Prices level off as market shuffles

By By Christopher Reilly -- Purchasing, 1/11/2001

Surfactant producers had a strong 2000. Producers announced several price increases, which eventually stuck in the marketplace.

Surfactants pricing saw significant upward movement this year for three primary reasons: After increasing demand growth in the past three years, 2000 signaled the peak of the demand cycle. Rising demand was met with material tightness for most surfactant products and raw materials used in their manufacture. Third, increases in feedstock costs as a response to up-ticks in the crude oil market were, and are, being felt downstream in the surfactants markets.

But the market is in transition-both in terms of pricing as well as in the supply and demand perspectives. Coming off a strong 2000 for surfactant producers, 2001 promises slower demand growth, which should loosen supply and cause pricing for many surfactants to flatten.

Market situation

Upward pricing movement in 2000 will give way to flat pricing for surfactants and the raw materials used in their manufacture in 2001. That is the general consensus of buyers, analysts and other market observers.

One market observer, Neil Burns, director of marketing at Pilot Chemical, a surfactants products manufacturer based in Red Bank, N.J., attributes the rising prices in 2000 to a variety of factors, most heavily influenced by tight supply. "Prices increased several times last year due to steady surfactants demand growth catching up with a static installed material capacity base," says Burns. Though producers saw across-the-board increases as recently as November, Burns believes that prices for most surfactants have peaked. "The user base doesn't seem capable of sustaining another price increase," he says. "And I think that much of the price pressure in the marketplace has been alleviated from the crude oil perspective."

In terms of demand, the surfactants market generally tracks growth in the mature soaps and detergents market, which makes up more than half of the total surfactants market, and generally tracks the GDP. Strong economic conditions in the U.S. for the last several years has driven growth in the detergents market, as well as many other emerging markets for surfactants.

A report by surfactants market analysts Colin A. Houston & Associates, based in Pound Lake, N.Y., reports non-detergent surfactants consumption growth in North America of about 2.4%/yr in 2000.

Within this segment, anionic surfactants accounted for more than half of the total industrial surfactant market. The fastest-growing anionics include alcohol sulfates, alcohol ethoxysulfates and naphthalene sulfonate formaldehyde condensates.

Among the nonionic surfactants used in major industrial applications, alkylphenolic ethoxylates are the largest-volume and most widely used surfactants, but the fastest-growing nonionic surfactants are acetylene glycols and glycol esters, which have found increased use in paints and coatings as paint manufacturers comply with environmental regulations.

Future growth in these markets, say analysts, will be curtailed by a downturn in the U.S. economy, which is expected in mid-2001.

Feedstocks support previous hikes

Because the surfactants market is diverse, covering a very wide range of chemical products, buyers should look to changing prices for feedstock chemicals to determine pricing trends for the surfactants they buy.

Overall, prices for the raw materials used to make most surfactants increased with crude oil during the first half of this year. Rapid increases for ethylene, benzene and other surfactant raw materials were quickly seen in the derivative markets, as producers passed price hikes on to buyers. "It has been a difficult year in terms of raw materials prices," says Joel Houston, president of Colin A. Houston Associates. "Producers have had to adjust their prices several times this year in order to compensate," he says.

When crude oil pricing began to erode in the late second quarter and third quarter of this year, buyers began to see some price relief for surfactant feedstocks. Some derivatives, however, such as linear alkylbenzene sulfonate (LAS), a key ingredient in most surfactants available on the market, has yet to see prices turn downward.

LAS spot prices increased about 5¢/lb in 2000, according to data from Purchasing's monthly survey of chemical transaction prices. In January 2000, LAS prices averaged about 52¢/lb for both contract and spot-market buys. Since then, prices have risen steadily. Buyers report spot price averages of 53¢/lb during the second quarter; 55¢/lb during the third quarter; and 57¢/lb for the fourth.

Contract pricing followed a similar pattern, say buyers. Prices for contracts averaged 52¢/lb, 53¢/lb and 55¢/lb for the corresponding quarters.

Buyers believe that prices may continue to see some upward price movement (about a penny or two/lb) in the first few months of 2001. However, most of this should be attributed to buyer price protection and producers' continuing efforts to implement past increases.

Albert Vargo, purchasing manager at Spartan Chemical, a producer of industrial and institutional cleaners and detergents, based in Toledo, Ohio, comments on the LAS market. "We have seen prices move up about 5¢-6¢/lb since November of 1999. Before that, prices were stable back to 1997," he says.

"I look at 2000 as an 'indicator year' as to which way the LAS market will trend in the future," Vargo says. "In terms of demand for LAS, the first six months of 2000 were excellent, and the second half of the year was dismal. Next year, the LAS market will cool and pricing will stabilize," Vargo says.

With slower demand keeping a lid on price-increase proposals, limited supply and minimal planned capacity expansion will keep prices from eroding much. According to Pilot's Neil Burns, capacity utilization for LAS is good currently, and will continue in the coming year. "The only increase in LAS capacity the market will see will be 'capacity creep' in the form of system upgrades, debottlenecks and maintenance turnarounds," he says.

