Push for price hikes should be short-lived
By Staff -- Purchasing, 11/2/2000
Purchasing decisions in the market for plastic additives are more complex today than ever. Pricing is the easy part, since the costs of most additives have tended to decline significantly over the past decade. In general, the prices of colorants, property and appearance modifiers, process aids and lubricants, as well as many other categories remain at relatively low and stable levels.
Several efforts to raise additive prices have been mounted this year, but these have met only modest success. The prospects for a balanced market, in which rising demand is nearly matched by added capacity, appear to be excellent at least for the next few years.
The harder part is that major changes in the plastics additives business are making the buying decision much more of an art than ever before. Among the shifting forces now coming into play are:
Emergence of electronic trading patterns. Early initiatives have been launched, with signs that e-commerce in additives will be well received by additives purchasers.
Consolidation of the supply base. This has created new names in supply, increased the potential clout of key suppliers, and laid the basis for intensified new product development efforts in coming years.
Acceleration of creative product development. This trend has been driven primarily by the desire of leading suppliers to differentiate their products, as well as by the need to adapt additives to new environmental regulations.
Price stability is likely to hold. Townsend-Tarnell, an industrial market intelligence firm based in Mount Olive, N.J., pegs global demand for additives (colorants excluded) at 17.8 billion lb in 1999, or 5% higher than the previous year. Revenue generation by the industry was $14.9 billion. The regional breakdown for global additives use looks like this: 35% for Asia, 27% for North America, and 25% for Europe.
The consultant also estimates the breakdown for additive classes as follows: plasticizers (32%); flame-retardants (14%); heat stabilizers (12%); impact modifiers and processing aids (10%); antioxidants (9%); and UV stabilizers (3%). As for end use, polyvinyl chloride (PVC) is still by far the largest user of additives, accounting for some 59% of global sales, versus 17% for polyolefins (polyethylene and polypropylene), and 7% for polystyrene.
Fred Gastrock, author of the Townsend-Tarnell report, says that value-generation in additives has been less stellar than the rise in demand. He estimates the revenue stream has grown only by 1% in the past three years due to sluggish pricing. The major reason had been weakness in Asia in 1997-99. However, industry sources say that Asia's current strong rebound in 2000 is creating a basis for continued stability.
Buying plastic additives is comparable to being a chef in a high-class restaurant. To meet discriminating tastes, whether in resins or food, additional ingredients are needed to enhance physical properties, appearance and processability of the final product. In the case of resins, the rainbow of additives formulated into them is extremely broad, making it hard to draw conclusions that apply to all categories.
But it is safe to say that pricing of additives in the U.S. has been favorable to buyers in recent years. To cite examples, by 1999, tags for antioxidants and ultraviolet light stabilizers (used mostly in PE and PP) had fallen to around half of the prevailing levels for 1990. This was largely due to a major buildup of capacity in Asia (especially in China), which in turn showed up as imports selling at about $2/lb below the tags typical then for U.S.-made products.
Currency trends are also reinforcing the pressure on additives pricing in the U.S., according to the chief buyer for a large concentrates supplier operating in North America. The low value of the euro and yen relative to the U.S. dollar increases the benefits to suppliers from outside who sell into the U.S. market. That, plus continuing excess capacity in Asia, should keep the lid on most additive and colorant prices in U.S. domestic markets, the source concludes.
Nevertheless, there have been attempts by some suppliers to raise prices and lift their margins. Recently, Rohm and Haas, Philadelphia, Pa., announced 5¢/lb price hikes on acrylic processing aids and MBS-type modifiers used in plastics, citing cost run-ups in prices being charged for its raw materials.
In the summer, Lonza Inc., Fair Lawn, N.J., announced up to 5¢/lb hikes on lubricants, citing fast-rising costs of raw materials, energy and freight. The cost of fine chemicals typically used in additives is by no means determined by oil prices alone, yet soaring oil prices have hurt suppliers. Mixed-metal heat stabilizers widely used for flexible PVC also were subject to typical 10¢/lb increases this past summer.
Again, in recent weeks Degussa-Huls AG, in Frankfurt, Germany, announced price increases on silica products, which are used as anti-block additives in films. That supplier cited energy costs and currency fluctuations as justification for its move.
