Rising feedstock costs force prices up
By Christopher Reilly -- Purchasing, 1/13/2000
The domestic surfactants market is in transition. Price pressure is rising due to higher oil prices and the resultant boost in feedstock costs, while demand keeps chugging along with the strong U.S. economy. Result: Buyers expect to pay higher prices for surfactants this year.U.S. demand for surfactants is expected to grow at a rate of 2.7%/yr to 9.2 billion lb by the year 2002, according to a study by The Freedonia Group, an industrial analysis firm based in Cleveland, Ohio. Demand growth for surfactants generally reflects the growth of the economy and of the soaps and detergents business, and "business has generally been healthy," says one buyer located on the East Coast.
Linear alkylbenzene sulfonate (LAS) is, by far, the largest and most common commodity surfactant used in soaps and detergents manufacturing, the largest market for surfactant chemicals. Alcohol sulfates and alcohol ether sulfates are the other primary surfactants used in soaps and detergents production, and a wide range of specialty surfactants is available. As one might expect, prices for specialty surfactants are typically higher than commodities, and most analysts, producers and even buyers point to several indicators that pricing will increase slightly in the first part of the year.
According to PURCHASING's chemical price transaction survey, LAS prices have remained mostly static in 1999 at about 50¢/lb on average for both contracts and spot tags. But LAS prices are forecast to increase by about 2¢/lb during the first part of 2000, according to the latest data collected in PURCHASING's monthly survey of chemical buyers. Look for contract and spot pricing to average 52¢/lb for the first half of the year before sliding back to the current level of 50¢/lb in third quarter, 2000.
In fact, the surfactants industry currently is implementing a price increase on sulfonic acid, according to Neil Burns, vice president of marketing at Pilot Chemical, Red Bank, N.J. Pilot and other merchant market surfactant producers raised prices by 2¢/lb in November. "Along with sulfonic acid, prices for several surfactants were increased by 1¢ to 3¢/lb, depending on their sulfonic acid concentration," Burns says.
One surfactant buyer of LAS, based in the Midwest, says, "Pricing in the last year has edged up. And there are currently some price increases on the table. Whether these price increases hold will depend on feedstock prices and the suppliers maintaining their margins," he says. "It's a question that also involves the future outlook for petroleum."
Feedstock pressure
Most surfactant market analysts point to increased cost of feedstock chemicals for the upward pressure on surfactant prices. In most cases, this upward pressure is rooted in rising oil costs, which have gone up substantially since August 1999. Rising oil costs put pressure on the oleo-based chemicals used to make many surfactants.
Two chemical feedstocks, ethylene and benzene, which are used to make a variety of surfactant products are monitored by PURCHASING's monthly chemical price survey. Ethylene prices made a sizeable jump this year, amid a barrage of sequential monthly price-hike proposals by producers. According to buyers who responded to PURCHASING's price transaction survey, average contract prices rose from 19.6¢/lb in the second quarter to 25.6¢/lb in the third quarter of 1999, an increase of 6¢/lb. Likewise, spot prices increased from about 17.6¢/lb in the second quarter to about 23¢/lb on average for the third.
From there, contracts increased somewhat to about 26.4¢/lb for the fourth quarter, 1999. Spot prices also increased by about 1¢/lb to 24¢/lb.
For the first half of 2000, ethylene buyers expect contracts and spot tags to stabilize at about 25¢/lb and remain there for most of the year.
Data from Houston, Texas-based petrochemical consulting and analysis firm, The PACE Consultants Inc., forecast a softening of ethylene prices. PACE predicts ethylene contracts to slide from 25.3¢/lb currently to about 22.3¢/lb by the end of the second quarter, 2000. Note that PACE data is based on U.S. Gulf Coast pricing, which is usually a few ¢/lb less than PURCHASING's data, which is based on average pricing from sources across the U.S.
"The ongoing battle between suppliers and buyers with regard to pricing continues," says Joel Houston, president of Colin A. Houston Associates, a market analysis and consulting firm that studies the surfactants market, based in Houston, Texas. "Prices for surfactant raw materials, such as ethylene, have been trending up," Houston says. "This summer's run-up in ethylene prices put some upward pressure on surfactant pricing, especially through ethylene oxide and other intermediates.
