Handbook - 45/2017
Increasing Exports from Gujarat – 4 GLOBAL MARKET FOR SPECIALTY CHEMICALS
Suhayl Abidi Editor, Foreign Trade Update GOG-AMA Centre of International Trade
GoG-AMA Centre for International Trade Increasing Exports from Gujarat - 4 GLOBAL MARKET FOR SPECIALTY CHEMICALS
Compiled by Suhayl Abidi
For any queries, please contact: [email protected]
First Published: March 2017
Published by GoG-AMA Centre for International Trade Ahmedabad Management Association Torrent-AMA Management Centre Core-AMA Management House ATIRA Campus, Dr. Vikram Sarabhai Marg, Ahmedabad 380 015 Phone: +91-79-2630 8601 • Fax: +91-79-2630 5692 Email: [email protected] • Website: www.amaindia.org Contents
Introduction 1
Global Specialty Chemicals Market 3
Indian Specialty Chemicals Industry 23
Gujarat Specialty Chemicals Industry 32
Future Strategies for Gujarat Specialty Chemicals Exports 40
Robust Infrastructure for Gujarat Specialty Chemicals Exports 46
Specialty Chemicals Technologies and Innovation Trends 52 Introduction
Specialty chemicals are produced by a complex, interlinked industry. In the strictest sense, specialty chemicals are chemical products that are sold on the basis of their performance or function, rather than their composition. They can be single-chemical entities or formulations whose composition sharply influences the performance and processing of the customer’s product. Products and services in the specialty chemicals industry require intensive knowledge and ongoing innovation. Therefore, they face strict market entry barriers and command higher prices.
Commodity chemicals, on the other hand, are sold strictly on the basis of their chemical composition. They are single-chemical entities. The commodity chemical product of one supplier is generally readily interchangeable with that of any other.
Industrialization and urbanization have driven significant changes to trades and economies. The rising population and their increased dependency on textiles, food additives, consumer goods, and infrastructures are ensuring a flourishing growth for specialty chemicals. The wide range of chemicals used in the production of adhesives, agrochemicals, lubricants, cosmetic products, flavours and food additives, fragrances, textiles, and construction materials are earning significant revenues for the industry.
Examples of specialty materials include materials or additives that extend shelf life or preserve product quality, lightweight materials that reduce fuel consumption or other energy costs, antimicrobial materials that reduce the risk of infections, and ballistic resistant materials. Other examples include performance enhancing or eco-friendly additives that provide differentiated colours or effects, such as consumer applications that glow in the dark, change colour in light, provide colour harmonization, or unique performance or process enhancing characteristics (antistatic, antioxidant, anti-sticking, flame retardant, resistant to UV light, etc.). Some specialty materials can be engineered to provide enhanced structural or functional performance (e.g., noise reduction) or deliver enhanced design or visual aesthetics. Specialty materials can also be applied to traditional materials such as steel, wood, vinyl, polyester, aluminium, and others to enhance the properties of these materials, providing improved weatherability, weight characteristics, durability, colour retention, stain or scratch resistance, flame retardancy, chemical resistance, or gloss control. Due to their superior attributes, specialty materials are increasingly being used across a wide range of end markets.
The largest specialty chemical segments in 2015 were construction chemicals, specialty polymers, electronic chemicals, and surfactants. These accounted for 37%
Global Market for Specialty Chemicals Introduction 1 of the industry’s global sales. About half of the world consumption of specialty chemicals goes into only four end-use industries—soap, cleaning, and cosmetics; food and beverages; construction; and electrical and electronics. Other important end-use industries for specialty chemicals include motor vehicles, oil and gas mining, and paper and pulp. The adhesives, paints, and coatings products generate the highest percentage of revenue compared to other types of products.
The specialty chemicals business continues to transition. Historically, North American, Western European, and Japanese firms have dominated this business. They still do, but no longer to the same degree. With trade liberalization, the spread of process technology, the breakdown of numerous economic barriers, the rapid growth of the newly industrialized Asian economies, and rising standards of living in many developing countries, the centre of gravity of the global chemical industry is shifting toward the Middle East, where cheap petrochemical feedstocks are available, and Asia, where labour costs remain relatively low and economic growth is high. Chinese and Indian manufacturers have become key players in several specialty chemical markets. However, the concept of China as a low-cost producer is gone since the country is shifting away from an export focus to meet growing domestic needs for higher-value, downstream products. As competition increases and mature products become commoditized, innovation remains one of the few sources of competitive advantage.
The Fine and Speciality Chemicals industry in India represents a US$30 billion market, which is growing at 10-12% annually – faster than the chemical sector as a whole. The industry not only serves the local market, but also the global one and is globally competitive in many sectors, including China.
According to P&S Market Research global specialty chemicals market is expected to grow at 5% CAGR during 2016-2022.
The factors driving the growth of the global market include large base of end-use industries, high demand from Asia-Pacific, increasing demand from automotive industry, and technological advancements in the global specialty chemicals market. The growth of the global specialty chemicals market is largely driven by high demand for specialty chemicals agriculture and construction industries. The growing construction activities in Asia-Pacific and development of environment friendly products offer ample revenue generation opportunities to the manufacturers of specialty chemicals.
Among the various types of specialty chemicals, the agrochemicals segment held the largest share (15.9%) with the market size of US$131.4 billion in 2015 in the global specialty chemicals market. The construction chemicals segment is anticipated to witness the highest growth at a CAGR of 6.8% during the forecast period. The
Global Market for Specialty Chemicals Introduction 2 construction chemicals segment in the global specialty chemicals market was valued at US$79.3 billion in 2015, and it is anticipated to reach US$125.6 billion by 2022. The high growth in the construction chemicals segment is attributed to the increasing construction activities in Asia-Pacific, and increasing focus on buildings renovation in developed economies and government initiatives for green buildings.
In 2015, Asia-Pacific held the largest share (39.7%) in the global specialty chemicals market with a market size of US$340.4 billion. The specialty chemicals market in the region is anticipated to witness the highest growth at a CAGR of 7.2% during the forecast period. The major reasons behind the growth of the specialty chemicals market in the region include increasing infrastructure investment, and high demand in major end markets, such as construction, automotive, agriculture, packaging, textiles, and personal care. In addition, the high demand for specialty chemicals in China and India are creating ample growth opportunities for the Asia-Pacific specialty chemicals market. The specialty chemicals market in India and China are expected to grow at a CAGR of 14.6% and 7.3% respectively during the forecast period.
The global specialty chemicals market is extremely fragmented with the presence of many international, regional, and local vendors. Though the market is dominated by the global players, several regional and local vendors control the market by providing profitable and high-specialty chemicals for niche applications. The competitive scenario in the market will become more intense in the coming years with the increase in technological innovations and product development. International players are likely to grow inorganically by acquiring regional or local players during the forecast period.