Most industry sources, however, are convinced that any price increases that have been pushed through are modest and likely to be short-lived. They argue that the goal of retaining market share is still the key driver in many additive markets.
Mergers bring payoffs
Consolidations have been evident in additives supply as in the economy at large. For instance, in late 1999, Crompton Corp., Greenwich, Conn., took control of both Witco Vinyl Additives in the U.S. and its European unit, now known as Crompton Vinyl Additives, in Lamperheim, Germany.
That merger brought under one flag the Witco businesses (suppliers of additives for PVC), Uniroyal (a leader in supply of blowing agents for PVC), and Davis-Standard, which is a leader in extrusion equipment, including systems used to make rigid PVC profiles and pipe.
A new initiative from the Crompton companies is a collaborative effort by Witco and Davis-Standard to set new benchmarks in productivity for PVC window and siding profiles. The idea is to combine respective strengths of Witco in formulation and Davis-Standard in high-speed production to maximize efficiency.
Clariant Masterbatches Division in McHenry, Ill., says its acquisition last year of Boehringer Ingelheim, a German foaming agent maker, is already paying off. Clariant, a specialist in color masterbatches, is reaping benefits in cosmetic bottle programs by using foaming agents from BI in surface layers of multilayer bottles to get frosted color effects at low cost.
In late 1999, Rohm and Haas, which supplies modifiers and processing aids widely used in PVC and polyolefins, acquired the additives businesses of Morton International. These include mixed-metal heat stabilizers, biocides and lubricants, mostly for vinyl. "This combination has further enhanced our capability as a systems formulator," says David Underwood, Rohm and Haas global business director.
Another trend in North America is the arrival of a new breed of Japanese-owned additive suppliers. In the past, sophisticated companies like Asahi Denka Kyogo, Tokyo, Japan, have focused heavily on domestic markets. But now, with the yen down in value and demand for performance products on the rise, that firm is pushing new additives in North America. A joint-venture company, Amfine Chemicals, Allansdale, N.J., has been established, with plans to see high-value additives in the U.S.
Kunio Nakamura, Amfine's CEO, cites hindered amine light stabilizers (already being made in a U.S. plant) as well as phosphite AO, permanent antimicrobial and clarifier products. In many Japanese markets, companies like ADK have already made progress in replacing additives deemed by some as environmentally undesirable, examples being lead-free heat stabilizers and non-phthalate plasticizers used in flexible PVC.
New products proliferate
To the surprise of many, innovation remains strong in additives despite the fact that many workhorse offerings in most categories have been around for decades.
"We find this is as creative and exciting a time as ever," declares Felix Meyer, global vice president for additives at Ciba. He notes that Ciba has launched a spate of new additives in recent years, including a light stabilizer that also shows great promise as a non-halogen flame-retardant (the product is Flamestab NOR 116). Ciba's strategy is to move beyond core products, however, into areas like surface-effect additives, namely clarifiers for use in bottles and sheet, and permanent antistatic agents used in plastic films.
Changing consumer tastes also tend to keep suppliers of additives (and particularly colorants) on their toes. An example is special-effect colors, which the designers of goods ranging from automobiles to packaging are turning to as a way to offer more eye-catching effects. By offering high-glitter, high-luster and even color-shifting effects (in the latter, shade actually changes as the angle of light shifts), these pigments can be turned into ever more effective marketing tools. LNP Engineering, in Exton, Pa., even has a line of compounds that are thermochromatic (color changes as the temperature of a part changes).
A deficit for color-shifting pigments is their considerable cost. They are supplied by Flex Products, Santa Rosa, Calif., and two German companies, basf, in Ludwigshafen, and Merck Darmstadt. But the cost issue is being addressed by turning to lower-cost (but still high-priced) pearlescent pigments, such as those supplied by Engelhard Corp., Iselin, N.J. Clariant's masterbatch division hopes to increase the cost-effectiveness of these new classes of colorant by using them in only one of several layers of a product, thereby optimizing their use.