For surfactants derived from ethylene, pricing will track changes in the ethylene price floor. Producers saw gains in the first and second quarters of 2000 level off and begin to weaken in the third and fourth quarters. But the fact that prices have not fallen that far will keep the derivative prices holding fairly firm. Support from recent price increases gained by strong demand and tight supply will keep the price deterioration of ethylene-based surfactants to a minimum through the first half of 2001. In fact, buyers won't see lower pricing for ethylene-based surfactants until at least the fourth quarter, barring a drastic change in the supply situation.

Current ethylene prices average about 32¢/lb for contracts and about 33¢/lb on the spot market. And buyers expect to see some additional price erosion in the coming months. Buyers expect average prices of 30¢/lb for contracts and prices of about a penny/lb less on the spot market for first quarter 2001.

Like ethylene, the benzene market has been quite volatile with changes in the crude oil and energy markets. In the past year, benzene prices have fallen from about $1.65/gal on average during first quarter 2000, to about $1.39/gal for the fourth quarter. Most recently, buyers reported average benzene spot tags of about $1.25/gal for December.

Buyers of benzene-based surfactants will see downward price pressure, especially during the first half of 2001. Those buyers responding to our monthly survey forecast spot price averages of $1.35/gal for first quarter 2001, followed by $1.32/gal on average for the second quarter. In like fashion, benzene contract prices will fall to about $1.29/gal in the first quarter, and then about $1.25/gal on average in the second quarter. From there, prices should flatten, barring a major change in the market's supply and demand balance.

Market reorganizes

One of the most important trends affecting the surfactants market in the past year has been the effects of consolidation of the supplier base. Though there are still more than 200 active surfactants suppliers in the U.S., the frequency of consolidation among producers and customers has accelerated this year. Many companies are merging and reorganizing in order to gain access to new technologies, broaden their product offering, realize synergies and cost reductions through economies of scale, broaden (or simplify) their geographical coverage, or penetrate global markets.

For whatever reason, larger companies are eyeing smaller companies for consolidation, and most indicators suggest this trend will continue.

Commenting on consolidation in the surfactants market, Colin A. Houston & Associates president Joel Houston says that 2000 has been a year of disappointments. "A lot of mergers this year have been all talk and no fire," he says.

Some of the major merger announcements affecting the surfactants market follow:

Finalization of the much-publicized merger of chemical giants Union Carbide, Norwalk, Conn., with the Dow Chemical Co., Midland, Mich., has been postponed twice and still awaits approval by U.S. regulatory bodies. When approved, the combined company is sure to cause quite a shake up in the surfactants market.

Condea Vista's sale is still under development. In February, RWE AG, based in Hamburg, Germany, announced its intent to sell the chemicals business of its subsidiary, condea. No announcement has been made as to a buyer for the performance chemicals business.

In March, Rhodia made an offer to acquire the phosphates business of Albright and Wilson. However, according to Joel Houston, this acquisition announcement was followed by an announcement that Albright & Wilson's surfactants business would be sold to Huntsman Corp., based in Salt Lake City, Utah. This however, has not yet materialized.

CK Witco's industrial surfactants business is still on the selling block, according to Joel Houston. This has been the case since the acquisition of Witco, in early 2000 by Crompton & Knowles, a paints, adhesives and specialty chemicals manufacturer based in Greenwitch, Conn.

Cognis, a specialty chemical products manufacturer based in Cincinnati, Ohio, is also rumored to be looking for a buyer of its surfactants business, according to Joel Houston.

In other supply news, Condea announced in October that it would build a new ethylene oxide unit at its Marl production site. According to the company, the additional capacity, in the amount of 150,000 metric tons, will boost its presence in Central Europe. The company expects the expansion to be onstream during the second quarter of 2001.

New products

Amid the many factors affecting change in the surfactants market. Producers continue to explore new avenues of growth for surfactant chemicals and release new products to the marketplace.

Albemarle Corp., Baton Rouge, Ala., has developed its Asur SQ1416-8 surfactant as a mixture of 80% n-alkyl dimethyl benzyl ammonium chloride and 20% inert ingredients. It is designed primarily as a de-wetting agent and antistatic additive in a variety of nonionic, amphoteric and cationic applications. Asur SQ1416-8 is freely soluble in water, lower alcohols, ketones and glycols, and has a pH of 6 to 8.5 in a 10% solution of distilled water. It is available in tank trucks and 55-gal drums.

Stepan Chemical Corp., Northfield, Ill., offers its ninol 1281 fatty alkanolamide detergent-grade surfactant detergent base for synthetic and soap synthetic floor cleaners. It may also be used to formulate viscous, non-rust solutions.

Pilot Chemical Co., Red Bank, N.J., has reformulated its calfax DB-45 diphenyl oxide disulfonate with one-half the color of the material in 1999. According to Pilot, this reflects higher purity of the product resulting from processing improvements.

Besides its primary application in detergents and hard-surface industrial cleaners, Calfax is used in a wide range of other applications, including the production of styrene butadiene rubber (SBR), latex for paper coating, carpet backing, polyvinyl chloride (PVC) resin, acrylic resins and many adhesive formulations.

Uniqema, based in Wilmington, Del., has formulated its Maxemul surfactant products for use in protective coating, paper coating, adhesive and other applications. Maxemul is designed to provide high gloss and low blooming, water spot resistance, better durability and improved appearance in the final coating product due to low water uptake and permeability.