This sector provides technocrats a wide range of business choices in small and Medium Enterprises (SMEs). The aim of this handbook is to provide an overview of the entire specialty chemicals sector to enable SMEs in Gujarat state to set and expand industries in various sub-sectors of specialty chemicals sector with a view to, not only service Indian costumers but also move aggressively in the vast global market arena.
Global Specialty Chemicals Market
The scope of the entire specialty chemicals market is expansive and encompasses several end-user industries in it. According to analysts at Allied Market Research, the industry is set to reach an impressive US$233.5 billion by 2020. The competitive landscape of the entire industry is vibrant, as many key players are collaborating
Global Market for Specialty Chemicals Global Specialty Chemicals Market 3 with different industries to pool their resources and market their products. This is a testimony to the immense potential of the entire industry to scale new heights with the advent of time.
Rapid population expansion has elevated food security concerns in underdeveloped and developing countries due to improper storage infrastructure and food grains distribution. This as a result, leads to increasing high yield-enhancing agrochemicals demand owing to propel specialty chemicals market share over the forecast timeframe. According to the World Bank, farmers may have to upscale their yield by 50% per hectare by 2050 owing to boost agrochemicals, such as fungicides, demand by 2024.
The automotive industry is one of the most lucrative industries for the specialty chemicals market share. These are used as polymers and plastic additives, paints and coatings and adhesives and sealants in the automotive. China, Japan, India, South Korea and the U.S. lead the global automotive sector by accounting over 55% of production global cars and commercial vehicles production in 2015. Increasing middle-class population and increasing automotive appeal have prompted car manufacturers such as Audi AG, Mercedes Benz and BMW AG in America and Europe to enter Asia with small cars that are especially designed to meet requirements in Asian automotive industry. Furthermore, global personal and commercial vehicles production in 2015 was roughly around 90 million. This consequently will drive specialty chemicals market size owing to its widespread application across automobiles. In addition, lubricants use in the automobiles to maintain engine smoothness will further complement industry growth.
Surge in Demand for Eco-friendly Specialty Chemicals Majority of specialty chemicals are synthetic which may have adverse effects on the environment, thus affecting flora and fauna. Therefore, environmental protection agencies have imposed various environmental regulations on the synthetic chemicals usage due to their toxic nature, which may hinder specialty chemicals market size over the forecast timeframe. For instance, the European Union has banned atrazine and acetochlor herbicides. Also, in June 2015, France and Denmark banned glyphosate for usage in lawns and gardens.
A large number of environmental concerns and conscious efforts by industrialists and governments to reduce carbon footprint has propelled the demand for eco- friendly products.
Regulatory bodies and governments of various nations are raising concerns over the extensive use of industrial chemicals. The limelight has shifted from effective chemical usage to eco-friendly chemicals that do not pollute the environment and
Global Market for Specialty Chemicals Global Specialty Chemicals Market 4 have less carbon footprint. Apart from creating finished products that follow the green protocol, these chemicals also have less toxic effluents after the manufacturing process. Regulatory bodies are putting in collaborative efforts with governments and approving grants and subsidies for manufacturers who use green chemicals in their processes.
There are many manufacturers who are teaming up with chemical companies and adopting a sustainable approach to their production process by cutting down on toxic chemicals. One such example is India’s Vikas Eco Tech Ltd. (VEL) who has recently signed a tie-up deal with Prince Pipes and Fittings Ltd. The collaboration is meant at supplying the entire range of specialty chemicals offered by VEL. The focus of the deal is on organotin heat stabilizers as a replacement for the plastic synthesizer.
Cost Benefit Proposition of Specialty Materials Continues to Improve The superior performance, structural, and processing attributes of specialty materials (which include composites, elastomers, high performance plastics, specialty chemicals and coatings, and exotic metals and alloys) have long been recognized by manufacturers across industries. The substitution of specialty materials for traditional materials has been limited to date by the relatively high cost of these materials. However, over the past several years the cost benefit proposition of using specialty materials has improved on both sides of the equation. As the cost benefit proposition for specialty materials continues to become more favourable, we expect further substitution of these materials for traditional materials.
In terms of benefits, specialty materials manufacturers continue to achieve incremental improvements in weight reduction, durability, fire retardancy, colour retention, noise reduction, antimicrobial properties, and heat and electric insulation. Specialty materials manufacturers have also made advancements in their ability to customize materials to meet the exacting specifications of specific end uses. The cost side of the equation has seen significant improvements as well. Plummeting oil prices over the past year have significantly reduced input costs for many specialty materials. Manufacturers of these materials are also achieving per unit cost reductions due to increased volumes and improved efficiencies in their production processes. In addition, these materials can often reduce the all in cost of end products due to reduced manufacturing and operating costs through “light- weighting,” reductions in waste, parts consolidation, faster manufacturing cycle times, and/or extended shelf lives.
Global Market for Specialty Chemicals Global Specialty Chemicals Market 5 High Growth and Strong Margins Attract Broad Based Interest Specialty materials companies typically can offer faster growth, greater product differentiation, superior pricing power, higher margins, and lower earnings volatility. As a result, the specialty materials sector is drawing increasing attention from investors and both strategic and financial acquirers. In particular, strategic acquirers are seeking to increase their existing exposure to specialty materials or fill holes in their product portfolios. The mega trends of increased light-weighting, especially for auto makers to achieve fuel efficiency standards, and demand for higher performance materials also create compelling investment opportunities for financial sponsors. In addition to these mega trends, the specialty materials industry exhibits several other characteristics that make the sector particularly attractive to financial buyers. Specialty materials companies tend to have highly defensible businesses because of their unique materials, technologies, and/or processing capabilities. Relative to other industrial companies, specialty materials businesses tend to exhibit higher margins and stronger cash flows. This strong margin profile is especially true for specialty materials suppliers to the aerospace and medical end markets. As a result, specialty materials companies generated intense interest from both strategic and financial acquirers in 2015.
Cosmetic Ingredients Manufacturers Collaborate for Market Strengthening The cosmetic industries account for a considerable amount of chemical outsourcing. They require performance chemicals that can adhere to strict healthcare protocols and used in beautification products for hair and skin. The cosmetics market is booming and the use of organic chemicals that do not cause harm to the appearance of a person are gaining swift popularity. It is not uncommon to see manufacturers teaming up with chemical providers to strengthen their business relations and outsource chemicals for use in products.
For instance, the Japanese chemical giant, Nikkol Group recently joined with Amyris to expand its customer base in the personal care ingredients segment. The joint venture between the two allows Nikkol to buy 50% of the Amyris business for US$20 million. The companies expect to strengthen each other’s marketing strategies, innovative technologies, and development synergies through the deal.