"As buyers look for surfactant alternatives as prices go higher, they will likely try to reformulate and possibly cover their demand by introducing some blends," Houston says. "But it is hard to be specific about this, because surfactants cover such a broad range of products."
Benzene producers have also seen some late-1999 gains. According to buyers, benzene contract prices averaged 70¢/gal in the second quarter, before surging more than 8¢/gal in the third quarter of 1999. Spot tags also increased, from about 80¢/gal to about 84¢/gal during the same time period.
For the fourth quarter of 1999, benzene contracts and spot tags increased to 89¢/gal and 93.5¢/gal respectively.
PACE data forecasts further price gains for the next six months up to $1.10/gal on average for contracts by the end of the second quarter, 2000. However, buyers responding to PURCHASING's monthly survey expect benzene contracts to average 92¢/gal for the first half of the year and increase to 93¢/gal in the second half, at which point spot tags will level off at about 95¢/gal and remain there through 2000.
Supply tightness?
Richard Santoro, purchasing manager at Uniqema, a Division of ICI Corp., based in Patterson, N.J., buys a variety of raw materials used to make surfactants. "We sell in almost all of the general categories of surfactants--nonionic, anionic, cationic, and amphoteric, which have a variety of applications in soaps and detergents and personal-care markets," he says.
For Santoro, there are two major categories of feedstocks for nonionic surfactants--the primary surfactant manufactured by Uniqema. "Some are derived from natural sources, such as coconut oil and palm kernel oil," he says, "And others come from synthetics. These markets compete against each other, so I just look for the pricing and availability that best suits my needs," he says.
However, Santoro says that recently, he has had problems securing supply from both categories. "Often, one type of feedstock is out of phase with the other and you can pick and choose, but now they seem to be coming together," he says. "The tightness will probably improve next year, but right now, there doesn't seem to be much escape from higher prices.
"We look at the full portfolio of surfactants available for any flexibility that we may have--flexibility with suppliers' sources, and with different feedstocks--and we try to source materials accordingly," says one surfactants buyer based on the East Coast.
"We do have some flexibility in that regard, but I don't know if that flexibility can or will offset price increases that are oil-driven," the buyer says. "My view is that it can offset some of the increases, but not all of them."
One possible reason that the surfactants market is looking at a fairly tight raw materials situation is because producers are protecting their margins by limiting capacity growth.
"Demand has been largely steady for surfactants, and there have been limitations on capacity growth on the part of producers," says Joel Houston. "In general, I think suppliers are just trying to figure out ways to keep their customers supplied without tremendous capacity growth," he says.
Also, in the past five years, there has been some significant rationalization in LAS production, according to Pilot's Burns. "Three companies: Condea Vista, in Houston, Texas; CK Witco in Greenwich, Conn.; and Lonza, based in Fairlawn, N.J., have either closed surfactant plants or divested their surfactants business," Burns says.
"So, we have seen some capacity being taken out of the system along with some steady demand growth," says Burns. "We're coming to a point where there is some definite tightness as a result.
"We see the market remaining snug in 2000," adds Burns. "We have commissioned a significant capacity expansion at our Middletown, Ohio, facility, scheduled to come on line in the first quarter of 2000. But that capacity is on its way to being pretty much occupied through 2000," he says.
But not everyone is seeing the supply tightness. "We continue to hear rumors of surfactant shortages, but we haven't really seen any," says Richard (Dick) Fischer, director of purchasing at Amway Corp., headquartered in Ada, Mich. "Our real concern is the constant rumor of low profit margins, which can result in business changes by suppliers," he says.
Industry trends
Supplier consolidation is perhaps the most celebrated issue affecting the market for surfactants.
"It's coming to the point where [supplier consolidation] will create some surfactant suppliers who will have more dominant positions in the market," says Joel Houston. "These suppliers may be able to push price increases through a little more easily because of the lack of competition," he adds.
But Houston admits that this scenario is still on the horizon. "Supplier consolidation should start to have some affect on the surfactant business in the U.S., but I think that overcapacity situations in other regions of the world will limit its effect in those areas for a while," he says.
