Stable markets keep prices in check
By Elena E Murphy -- Purchasing, 4/9/1998 2:00:00 AM
Prices for specialty and fine chemicals are stable for the most part, and will stay that way for the rest of 1998 due to the strong but steady performance of the various markets that consume these high- value-added products.
There will be some exceptions, of course. Chemicals that cross over to several applications, or those that contain more advanced materials will account for pockets of higher demand. But even these chemicals will not see large swings in pricing or significant changes in availability.
Buyers will not have major difficulty sourcing specialty chemicals this year. Demand is tracking the economy, and no spikes are expected. Ongoing consolidation has not depleted existing capacity to the point where widespread shortages would result. Any tightness is largely due to supply-side pressures from raw materials.
Here are close-up views and forecasts of key specialty chemicals markets:
Water treatment chemicals
The market for water treatment chemicals will be mixed this year. The European market is active, the U.S. economy is strong, but Asia-Pacific markets have slipped due to the economic problems in that part of the world. However, supply is tightening due to producer consolidation and capacity reconfiguration. As a result, buyers will see price tags rise moderately.
Purchasing's forecast is for water treatment chemical prices to increase 2%-5% this year due to higher raw-material costs. Example: One supplier points to increases in prices for caustic soda, sodium silicate, and hydrazine, which the source notes will impact chemicals used in cooling water and boiling systems.
Environmental concerns continue to drive demand for water treatment chemicals. Dale Jenson, vice president, domestic water treatment sales, Drew Industrial Division, Ashland Chemical, Boonton, N.J., notes the increase in demand for oxidated products, such as bromines and chlorine dioxide. Interest in treating water and reusing it as well as traditional wastewater treatment has sparked demand for these oxidative products. These products break down quickly, precluding environmental problems with biocides. Replacement of biocides will escalate.
European demand is outpacing Asian orders, report industry sources. Strong European demand stems from high levels of environmental regulations. Demand in Asia Pacific was strong until late-1997. Though the impact of a downturn in Asian demand is softened by Europe and other healthier markets, over the long term, producers are likely to wait before expanding capacity, says Jenson. The U.S. market is growing slightly.
Despite these variations in global demand, supply of water treatment chemicals will tighten this year. Producers have reconfigured their capacity to maximize utilization, so in periods of overall global economic health, industry inventories are low. Consolidation in the industry will prompt more plant closings, balancing out increases in capacity elsewhere.
Bob McIlvaine, president, The McIlvaine Company, Northbrook, Ill., says that consolidation is rising as suppliers seek ways to compete more effectively. Mergers such as that between Culligan and U.S. Filter enable suppliers to offer equipment in addition to chemicals.
Distributors themselves are helping to drive the consolidation trend. As distributors merge or acquire in order to provide a wider range of products and services to their customers, they sign up larger suppliers that have the capability to satisfy more demanding end-user needs. McIlvaine notes that this trend boosts interest among smaller water treatment chemical suppliers to merge.
In addition to offering equipment, water treatment chemical suppliers emphasize the services they can provide to customers. McIlvaine notes that more buyers want to source water by the gallon rather than invest in water treatment equipment. Example: Jenson says that automated delivery has emerged as one of the most competitive services for water treatment chemical suppliers. Environmental risks are lower since a supplier delivers specialty chemicals to an on-site tank.
Though services are growing in popularity, suppliers also are trying to meet higher standards in certain rapidly expanding markets. McIlvaine points out that as semiconductor chips become smaller and carry more memory, they can be contaminated by smaller particles in water. To avoid damaging chips, customers require more chemicals that ensure ultrapure water.
Plastics additives
Prices for a number of plastics additives are going up due to increasing raw-material costs. Demand will continue at a pace strong enough to sustain those increases. However, industry sources say that new emphasis on better performance will increase additive value as well.
Generally, prices for plastics additives will increase 2%-4% in 1998. Raw materials such as fatty acids will account for some of those hikes in lubricant plastic additives, says David Doles, marketing manager, Lonza Inc., Fair Lawn, N.J. Lonza manufactures lubricant plastics additives and flame retardants. But one industry source believes the supply-driven increases will not be as high due to customer resistance.
Demand for plastics additives will continue rising 3.2% annually through the year 2000 to 14 billion lb, worth about $8 billion, reports The Freedonia Group. Plastics additives will track plastic's major end-use markets: packaging, automotive parts, and electrical devices. The Cleveland-based market research firm says that the product mix reflects additives that are more environmentally friendly, perform better, and cost more.