“Nikkol is an ideal partner for this joint venture and is the leading channel partner for our squalane business. This agreement aligns with our strategy of focusing our business on partnering with the world’s leading companies to accelerate our product sales growth while lowering our operating costs,” said John Melo, president and CEO, Amyris. The collaboration is aimed at giving the companies an edge over other competitors and help establish a market leadership position.
Global Market for Specialty Chemicals Global Specialty Chemicals Market 6 Extremely Lucrative Market in the Asia-Pacific Region The specialty chemicals industry has established its presence in various economies and regions. While the North American and European market are saturated with industries that rely on performance chemicals, the Asia-Pacific region is expected to exhibit a significant growth in the immediate future. This is mostly due to the rising investments by governments in the setting up of various production units. Developing economies, such as India and China has governments who are actively creating a conducive environment for manufacturing units in their nations. Even suppliers of chemicals are cashing in on the encouraging initiatives and doubling their production volumes to cater to a wide range of applications.
The construction materials, water treatment, paint and coating additives, textiles, oil and gas refineries, and pharmaceuticals are the largest importers of chemicals for diversified purposes. With such an upsurge in the demand for formulation chemicals, the global companies engaged in specialty chemical production are eying the region for market expansion. By setting up new production units and facilities in India and China, the companies are striving to expand their customer base and earn greater revenues. The Asia-Pacific region is witnessing an industrial overhaul, and the specialty chemicals market has much to gain from it.
Acquisitions: Part of Smart Market Moves The competitive landscape for specialty chemical market players is appearing very vibrant in the current scenario. With no dearth of verticals to cater to, the manufacturers and developers of chemicals have expanded the scope of their operations to meet the needs of various end-user industries. Apart from extensive R&D projects taken to develop industry-specific requirements, the players are looking for better opportunities to reinforce their market leadership across various regions. Spending significant amount of resources on research, expanding their customer- base, and including innovative, eco-friendly products in their offerings are some of the major dynamics of this industry. Acquisitions and collaborations between chemical producers are smart moves that players indulge in to stay top-notch in their game.
For example, German-based Evonik has recently decided to buy JM Huber Corporation’s silica unit for US$630 million for widening its specialty chemicals business. The deal is expected to widen the customer base of Evonik from just tire manufacturing to toothpaste, animal feed and paints. This move will give the German company more access to Asia-Pacific region. By buying the Huber unit, Evonik plans to improve its cost efficiency and add to sales benefits. This is expected to eventually enhance its core earning per year and establish its stability in the market.
Global Market for Specialty Chemicals Global Specialty Chemicals Market 7 “Huber’s business is especially oriented towards applications in the consumer goods industry, the dental sector for example. To date, Evonik’s silica business has been focused rather on industrial applications, for example in the tire and coatings industries,” Evonik said in a statement.
With several advancements in the chemical industry, the present and future of specialty chemicals are projecting promising growth and opportunity in the near future.
Declining coated paper trend in North America and Europe may obstruct paper and textiles specialty chemicals growth in the next few years. Media digitalization is impacting the industry growth for paper chemicals. Traditional marketing products such as catalogues and pamphlets are experiencing sluggish demand due to digitalization of promotional activities across the Internet through websites such as Facebook, YouTube and Twitter. However, increasing construction spending in BRIC nations is positively influencing construction specialty chemicals market size and has created new business growth opportunities.
Product Trends Construction specialty chemicals market size was valued at over 70 billion in 2015. These are used in buildings and other construction structures to increase their shelf life. They also provide protection from environmental hazards. These chemicals impart several properties that help meet the aesthetic, functional and design requirements of civil structures. These include a wide products range such as asphalt additives, concrete admixtures, adhesives, sealants and protective coatings.
Electronic specialty chemicals market share shall witness gains exceeding 4.5%. These are utilized in electronic components in applications such as semiconductors and integrated circuits. Furthermore, increasing smartphones demand will positively influenced the industry growth by 2024.
Food additives specialty chemicals market size is analyzed to witness inclining growth. They are used to enhance the foods nutrient content, keep the product fresh and make the food more appealing. Furthermore, it also provides consistent and smooth texture along with maintaining the wholesomeness of food. Increasing living standards accompanied with rising consumer’s disposable income would drive growth for food additives in the next few years.
Regional Analysis North America, led by the U.S specialty chemicals market size generated revenue more than US$200 billion in 2015. The regional growth is primarily driven by
Global Market for Specialty Chemicals Global Specialty Chemicals Market 8 increasing lubricants and oilfield chemicals demand owing to increasing oil exploration in the U.S.
US Specialty Chemicals Market Size by Production – 2013-2024 (US$ billion)
45 40 35 30 25 20 15 10 5 0 2013 2014 2015 2024 Agrochemicals Polymers & Plastic Additives Construction Chemicals Electronic Chemicals Cleaning Chemicals Surfactants Lubricants & Oifeld Chemicals Specialty Coatings Paper & Textile Chemicals Food Additives Adhesives & Sealants Others
Emerging Markets Growth in Asia Pacific constitutes a megatrend in itself. This region dominates global markets, and with a billion new consumers buying an increasing amount and variety of products, this trend will only continue in the years ahead. Along with the traditional BRIC markets — Brazil, Russia, India and China — new markets are emerging in Pakistan, Morocco, Indonesia, Saudi Arabia, Vietnam and the United Arab Emirates. These countries have a relatively young population, an expanding urban middle class and sophisticated habits, all of which support steady sales. Products in one market can quickly take off in another.
Asia Pacific was the dominant industry share contributor in 2015 and is forecast to witness highest growth more the 6.5% CAGR over the forecast timeframe. High construction spending in China, India and Japan has driven construction chemicals market share in the region. Furthermore, increasing automotive sector in the region on account of high per capita disposable income along with improved lifestyle of consumer is the main factor propelling business growth.
Competitive Market Share Global specialty chemicals market share is highly fragmented owing to numerous industry players contributing to the global share. The top five producers operating in the global specialty chemicals market include BASF SE, The Dow Chemical Company, Bayer AG, DuPont, and INEOS Group AG. Other industry share contributors
Global Market for Specialty Chemicals Global Specialty Chemicals Market 9 are Ashland Inc., Clariant AG, Huntsman Corporation, Arkema S.A., Evonik Industries AG, Chevron Philips Chemical Company, Syngenta AG, Albemarle Corporation, Chemtura Corporation, Eastman Chemical Company, Solvay, and Akzo Nobel N.V.
Product distribution channels comprises of wholesalers, sales offices, regional resellers and online portals. However, most manufacturing companies operating in the specialty chemicals market supply their products to clients through their own distribution channels. For instance, Evonik Industries AG has distribution agreements with Univar Inc. and Glenn Corporation for selling cosmetic chemicals. Akzo Nobel N.V. has an agreement with Essential Ingredients Inc. for distribution of cosmetic chemicals. Furthermore, Chevron Philips Chemical Company has partnered with Quadra Chemicals to distribute its mining chemicals in Canada.