Environmental challenges are another source of creativity in additives supply. Thus, Crompton Vinyl Products, the German heat-stabilizer supplier, has developed an organic, heavy-metal-free product to replace lead ones in processing PVC pipe. Calling the technology a breakthrough, CVP's business director for Europe anticipates it "strengthening PVC's overall position from an environmental point of view in pipe and other rigid applications." The family of organics is said to provide several processing benefits versus lead and calcium-zinc stabilizers, but initially they will cost up to double the price of lead products. However, a CVP official says pressure against lead "is a fact of life," and he predicts shifts in the market will gradually take hold.
The purchase of chemicals, polymers and compounds on the Internet has been surging ahead for the past year, with numerous well-funded startups in place, and volumes of e-commerce rapidly reaching substantial levels. Now, it's plastics additives' turn, with a flurry of initiatives set to be rolling by late this year.
One initiative is PolymerAdditives.com LLC, a joint venture that ties Albemarle Corp., Cytec Industries and GE Specialty Chemicals as equal equity partners into a joint venture. The site, says Bob Fines, president of GE Specialty Chemicals, in Parkersburg, W.Va., will offer products from respected firms with "the efficiency and accessibility of the Internet." GE would offer ABS-based modifiers and phosphite antioxidants, while Albemarle would supply flame-retardants, curatives and catalysts. Meanwhile, Cytec would provide AO and light stabilizers of various kinds. The site (www.polymeradditives.com) was scheduled to launch in the fall.
Other major additives suppliers offered a swift rejoinder with the launch of Elemica, a neutral, independent, secure e-marketplace for the chemical industry, which would allow e-transactions for a broad range of fine chemicals, including additives and the ingredients used to make them. The founding partners, all of which offer additives in their product portfolios, are atofina, basf, Bayer, Dow, DuPont, Rohm and Haas and Shell. The partners have invested $100 million, and site activation is set for December 2000. Further, Elemica is accepting other co-participants in its supermarket-type model, with those signing up including Ciba, Degussa-Huls and others involved in additives.
A number of additives suppliers, too, are launching closed sites of their own. Ciba's My-Business-at-Ciba initiative includes ordering, order tracking, logistics and technical support functions. Clariant's masterbatch division has also announced an e-business model with emphasis on color matching and ordering that is easy to use and efficient. Both initiatives are scheduled to be online by the final quarter of this year.
Prospects are debated. The goal of the polymer additives consortium, members say, is to provide an efficient way to purchase complementary, brand-name products. The site would provide real time, 24/7 access to inventory, price, order and shipping data.
"There are commonalities in the various offerings to be made available, with a focus on polyolefins," says John McChesney, speaking for Albemarle Corp. He says additives are mostly packaged in boxes and drums, thus relatively easy to handle. The consortium could later be enlarged to include other suppliers. The site is to include links to individual company sites.
John Quarmley, consultant at Principa Partners, Lancaster, Pa., says supermarket-type portals such as this require "critical mass" of product offerings to attract sufficient users. The benefit, he says, is spreading of high costs of maintaining a viable site between the several investors.
Additives sales via the Internet pose a considerable challenge, some other industry sources say, notably because the products are bought heavily by a handful of giant resin suppliers, are heavily formulated, and require unstinting technical support.
Quarmley, however, says additives are "amenable" to sale via the Internet. A recent survey by Principia shows that 14% of all e-transactions projected for the U.S. plastics industry this year will be for additives, which would place additives at a close third after resins and compounds (18%) and spare parts for equipment (15%), but ahead of staffing (13%) and consulting (10%). One factor is that additives typically are specialties, so time needed for buyers to search them out is high. The Internet would speed that search.
Also, additives are mostly high-value items, so freight cost on them is a lesser factor. Principia predicts that e-sales will occur across a broader-than-expected geographic area. Buyers in remote economies may be more favorable to e-commerce in additives than expected, Quarmley says, because it gives them quick access to innovative products.
In a related development, basf, Dow and DuPont have begun to work to develop open, non-proprietary standards for all levels of e-commerce and data exchange. That includes a broad set of Extensible Markup Language standards that support divergent business models.
Without a standard approach to data exchange, says David Kepler, Dow's vice president of electronic business and commerce, potential for e-commerce inefficiencies are created. He sees XML standards as a foundation for the evolving e-commerce industry. The proposed standards for chemical sites can be viewed at www.cidx.org.
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