The Freedonia Group notes that buyers seek plastics additives which "extend resin volume, modify properties, facilitate processing, and improve various physical characteristics, such as color or finish." Flame retardants alumina trihydrate and titanium dioxide will experience the most rapid growth due to regula-tory requirements that will spur increased use.
Supply of plastics additives is plentiful and won't change through 1998. Despite ongoing consolidation, capacity levels are adequate for demand levels expected. Closer partnering with customers ensures more advancements in research without sacrificing efficient production.
With supply readily available, leadtimes will remain stable throughout 1998. Lonza's Doles says the 1-2 week waiting periods for lubricant plastics additives (also known as functional additives) will most likely continue through year-end.
There certainly is no lack of plastics-additives suppliers. The industry has 300 participants, according to The Freedonia Group, including such major industry players as Owens Corning, Great Lakes Chemical, Ciba-Geigy, PPG Industries, Exxon Chemical, and Witco Corp.
Electronic chemicals
Electronic chemical prices will remain stable through 1998, report Purchasing's sources. At most, tags will rise 2%-3%, but increases will not occur across all product lines. The lack of supply-side price pressure and a balanced capacity, account for the steady price forecast.
With little price pressure and continued brisk orders, suppliers are working to meet customer demand for advanced materials while cutting their own cost of operation. William Barnes, North American product manager for semiconductor grades, Solvay Interox, Houston, Texas, points out that strategic suppliers "work to reduce customer costs." Examples of this approach include "direct bulk delivery and coordination of forecasts to minimize inventories," he adds.
So far, stable tags reflect the industry-wide effort to improve efficiency. Respondents to Purchasing's monthly chemical transaction price survey report contracts for acids and etchants are stable. For example, hydrogen peroxide contract prices are at 37¢/lb with no changes expected through the next six months. Liquid sulfuric acid contracts are $250/ton, with no increases forecast for the next two quarters.
Demand for electronic chemicals will rise 8.5% annually to $4.6 billion in the year 2001, reports The Freedonia Group. The emphasis is on "high-purity performance" chemicals. Semiconductor chip fabrication is the most active market, outpacing printed circuit board (PCB) demand.
End-use markets that are driving demand include computer equipment, wireless communication, digital video, and audio devices. As a result, substrate materials continue to hold onto the top slot for their use as insulation and mechanical support. The firm reports polycrystalline silicon as the largest segment of this market, but gallium arsenide is growing the fastest. Epoxies are used the most for the PCB laminate material, but high-performance polymers will expand at the most rapid rate.
Supply is adequate this year, reports Solvay Interox's Barnes. Leadtimes continue at their normal rate, which varies by product and package, he notes. Certain suppliers deliver in bulk to lower customer costs.
Only tight spots buyers may encounter will stem from short-term transitions during consolidation. Major electronic chemical suppliers include Air Products and Chemicals, Air Liquide America (L'Air Liquide), AlliedSignal, Ashland, BOC Gases, Ciba Specialty Chemicals, Dow Chemical, Dow Corning, DuPont, Komatsu, Mitsubishi, Olin, Praxair, and others.
Pharmaceutical intermediates
Prices for pharmaceutical intermediates will vary, due to different demand levels. Tags for mature products will rise 2% in 1998; there's no limit on prices for chemicals used to process new pharmaceutical products. Outsourcing continues to grow as pharmaceutical firms focus on decreasing cycle times and maximizing investments by building new capacity only when absolutely necessary.
However, downward price pressure exists industry-wide. As one pharmaceutical-intermediates producer notes, the industry faces pressure from HMOs (health maintenance organizations), generic drugs, and the development of new drugs that aren't considered as critical as the few that can command exceptionally high prices. However, suppliers also escape price pressure due to mature pharmaceuticals that require only established processes to meet consistent demand levels.
Orders for intermediates also will grow due to the rise in pharmaceutical-industry outsourcing. One pharmaceutical intermediates producer says his company is experiencing 10% growth, which he attributes to the increased focus on outsourcing more complex molecules.
Activity in end-use markets is consistently strong. Dr. Herrmann Piana, market development manager, Degussa Corp., Ridgefield Park, N.J., says the market for amino acids for human nutrition and other pharmaceuticals is strong. AlliedSignal's spokesman Tom Crane points out that "demand for custom fluorinated and brominated intermediates and downstream derivatives of those compounds is increasing."