Industry Background Global specialty chemicals market size is chiefly driven by increasing end user industries including automotive and construction mainly due to upgrading end user lifestyle in Asia Pacific and Latin America. However, increasing bio-based chemicals demand owing to environmental hazards caused by synthetic chemicals may hamper industry growth over the forecast timeframe. Presence of stringent environmental regulations, especially in developed regions, is boosting the end- user industry’s shift toward preference for bio-based chemicals.
Dyes and Pigments The market for these products is very big and demand is going at a fast pace. There is commoditisation of the products and the high competitive intensity. India is in a bright spot According to industry reports, the global market size of dyes and pigments stands at about US$27.8 billion and is expected to grow at 4% over 2014-19, driven by high growth in end user industries and rise in demand for high performance pigments. At the same time, Indian market size of around US$4.9 billion is expected to grow at 11.4%. Higher growth in Indian market can be attributed to shift in production from China to India due to increasing environmental concerns in China and higher growth in textile industry in domestic market.
Paper Treatment Chemicals The pulp and paper chemicals are used by paper manufacturers to facilitate processing of pulp and enhance the quality of the final paper product. Pulp and paper chemicals are primarily used for optimizing the paper production processes and increasing the productivity as well as improving the properties of the paper that is produced. Pulp and paper chemicals are used in order to make cellulose fibres more functional and more complex. Chemicals used in the paper production
Global Market for Specialty Chemicals Global Specialty Chemicals Market 10 are classified as pulp chemicals, process chemicals and functional chemicals. There are different paper treatment chemicals market on the basis of applications based on different paper grades like printing and writing, coated paper, tissue and towelling, packaging and board, newsprint and others. The increasing demand for paper and the consequent rise in paper production have stimulated the pulp and paper chemicals market.
The global specialty pulp and paper chemicals market, which was valued at US$18.67 billion in 2013, is expected to reach US$25.41 billion by 2020, expanding at a 4.5% CAGR between 2014 and 2020 and is set to exceed US$31 billion by 2024; as per a new research report by Global Market Insights, Inc.
The growing demand for tissues, graphic papers, and diazo papers is expected be the reason behind the market’s growth. Further, rise in the demand of one-sided specialty (coated) papers will be the principal driver for the growth in global specialty pulp and paper chemicals market size in the next few years. The demand for one- sided specialty (coated) papers was accounted for over 4,000 kilo tons in 2015 and will show significant growth.
Rising demand for labels and specialty flexible packaging materials, will play an important role in industry evolution. With increasing electronic commerce industry, and ease of home delivery mechanisms, the flexible packaging industry will find a growing demand in the upcoming years. They also find a huge application in envelopes, gift wraps, posters, release liners, laminations, and thermal transfers.
Improvements in process efficiency with increasing use of specialty pulp and paper chemicals will also drive the market growth in coming years. Better cleaning of wall fibres and increasing the surface quality of papers is a major influencing factor for the market. The specialty chemicals help in reducing the biological oxygen demand of the waste water, hence improving its quality, and reducing the environmental damages caused by the heavy amount of waste water released by the industry.
Textile Chemicals According to Technavio’s market research analysis, the global textile chemicals market will grow steadily, from US$21.02 billion in 2015, posting a CAGR of around 4% during the forecast period. There has been a rising demand for eco-friendly fabrics and apparel in the global textiles market. This has propelled several textile chemicals vendors to develop chemicals and technologies that enhance the sustainability of textile production. Bio-auxiliaries are eco-friendly, recyclable materials that have the potential to bring in novel solutions for textile wet processing. The use of eco-friendly products helps in adding value to the manufacturers by
Global Market for Specialty Chemicals Global Specialty Chemicals Market 11 distinguishing their brand from opponents by eco-labelling. Moreover, the application of nanotechnology in textile manufacturing has led to the introduction of fabrics with excellent chemical resistance, mechanical strength, water repellence, antibacterial properties, and other properties. The emergence of new textiles with smart functions will positively contribute to the demand for textile chemicals in the coming years.
APAC is the largest revenue-generating region in the global textile chemicals market and accounted for around 55% of the overall market revenue during 2015. Much of the region’s growth can be attributed to the presence of established textile manufacturers and growth in the production of cotton and synthetic fibres. China and India are the largest consumers of textile chemicals due to the growing apparel and textile production. The rise in domestic demand and increasing exports will drive the textile chemicals market in APAC during the forecast period. Also, the availability of cheap labour and low production costs in the APAC region has attracted many European manufacturers to establish their production facilities in the region.
The home furnishing segment will dominate the textile chemicals market during the forecast period and is likely to occupy more than 40% of the total market share. The constant growth of the real estate and housing sectors in the developing countries has augmented the demand for home furnishing applications. The high demand for home furnishing fabrics and alternative materials in both developed and developing countries is expected to drive the demand for textile chemicals during the forecast period.
The coating and sizing chemicals will dominate the product segment of the market and is anticipated to occupy more than 41% of the overall market share by 2020. Coating chemicals enhance the physical and mechanical performance characteristics of a fabric while the sizing chemicals increase the strength and abrasion resistance of the yarn. The growing requirements for elasticity, flexibility, durability and various resistance properties in fabrics will augment the growth of this segment in the coming years.
Agrochemicals Agrochemicals occupied maximum share in the specialty chemicals market and will continue its dominance over the forecast period. Factors like the rise in global population, declining arable land, and subsequent necessity to improve crop yield are the major factors driving the agrochemicals market globally. Moreover, the use of agricultural products for industrial applications such as polymer production and fuel blending will also increase the demand for agricultural commodities, creating new opportunities for the application of agrochemicals, and driving the overall market’s growth.
Global Market for Specialty Chemicals Global Specialty Chemicals Market 12 The global agrochemicals market is projected to surpass US$260 billion by the end of 2021, growing with a CAGR of 3.3% from 2016 to 2021. Agrochemicals are specialty chemical products used particularly in agriculture, horticulture and floriculture. It includes broad range of pesticides, synthetic fertilizers, hormones and other chemical growth agents. Growth in demand for food grains owing to increasing global population coupled with reducing per capita farm land due to surging urbanization and industrialization is one of most dominant driver of global agrochemicals market. The increasing research and development (R&D) in the fields of bio-pesticides in order to compete with organic farming and integrated pest management (IPM) is one of the most recent trends in global agrochemicals market.
