Buying conditions for solvents will get tougher in the next year. Reasons: potential tightness in supply coupled with new environmental demands.

Over 60 companies are involved in manufacturing solvents in the U.S., according to The Freedonia Group (Cleveland, Ohio). The five largest, Dow Chemical, Shell Chemical, Exxon Mobil, Eastman Chemical, and Celanese, accounted for almost half of the total demand last year.

In a report published in mid-2001, The Freedonia Group anticipated that demand for solvents, following a recent lengthy period of decline, would increase 1% per year to 11 billion pounds by 2005, with a value of $3.6 billion. However, the lion's share of that new demand will be for environmentally friendly solvents (see chart).

Mike Richardson, the analyst who wrote the report, has seen some minor changes recently compared to last year's predictions. "Because solvent use is ubiquitous, the recent downturn in the economy will probably affect the market, especially in terms of usage as a result of the reduction in manufacturing activity," he says. "As such, the slight growth forecast we anticipated between 2000 and 2005 is not currently happening. In the long term, though, we still expect the modest growth that we predicted to take place."

"Overall, there is a good balance in terms of availability for solvents," adds William Hough, senior vice president and director of marketing for CHEMCENTRAL (Bedford Park, Ill.). "Solvent products seem to be reasonably available, and we have seen some price softening in this area, despite efforts on the part of producers to keep prices up." Overall, though, Hough believes that, as long as business activity continues to improve at the steady rate it has been so far this year, some solvent product availability may become a little bit tighter.

One solvent currently experiencing strong demand is acetone. "Acetone is one of our largest commodities, and availability has already been somewhat 'snug,' starting in June," continues Hough. "We saw a pretty good run-up in prices as a result." Another one is ethylacetate. "We are starting to see the effects of some products that had been imported until recently, such as ethylacetate," he explains. "Since it is no longer being imported, we are starting to see some snugness in the U.S. market."

Linda Shaffer, a senior marketing manager for Dow Chemical (Midland, Mich.), also sees the effect of imports on pricing and availability for solvents. (There are three U.S. producers of the three chlorinated solvents—perchloroethylene, trichloroethylene, and methylene chloride. Dow produces all three. Vulcan and PPG each produce two.) "We have been coming out of a trough in terms of pricing for solvents," she states. "Last year, pricing for chlorinated solvents was at a ten-year low." One reason was excess capacity in Europe due to low prices, which led to a significant number of exports to the U.S. "When prices in the U.S. exceed European pricing by more than 5¢/lb, it becomes attractive to the European producers to begin exporting to the U.S.," she explains. This has driven prices down in the U.S. over the past twelve months.

Shaffer expects to see close to a complete turnaround in the next year compared to 2001 pricing. The reason: There is increasing pressure in Europe, combined with increased demand, especially for refrigerants. "There have been a lot of planned and unplanned outages by producers in the U.S. and Europe," continues Shaffer. "As a result, supplies have become increasingly tight, especially in Europe. In some cases, pricing in Europe is actually slightly above pricing in the U.S." As such, European suppliers have no incentive to export solvents to the U.S. In sum: Prices for chlorinated solvents are expected to remain stable and/or increase in the U.S. "There have been four price increases in Europe since February on chlorinated solvents," she continues. "There has only been one price increase in the U.S. during that time period." If European prices continue to hold, U.S. producers would be hard-pressed not to follow suit with another price increase in the fall, she believes.

In addition to supply/demand balances, U.S. and European supply issues are also governed by the value of chlorine molecules. There are increasing pressures being placed on producers to get the maximum value for chlorine molecules. "In today's market, with derivatives such as vinyl doing well, producers are being hard-pressed to use chlorine molecules in products that are not able to realize the highest premiums for them," continues Shaffer. "Right now, vinyl is at the top of the chain for returns on the value of chlorine." As a result, producers are raising prices on chlorinated solvents to keep up pace with the value that chlorine molecules have for the other derivatives.

Probably the most significant factor affecting supply, demand, pricing and availability of solvents is the environmental issue. As The Freedonia Group report notes, "While demand for conventional solvents will be essentially flat, green solvents will post robust gains, with sales reaching more than $800 million or more than 20% of the market by 2005." The report predicts average growth of 5.7% per year through 2005 for green solvents, compared with a mere 0.2% per year growth for traditional solvents.

Solvents are subject to an array of federal and local regulations, as many solvents are identified as potential hazards of one sort or another, and in many uses their function is to evaporate, which can release volatile organic compounds (VOCs). "However, with the complete elimination of several chlorinated solvents...and the widespread reformulation of coatings, inks and adhesives, much of the replacement of the most environmentally objectionable solvents is complete," states The Freedonia Group's report. As such, the report predicts that growth in alcohols, ethers, esters and green solvents will begin to offset the decline in hydrocarbon and chlorinated solvents.

In specific, the report predicts that the cleaning products market will post gains three times the overall average as green solvents and more benign conventional solvents replace more traditional solvents, in lieu of the adoption of nonsolvent cleaners. In the transportation market, Richardson predicts that ethylene glycol, the leading solvent used in antifreeze and deicers, will experience a slip in demand, being replaced by the more environmentally-friendly propylene glycol, which is marketed to environment- and safety-conscious consumers.

Impact Marketing Consultants (Manchester Center, Vt.) also sees the effects of environmental concerns on solvent demands, especially for paints and coatings. "The continued push to environmentally friendly coating formulations is having a negative effect on the solvents market," reports Don Dykes, president. "Due to the increased use of water-borne, high solids and solvent-free coatings systems, solvent consumption is expected to decline by 1-2% over the next five years."

Another factor in solvent demand is that use of solvent recovery and recycling systems is increasing to improve environmental compliance. "This stretches solvent supplies, reduces costs, and also reduces demand for new products," notes Richardson.

In sum: "The overall value of the solvents market will increase 1.7% annually through 2005 as commodity solvents are replaced with higher value specialty and green solvents which typically carry higher price tags," concludes The Freedonia Group's report. "Average prices will continue to rise, though slowly for many traditional solvents."