That's good news for certain pharmaceutical intermediate suppliers. Crane notes that "more customers want to outsource regulated intermediates and active pharmaceutical compounds to suppliers that have the ability to supply more complex molecules." As a result, those suppliers will gain more business over the next few years.
The Freedonia Group says that histamine H-2 receptors, second-generation cephalosporins, and calcium channel blockers will account for a significant portion of the growth in this segment of the specialty/fine chemicals market. The firm's most recent report also notes that antioxidant nutritionals and herbal ingredients will experience strong demand.
Supply levels are adequate and buyers will encounter no shortages through year-end. Acquisitions such as AlliedSignal's new Arklow, Ireland, plant will balance capacity and demand. Like prices, leadtimes for pharmaceutical intermediates reflect demand for the finished product. Doug Boller, director of fine chemicals, Degussa Corp., says that as customers compress their product-to-market cycle times, suppliers must ensure their own operations are efficient.
Cosmetic chemicals
Prices for cosmetic chemicals are stable due to balance in demand and supply. Instead, buyers negotiate with suppliers for services.
Since demand is steady overall, suppliers are serving pockets of high growth for more advanced skin and hair-care products. This will continue to boost demand for emollients, conditioning agents, sunscreens, and anti-irritants, reports The Freedonia Group.
The challenge for many of the cosmetic chemicals is environmental safety on two levels: finished-product performance and cosmetic chemical-handling. The chemicals in demand are for products that don't irritate even sensitive skin. For hair care, customers seek products with minimal volatile organic compound (VOC) content. David Henry, consumer products business unit manager, at Solvay Interox, Houston, Texas, says that suppliers also offer training for customers to "store, handle, and process" products safely with chemicals such as peroxygens.
Demand for advanced cosmetic chemicals such as alpha hydroxy acids, enzymes, and vitamins is outpacing demand for some emulsifiers and preservatives, notes the market research firm. Fragrances and flavors will grow the most at 7.8% by the year 2000, followed by emollients and moisturizers at 6.4%, and performance and other additives also at 6.4%.
Supply is readily available due to balanced capacity. Capacity expansions aren't expected. Leadtimes will remain at current levels through 1998.
Food additives
Prices for food additives span a broad range, depending on availability and demand. Supply is plentiful for most products as the industry adapts its global supply base for agricultural unpredictability. Demand is stable with segments of strong market growth.
Pricing is steady for a number of food additives due to the existing balance between demand, supply, and capacity utilization. However, certain functional additives are experiencing strong growth due to new applications. For example, Joe Downes, business director at Rhodia, Cranbury, N.J., says, "Product segments such as self-rising pizza dough are increasing the demand for phosphate leavening products."
However, phosphates may experience long-term demand expansion, and not just from the food market. Downes notes that industries such as electronics are boosting demand for food grade rather than technical grades of phosphates and other chemicals. This trend emerges from the attention to ultrapure ingredients and environmental conditions for electronics production. For instance, phosphoric acid is used for plating or metal treating, says Downes.
In the short term, there are certain food additives whose prices are rising due to shortages. An example is thickener guar gum supply, which is tightening due to crop failures. Downes points out that these hydrocolloids act as "water-binders" for low-fat foods that rely heavily on moisture retention. The shortages already are firming up tags for other thickeners.
For most food additives, such as non-nutritive sweeteners, supply is adequate and will remain so through year-end. More suppliers offer LTL (less-than-truckload) delivery.
U.S. electronic chemical demand
(million dollars)
% annual
growth
1996 2001 01/96
Electronic chemicals demand 3,035 4,565 8.5%
Substrate raw materials 845 1,385 10.4%
Electronic gases 625 940 8.5%
Plastic packaging materials 340 515 8.7%
Acids & etchants 290 440 8.7%
Photoresists 260 410 9.5%
Other electronic chemicals 675 875 5.3%
SOURCE: THE FREEDONIA GROUP
U.S. cosmetic & toiletry chemical demand
(million dollars)
% annual growth
1995 2000 00/95
Cosmetic & toiletry chemicals 4,040 5,380 5.9%
Fragrances & flavors 970 1,410 7.8%
Emollients & moisturizers 900 1,230 6.4%
Cleansing agents & foamers 760 935 4.2%
Emulsifiers & other process aids 750 905 3.8%
Performance & other additives 660 900 6.4%
Cosmetic/toiletry chemicals (mil lb) 6,245 7,100 2.6%
SOURCE: THE FREEDONIA GROUP
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