Polymers and Plastic Additives Plastic Additives Market by Type such as Plasticizers, Stabilizers, Flame Retardants, Impact Modifiers etc., the market size of plastic additives is projected to reach US$50.86 billion by 2021, registering a CAGR of 4.9% between 2016 and 2021. The growth of the plastic additives market is triggered by the rising demand from the packaging industry. Plastic additives are widely used for industrial and household purposes. Change in lifestyle and globalization have triggered the growth of the packaging industry which drives the plastic additives market.
Construction Chemicals Construction chemicals are chemical compounds added in formulation of various specialty chemicals or in construction materials made of cement, mortar, and concrete at construction sites to improve workability, performance, compatibility with construction structure and protect construction materials and finished structures.
Construction chemicals comprise a wide variety of materials such as cementations; admixtures like waterproofing admixtures, plasticizers, accelerating agents, retarding agents and others; adhesives and sealants like acrylic adhesives, polyurethanes, polyvinyl acetates, epoxy and others; and flame retardants like ATH, antimony oxides, brominated, and chlorinated. The use of these chemicals depends and varies on the type of and scale of construction projects.
The global construction chemicals industry is witnessing a significant growth because of increasing awareness about construction quality and technological advancements, and growing number of new projects for housing, commercial spaces, and public infrastructure in the Asia-Pacific region and other developing countries such as Brazil, Colombia, UAE, and Saudi Arabia. Changing lifestyles, growing urbanization trend, and demand for enhanced aesthetics of residential and infrastructures are also supporting the growth of the market, attributing to the design flexibility provided
Global Market for Specialty Chemicals Global Specialty Chemicals Market 13 by construction chemicals (such as concrete admixtures, flame retardants, and adhesives and sealants) to modify and enhance the physical as well as chemical properties of a structure. These properties include compressive strength, durability, surface finish, and resistance to adverse climatic and working conditions as per design specifications and requirements.
The global construction chemicals market (2015–2020) is estimated to reach US$33.98 billion by 2020 growing at a rate of 7.62% between 2015 and 2020. Due to a large domestic market size, there is a large potential to scale up manufacturing for the global markets.
The drivers identified for the construction chemicals market are growing infrastructure requirements in developing economies, improving economics of construction, and increasing urbanization of population. Developing countries that are major markets of construction chemicals include China, India, Brazil, Egypt, Saudi Arabia, and UAE, whereas developed countries that are major market include the U.S., Germany, Japan, and Italy.
Asia-Pacific is the largest market, both in terms of volume and value. The key companies in this market are BASF SE (Germany), W.R. Grace (U.S.), RPM International Inc.(U.S.), Sika A.G. (Switzerland), Fosroc International (U.K.), The Dow Chemical Company (U.S.), Arkema S.A. (France), Ashland Inc. (U.S.), Mapei S.p.A (Italy), and Pidilite Industries (India).
Electronic Chemicals Electronics. Specialty polymer compounds can be used to deliver higher functionality (electrostatic dissipation, EMI and RFI shielding, thermal conductivity, flame retardancy, or abrasion/wear resistance) that, in many cases, cannot be met by general, commodity type materials.
Technavio’s market research analysts have predicted the global electronic chemicals and materials market to grow steadily at a CAGR of more than 5% during the forecast period. Significant technological advancements in electronic devices across all segments are expected to spur the growth prospects of this market in the coming years. Development of advanced materials helps in miniaturizing electronic devices, thereby contributing to the growth of ICT and electronics sectors. For instance, in India, the Electronic Materials Development Program lays emphases on sponsoring R&D programs in the field of material science and technology in some of the most prestigious universities in the country. The objectives of these programs are to develop technologies that will result in the expansion of components that are used in the electronics industry. Additionally, electronic chemicals and materials are utilized in the process of electromagnetic shielding, sensor materials, and green materials
Global Market for Specialty Chemicals Global Specialty Chemicals Market 14 electronics device packaging. The widespread applications of electronic chemicals and materials and the advancements in material science technology will drive the growth of this market during the predicted period.
During 2015, the IC manufacturing segment dominated the market and accounted for nearly 53% of the market share. The market for electronic chemicals and materials used in IC manufacturing is concentrated in Asia, and these chemicals are used in the manufacture of semiconductors. Their use is largely dependent on factors such as device architecture, cleaning-process chemistry, etching-process chemistry, the frequency of use, and the use of wet-etching machines.
During 2015, APAC dominated the market and is expected to account for more than 67% of the market share by the end of the forecast period. Factors like the mass production of electronic devices in China will aid in the growth of this market in APAC in the coming years.
Cleaning Chemicals The industrial chemical cleaning agents are Chelating Agents, Solvents, Surfactants, pH regulators etc. for various Applications such as Manufacturing, Healthcare, Retail, Hotels, and by Product General Cleaners, Metal Cleaners, Dishwashers – The market size of Industrial and Institutional (I&I) cleaning chemicals was US$39.24 billion in 2014, and is projected to reach US$50.24 billion by 2020, at a CAGR of 4.2% between 2015 and 2020. Rising awareness on health and hygiene, safety liability on the part of the company or an institution and growing demand from the application industries are the major drivers for the market.
As of 2015, surfactants was the most widely used ingredient in Industrial cleaning market, and projected to experience high growth rate. Surfactants act as detergents, wetting agents, foaming agents, emulsifiers, and dispersants. Hence, with new research studies being carried out about the commercial use of surfactant properties, their application areas are expanding. Surfactants were mainly known for their use in detergent and soap industries. Broadened application in variety of industry cleaning segments has increased the overall demand for surfactants.
Growing demand from the Manufacturing and Commercial Offices application:
Manufacturing and commercial offices are the largest consumers for I&I cleaning chemicals and these chemicals are mainly used for machinery cleaning and general cleaning in this application. Healthcare is the fastest growing application between 2015 and 2020. The application is expected to grow due to heavy spending in healthcare activities in developed economies in North America and Europe. Moreover, rising awareness and growth in healthcare investment are the major factors boosting the Industrial and Institutional cleaning chemicals market.
Global Market for Specialty Chemicals Global Specialty Chemicals Market 15 The market for Industrial cleaning market is broadly segmented into six regions, namely, Asia-Pacific, North America, Western Europe, Eastern and Central Europe, South America and Middle East and Africa. Asia-Pacific is the largest markets in the Industrial cleaning, in terms of value. Asia-Pacific market is estimated to grow on account of rising awareness on cleanliness and hygiene, and growing demand from the application industries. Western Europe and North America, which are mature markets for Industrial cleaning market are expected to grow at a moderate rate on account of rising demand from the healthcare sector.
Currently, the global Industrial and Institutional cleaning chemicals market is dominated by various market players such as Sealed Air (U.S.), Evonik Industries AG (Germany), BASF SE (Germany), Stepan Company (U.S.), Solvay SA (Belgium), Air Products and Chemicals Inc. (U.S.), Croda International Plc (U.K.), Ecolab (U.S.), Pilot Chemical Corp. (U.S.), Spartan Chemical Company Inc., (U.S.), and The Dow Chemical Company (U.S.).