Another supply issue involves a movement toward a more global marketplace for surfactants.
"There have been some efforts from time to time by major surfactant users to globalize their sourcing of surfactants," says Pilot's Burns. "But historically, the market has been very regional in approach," he says. "There is some imported material, and also some exporting, but they are insignificant as a percentage of the market."
Areas for growth
According to Freedonia's study on the surfactant market, "Future growth will be driven by demand for multifunctional and biodegradable surfactants used in better performing, environmentally compliant formulations."
Anionic surfactants will continue to dominate the market through 2002 accounting for 5.9 billion lb of demand and increasing at an annual rate of 2.5%. This, according to the study, is due to their effectiveness, widespread application and comparatively low price. However, mature end-use markets may hamper these gains, according to the study.
Other areas slated for growth, according to the study, include nonionic surfactants (2.9%/yr), accounting for 2.4 billion lb by 2002; cationic surfactants (3.7%/yr), accounting for 1.1 billion lb; and amphoterics (5.8%/yr), which will grow to 85 million lb by 2002.
Surfactants are used in a wide range of consumer and industrial products in the soaps and detergents market, including detergents, wetting and foaming agents, dispersants and penetrants. They are also found in household cleaners and detergents, industrial and institutional cleaners, and personal care products, such as facial soaps and skin products. Some surfactants, like linear alkylbenzene sulfonate (LAS), are large-volume commodities, but others are more specialized, even custom formulated for very specific applications.
More than 200 companies participate in the U.S. surfactants market. These companies include major soapers, such as Procter & Gamble, Cincinnati, Ohio; Colgate-Palmolive Co., New York, N.Y.; and Lever Bros., in Bensalem, Pa., which primarily use the surfactants they produce in their own formulations. Merchant suppliers accounted for about 61% of the total surfactants market in 1997, according to Freedonia.
Besides their applications in the soaps and detergents markets, surfactants go into a wide variety of products used in other market segments. For example, industrial surfactants find end uses in paints and coatings as additives, plastics additives, and in oil field and textile applications.
Supply news
Rohm and Haas, Philadelphia, Pa., recently created a new business unit to serve the household products and personal care markets. The business essentially combines three Rohm and Haas businesses--biocides, formulation chemicals and floor care--under one roof.
The newly created business offers a range of specialty additives and ingredients for cosmetics, toiletries, shampoos, floor care, laundry and household cleaning products.
Rohm and Haas also recently announced the acquisition of Morton International, a manufacturer of specialty chemicals.
Clariant Corp. plans to construct a new production facility at its existing site in Muttenz, Switzerland. The facility, which is scheduled for completion in 2001, will provide the capacity needed to produce new specialty chemicals that will be distributed by the surfactants division's detergents and consumer care intermediates business unit, according to a company press release.
The Muttenz site, which currently houses the company's corporate headquarters, will also include the construction of a tank farm and general-purpose warehouse and will result in a substantial expansion of current capacity (75,000 metric tonnes/yr).
Clariant has also started up a new manufacturing capability at its Mount Holly, N.C., plant to expand its production of cocyl isethionate (SCI). SCI is an ingredient in bar soaps and other personal-care products.
The company's new SCI product lines will be sold under the trade names, Hostapon SCI 85 and Hostapon SCI 65. Hostapon SCI is designed to offer excellent foaming properties, hard-water compatibility, and controlled solubility of bar soaps and other personal-care products. It is available as a free flowing, granulated powder and in flake form, according to the company.
Stepan Chemical, Northfield, Ill., released a new surfactant product to the market earlier this year. The product, Alpha Step MP-60, is used globally in the production of laundry bars. Its properties include mildness, good performance in hard water, and it is tallow-based, according to the company.
Union Carbide Corp., Danbury, Conn., offers its TERGITOL© and TRITON© lines of surfactants for use in household, industrial and institutional cleaners and detergents, as well as in cosmetics, shampoos and other personal-care products. According to the company, these surfactants also find applications in textile wet processing, papermaking, and paints and coatings formulations.
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