surged, has brought relief to the LAS producers who purchase LAB. But "there is still a fair amount of overcapacity in North America" for the sulfonation processes that produce LAS and other sulfonated surfactants, says Neil A. Burns, vice president of marketing at Pilot Chemical Co., Santa Fe Springs, Calif., one of several LAS producers for the merchant market.
About half of the LAS manufactured in the world is used captively by the soap and detergent giants such as Procter & Gamble, Unilever and Colgate-Palmolive. Besides Pilot, other major merchant suppliers of LAS include Stepan Chemical and Akzo.
Challengers emerge
About 70% of LAS is consumed in laundry detergents, 15% in light-duty dish-washing liquids, 12% in industrial cleaners and 3% in household cleaners, according to The Innovation Group, a Morristown, N.J. consulting firm.
Demand for LAS "is flat to decreasing," says Burns. This contrasts with demand for anionic surfactants, the chemical class that includes LAS, which is likely to grow by an average of 2.1%/year in the household products sector from 2002 to 2010, according to Colin A. Houston Associates, a Brewster, N.Y. market research firm. One reason LAS lags behind the average, say industry sources, is that other anionic surfactants, particularly alcohol sulfates and alcohol ether sulfates, are growing much faster than LAS. These competing materials, they note, are deemed by detergent makers to possess better cost/performance characteristics than LAS.
Another surfactant competitor to LAS is methyl ester sulfonate (MES), which is derived from coconut oil and other plant sources. The main plus for MES is that it is easily biodegradable and is based on a relatively low cost, nonpetrochemical resource. A milestone for this material occurred in 2003 when Huish Detergents began commercial operation of a plant that produces MES for private-label laundry detergents.
Meanwhile, the challenges to LAS "are compounded by the continuing shift in the U.S. laundry detergent market toward liquid products and away from powdered products," says Burns. This trend, he explains, favors the increased use of alcohol ether sulfates and nonionic surfactants, both of which are typically employed in liquid formulations.
But inroads into LAS by other surfactants seem to be slowing down, says Joel H. Houston, president of Colin A. Houston Associates. Prices of LAS have remained at relatively low levels, he notes, making LAS "a good value" for detergent makers, who are being prodded by large retailers such as Wal-Mart to rein in their selling prices to consumers. "I think LAS demand is going to hang in there," says Houston. "Certainly, the market for it is not about to disappear on us."
Flat track pricing
Although margins for LAS have been "under pressure," says Houston, LAS prices "have not been able to move up much" because of overcapacity and weak demand. In fact, after a round of hikes in the spring of 2003, tags for LAS have remained level (see chart).
The LAS price increases at Pilot, which were as much as 3¢/lb, were only pass-throughs of the company's increased costs due to the sudden spike in LAB prices early in the year, says Burns. The jump in tags "didn't portend any particular improvement in our margins," he adds. In fact, he says that LAS producers are caught in a squeeze between the unexpected runup in LAB prices and pressure from downstream detergent customers to keep their rates low.
The future direction of LAS prices is hard to predict, Houston notes. Right now, he says, "there's a real wrestling match in the industry" between producers of LAB, LAS and detergents. Who comes out on top in this rivalry, he adds, will determine the long-term course of LAS prices. But for the next year or so, tags for LAS are likely to remain "pretty flat," says Burns. LAS producers usually boost their prices in response to rising rates for LAB, he notes. But given the severe overcapacity of LAB, says Burns, prospects for LAB price hikes this year "are very unlikely."
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