Personal Care Chemical companies are working hard to satisfy the growing demand for ingredients that go into personal care products for the skin, hair, oral care, and other applications. As a large, rapidly expanding and increasingly diverse market, product ingredients represent special challenges for chemical companies. Today’s consumers want more, they want quality and they want it now. But opportunities are evident as well, driven by a growing middle class in the East, an aging population in the West, and new markets such as men’s grooming, halal beauty and bio-based skin care.
Clearly, personal care is an expanding, highly regionalized and increasingly diverse market. Product categories include toothpaste, fragrances, mouthwashes, hair care and dyeing products, cosmetics and products for nail care, bathing and shaving. The chemical ingredients for these products include surfactants, emulsifiers, polymers, emollients, cosmetic active ingredients, pigments, UV filters and thickeners, and protein compounds.
The global market for personal care products is expected to increase between 3.5 and 4.5% over the next five years, with a total market value of US$500 billion by 2020. The market for product ingredients will likely grow even faster over most of the same forecast period. Valued at US$7.46 billion in 2014, the ingredients market is expected to reach US$11.76 billion by 2023, representing a CAGR of 5.2%.
An increasingly important market segment in the Middle East and Asia is halal beauty — cosmetics, skin and hair care products created for Islamic women. Halal certification requires a strict adherence to the purity regulations according to Islam. These cover every part of the production process, including which raw materials
Global Market for Specialty Chemicals Global Specialty Chemicals Market 16 can be used, how they are handled, how the product is manufactured and even how it is packaged. For example, in the manufacturing process that produces glycerol for soap, gas-based synthetic ethanol is allowed but not alcohol made from fermentation. Halal certifiers are not universally recognized, so brands must understand each target market. For example, Germany has five independent certifiers while Indonesia, Turkey and Iran have state-based systems.
Organic and Natural Ingredients According to recent reports, the global organic personal care market is growing at an annual rate of almost 10%, with expectations of a market valued at US$15.98 billion by 2020.26 Organic personal care products are made from plant-based ingredients such as almond, palm, jojoba, safflower and coconut oils; soy and oat derivatives; and cocoa and shea butters. In addition, products termed ‘organic’ generally do not contain synthetic chemicals such as phthalates, parabens, aluminium salts, and petrochemicals. But what exactly does ‘organic’ mean? Certification is a complicated issue. In the US, for example, regulations distinguish between 100% Organic, Organic and Made from Organic Materials. In Europe, regulations can be even more detailed. There is also the question of whether natural ingredients automatically qualify as sustainable. BASF scores all of its products for sustainability and considers the entire product chain, including sourcing, water use, biodegradability and other areas, all of which need to be considered in determining whether a product can be called sustainable. Nevertheless, certification is helping to drive product sales as consumers become more familiar with certification labels that quickly identify organic products and assure buyers of quality.
Specialty and Oilfield Chemicals Specialty oilfield chemicals are chemicals which help to enhance the efficiency of oil recovery. These speciality chemicals have its effect only when they are present in the oilfield process but after removal their properties declines hence, has to be added periodically or continuously as per the requirement across the oil production.
Specialty oilfield chemicals aids in achieving greater oilfield efficiency and its productivity. It has the capability to cost-effectively maximize recovery of Oil and Gas reserves and aids in minimizing impact on the environment. These chemicals are also a critical product facilitating well drilling, completion and intervention services.
The global specialty oilfield chemicals market has been segmented on the basis of product type, end-user applications and geography. The Specialty Oilfield Chemicals market is classified into types such as corrosion and scale inhibitors, biocides, demulsifiers, pour-point depressants, surfactants, polymers. Specialty oilfield
Global Market for Specialty Chemicals Global Specialty Chemicals Market 17 chemicals market is attaining enormous growth owing to the rising demand of oilfield applications such as drilling, production, fracturing, completion, stimulation, packer fluids and others. Others include cementing, transportation, remediation, blending.
In 2015, Specialty Oilfield chemicals market generated annual revenue of $xx m. This market is estimated to grow with CAGR of xx% throughout the forecast period to generate annual revenue of $xx m by 2021. One of the major factors driving this market includes rising crude oil production. Although O&G industry is facing a slump leading to shut down of several oil rigs, the total production of oil has not been affected. Hence, increasing oil production is one of the major drivers for this market.
Adhesives and Sealants Adhesives are substances that bind two items together and resists their separation. They include materials like glue, cement, mucilage, paste, and others. Sealants are mechanical seals that block the passage of fluids through the surface, joints or openings, and are considered waterproof substances. Adhesives and sealants vary in functions by the kind of bonding involved, specifically their physical and chemical mechanisms. Polyurethane- and silicone-based adhesives and sealants are the most preferred ones owing to their high performance. One of the recent developments in this market space is the growing demand for bio-adhesives as the manufacturers and end-users are focusing towards the use of eco-friendly products in construction, pharmaceutical packaging, and automotive applications. Bio-based adhesives and sealants offer trivial VOC emissions and superior biocompatibility, as they are made from soy or cellulose.
According to Technavio’s market research analysts, the global market for adhesives and sealants will grow steadily at a CAGR of over 5% by 2020. A major factor spurring the growth prospects for this market is the high growth of reactive technology-based products. During the forecast period, dispersion and emulsion adhesives and sealants are anticipated to hold significant shares in the global market as water-based reactive formulations are being encouraged over solvent-based formulations to support and meet regulations imposed by various government agencies. As a result, the market for reactive adhesives and sealants is projected to exhibit the highest growth rate owing to the rising demand for construction, leather, automotive, and manufacturing applications.
In terms of geography, APAC was the largest market for adhesives and sealants during 2015 due to the high demand for adhesives and sealants from the growing construction industry and the automotive industry in many developing countries. In this region, it is estimated that the building and construction sector will experience
Global Market for Specialty Chemicals Global Specialty Chemicals Market 18 the highest demand for adhesives and sealants and will be closely followed by the automotive sector. Furthermore, the market in this region will also experience huge gains because of the increased production from new players that are investing in developing new products and application areas for adhesives and sealants.
The global market for adhesives and sealants is less capital intensive in nature and is highly fragmented and competitive due to the presence of numerous multinational and regional players. In this market, the industrial customers include automotive assembly, packaging, transportation, labels, personal care, and electronics end- users. These markets account for more than two-third of the global demand. The construction sector includes builders and contractors. Products for this market include solutions for roofing, flooring, wall preparations, and solutions for other components like windows and doors.
Leading vendors in this market are -3M, Arkema, Dow, H.B. Fuller, Henkel
Other prominent vendors in this market are Avery Dennison, ITW, Franklin International, Mapei, Royal Adhesives and Sealants, RPM International, and Wacker Chemie.
Application-based segmentation is Building and construction, Paper and packaging, Transportation, Leather and footwear and Furniture
During 2015, the building and construction segment dominated this market and is anticipated to retain its dominant market position until the end of 2020. Much of this growth can be attributed to the growth of the construction industry in emerging countries such as India and China. Since the growth of this market segment is heavily dependent on the growth of the construction industry, factors such as increased urbanization and growth in middle-class population are likely to boost the growth of the market in the coming years.
According to this market analysis, the water-based technology segment will be the largest market segment during the forecast period. Factors such as the extensive use of environment-friendly products and products that do not emit a lot of volatile organic compounds (VOCs) are envisaged to have a positive impact on this market’s growth.
Food Additives Food Additives Market size may reach US$55.8 billion by 2022; according to a new research report by Global Market Insights, Inc.
Positive indicators for packaged and frozen foods consumption owing to hectic lifestyle particularly in the U.S, Germany, France and UK, should promote global
Global Market for Specialty Chemicals Global Specialty Chemicals Market 19 food additives market size. These ingredients are used with the primary intention to impart flavour, nutritional and colour characteristics. Primarily used packaged foods include ready-to-eat meals, frozen meals, cake mixes, and snacks.
Europe food additives market size may observe 4.8% growth with Germany and France being the major contributors. Growing popularity of alcohol-free beer, savoury snacks and sugar free confectionaries should provide an impetus to Germany food and beverage industry growth and also provide a scope for local manufacturers to increase production capacity.
Flavours and fragrances was the largest revenue generating segment in 2014 and accounted for over 30% of the total share. Majorly used flavours and enhancers include monosodium glutamate (MSG), calcium inosinate, glutamic acid and natural extracts such as herbs and neem. Natural flavours market may witness above average industry gains at over 5% CAGR.
Enzymes based food additives market may witness over 5.5% growth up to 2022. Carboxylase, protease, lipase, polymerase and xylanase are major enzyme types majorly incorporated in formulation of baked products to improve organoleptic properties and crust appearance. Moreover, price advantage over its counterparts is projected to favour product demand.
High fructose corn syrup (HFCS) market size was close to US$500 million in 2014. Rising preference over conventional sugar due to its comparatively less pricing should favor HFCS demand. In addition, increasing availability of farmland meant for corn production coupled with agriculture industry growth in China and India should promote HFCS market size.
Phospholipids, glycerol, yeast, lactic acid, sorbitol soybeans and oil seed derived chemicals are major raw materials used in manufacturing process. Raw material supply deficit should put pressure on supplier margins and affect food additives market price trend.
Regulatory inclination towards promoting the consumption and production of naturally derived products have enhanced the importance of bio based chemicals namely sorbitol, oleo chemicals and lactic acid. Their availability is restricted with tight raw supply situation from soy and oilseed industry.
Strategic alliances and collaborations with raw material suppliers is an attractive approach to maintain feedstock supply. Mandatory food safety registrations may result in high manufacturing cost and act as entry barriers for small scale producers.
Global Market for Specialty Chemicals Global Specialty Chemicals Market 20 Aerospace and Automotive With few exceptions, the global automotive industry has made a solid recovery from the downturn in 2008. Led by China, Japan, the US and new growth markets, world production levels have increased, sales are growing and prospects are positive for the industry as a whole. Specialty chemicals help support the automotive industry through a range of products designed to reduce vehicle weight for better mileage, enhance performance, increase energy efficiency and improve manufacturing quality. Especially exciting is the increased use of silicon-based microchips for displays, safety-critical functions and entertainment systems in tomorrow’s ‘connected cars’.
Composite materials help OEMs reduce weight and lower fuel consumption by replacing heavier metals. Compared with steel and aluminium, fiber reinforced composites can be 30% to 50% lighter.
The global automotive chemicals market is influenced mainly by passenger car production and the increasing utilization of plastics in vehicle designs. Plastics now account for around 15% of materials in a mid size car17 and plastic-based products and materials are found in car exteriors, bumpers, interiors, electronics, seats, runners, lights, dashboards and windshields. Automotive plastics consumption worldwide is expected to grow from 7.1 million tons in 2012 to 11.3 million tons by 2018 at an expected growth rate of 8% annually.18 The Asia Pacific region leads consumption with 50.5% of the market, followed by Europe (28%) North America (11.3%) and the rest of the world (10.1%).19 Along with plastics and plastic composites, automotive chemicals are used in fuel additives, films, coolants, insulation for noise abatement, airbags, batteries, tires and many other products. Chemicals are also a key ingredient in engine oils and transmission fluids, helping today’s high-performance engines perform over a broad temperature range while maximizing performance and minimizing formulation costs. Chemicals are even being used to enhance the automotive manufacturing process. For example, original equipment manufacturers (OEMs) are converting many steel structural components that are stamped and welded to lighter weight aluminium components that are dye cast.
Lubricants tailor-made for automotive dye casting help ensure high levels of quality and structural integrity that are crucial for safety and performance. Major suppliers and producers of automotive chemicals include:
• Akzo Nobel (Netherlands) and PPG Industries (US), manufacturing automotive coatings to preserve the appearance and durability of vehicles. • Bayer Material Science (Germany), supplying raw materials for high performance plastic polycarbonate, polyurethane foams, coatings and films.
Global Market for Specialty Chemicals Global Specialty Chemicals Market 21 • Dow Chemical Company (US), providing structural foams, brake fluids, adhesives, resins and glass bonding systems. • Evonik Industries (Germany), supplying specialty chemicals for polymers, composites, oils, fluids, coatings and other solutions used in automotive manufacturing. • Momentive Performance Materials (US), providing adhesives, sealants, coatings and resins. Recent chemical industry developments reflect the growing importance of emerging economies and the necessity for automotive chemical producers to follow their customers.
Several countries in the Asia Pacific region are also focusing on investments in specialty chemicals. For instance, Singapore has gained traction in automotive- related chemicals with a nearly US$2 billion investment in lubricants and synthetic rubber. Asia Pacific is also emerging as a key market for automotive lubricants. The longer operating life of vehicles, increased production of vehicles and a greater awareness among customers have increased the demand for automotive coolants among consumers and by 2019, the Asia-Pacific region is expected to represent more than 40% of the global automotive coolants market.
Global Automotive Plastics Consumption by Type – 2012 (7.1 million tons total)
Polypropylene (PP) 37% Polyurethanes 17.3% Acrylonitrile butadiene styrene (ABS) 12.3% Composites 11.5% High density polyethylene (HDPE) 10.8% Polycarbonates (PC) 6.8% Polymethyl methacrylate (PMMA) 4.4%
Source: Global automotive plastics market to grow at a CAGR of 13.4% to 2018, Plastemart.com
What Do Manufacturers Demand from Specialty Chemical Suppliers As manufacturers produce more products, introduce new products, and fine-tune existing ones to meet changing customer demands, they need suppliers that can keep pace with these industry developments. Suppliers should be able to provide: A greater number of ingredients This includes the ability to provide a larger number of basic ingredients and specialty chemicals as well as the ability to quickly expand and diversify their portfolio with new ingredients. Compliance and claims substantiation Chemical suppliers need to provide accurate documentation and supporting evidence about the source of ingredients, their efficacy, and proof that they are not harmful to humans or the environment. First-tier suppliers should apply these same requirements to their own second-tier and third tier suppliers. In
Global Market for Specialty Chemicals Global Specialty Chemicals Market 22 addition, global suppliers should be well-versed in how regulations vary across regions and countries.
Faster delivery: Suppliers need to ensure that ingredients are delivered to manufacturers to support accelerated manufacturing times and shorter product lifecycles. In many cases, this involves faster delivery for a greater number of ingredients.
Increased ability to anticipate demand: Suppliers need to work closely with manufacturers to better understand their pipeline of new products, collaborate where possible on research and development and track consumer markets to develop a line of sight on future demand. In addition, suppliers can help support market analysis and other essential services. Working together, chemical suppliers and product manufacturers can take full advantage of this vital and growing market.
Indian Specialty Chemicals Industry
The US$25 billion Indian specialty chemicals industry has delivered 13% growth over the past five years, led by domestic consumption, according to industry reports. Experts are betting on specialty chemicals as one of the next mega-trends, and the industry is expected to reach US$70 billion by 2020. The industry has grown at a 30% CAGR over FY13-15 to US$2.67 billion. Going forward, lower commodity prices will provide the much needed support to margins, and rising demand will facilitate volume growth.
Domestic demand of specialty chemicals is expected to follow an accelerated growth path. This demand is mostly driven by the strong growth outlook for end use industries. This along with increased adoption of specialty chemicals and newer applications can propel the growth further.
Indian specialty chemical manufacturers have strong presence in export market also. APIs and colorants (including dyes and pigments) are the key products exported. India exports specialty chemicals to nearby Asia-Pacific countries which don’t have competitive scale of production. India also exports to developed countries of Europe and USA where it leverages its low cost of production and quality talent pool. Ability of companies to comply with global regulations and India’s manufacturing competitiveness has helped the export market to grow significantly.
The key specialty segments in India are agrochemicals, paints coating and construction chemicals, colorants, fine chemicals, personal care chemicals and aroma
Global Market for Specialty Chemicals Indian Specialty Chemicals Industry 23 chemicals. The critical success factors for most of the specialty chemical segments include understanding of customer needs and product/ application development to meet the same at a favourable price-performance ratio.
The Government’s ‘Make in India’ program has enhanced the competitiveness of the Chemicals sector in the country, by delicensing manufacturing for most chemicals, and permitting 100% FDI. The upcoming Petroleum, Chemicals and Petrochemicals Investment Region (PCPIR) as well as the Plastic Park will further provide state-of-the-art infrastructure.
The Government has been encouraging R&D in India. It has also reduced the list of reserved chemical items for production in the small scale sector, thereby facilitating investments in technology upgradation and modernization.
Global firms are gradually facing the heat of compliance, cost and capacity issues in other markets, and are thus looking to outsource their manufacturing processes to India.
The structural shift towards Indian specialty chemical players is supported by the country being more compliant to environmental norms, with stronger IPR protection and a rich pool of knowledge workers. This opens a window of opportunities for Indian firms over the next 5-10 years, impelling them towards capacity-building, which will help them grow further.
Specialty and knowledge chemicals are characterized by a high degree of research, intensity of intellectual capital, and deployment of skilled manpower.
Government support in the form of a robust patent framework, the presence of appropriate regulations to protect intellectual capital, tax benefits and subsidies to promote investments in R&D, as well as green technologies, is crucial for growth.
Specialty chemical companies operate on high margins and high ROCE. While revenues of these companies have not increased over the last 1-2 years, mainly due to sharp decline in crude oil prices, absolute EBITDA of specialty chemical companies have increased at a steady pace. Further, the margins for specialty chemical companies are higher over the long term compared to commodity chemical companies, where margins highly fluctuate from negative margins to as high as 40%.
China Factor It is definitely a fact that China is the largest chemical market, controlling almost 25% of global sales. However, China is strong in commodity chemicals, where they play the volume game by making big investments, having big plants and thus,
Global Market for Specialty Chemicals Indian Specialty Chemicals Industry 24 enjoying economies of scale. On the other hand, Specialty chemicals is a niche segment and the requirement is for low volume and high value products, which is not a preference for Chinese markets. Further, specialty chemicals are not much about economies of scale (like in case of commodity chemicals), but about economies of scope as the same product (specialty chemical) can have various applications in different sectors. This is an advantage for India. In addition as far as availability of raw materials are concerned, India is not as handicapped as compared to commodity chemicals. This is because, major costs for the specialty chemicals companies are not feedstock or raw material, but product development and marketing activities.
One of the most positive factors of all, is that companies all over the world are considering India to be a major chemical supplier in order to reduce their dependency on China. Further, many global companies are also preferring India due to their lack of trust on China mainly because of their failure to honour the delivery of products in the past.
Hence now, Indian companies will be able to benefit from both, the robust growth in domestic specialty chemicals demand and increase in global market share. In the last decade, China provided many incentives to encourage more manufacturing units. For example: manufacturers only have to invest in plants and government will create common utilities for all the players. Further, low interest cost and cheap land cost led to start-up of many manufacturing units resulting in over-capacity. With recent environmental concerns and huge over-capacity situation, China is not providing similar sort of incentives to start new facilities. Further, lot of chemical units are not getting approval for starting units, which used to be easily available earlier.
Earlier in China, many companies taking loans from banks never considered that to be borrowings and never estimated capital cost in total cost of goods sold. However, with change in regulations in their banking system and recognition of NPAs, even these companies are being asked for payments, which has led to increase in their cost burden.
Opportunity Due to Chinese Shutdowns Changes taking place in Chinese chemicals industry is presenting opportunities for Indian companies to increase exports. China´s emerging middle classes are health conscious and forcing the government to fight pollution; as a consequence, regulation of the chemical industry in China has tightened in the recent past. China’s government has made it mandatory for chemical plants to operate from chemical parks. Since only ~45% of that country’s chemical industry is currently based out
Global Market for Specialty Chemicals Indian Specialty Chemicals Industry 25 of such parks, it implies major plant shutdowns or relocations over the next couple of years.
Inference for the Indian industry: With the implementation of strict environment policies in 2015, the Chinese chemical industry has already seen over 1,000 plant shutdowns and ~15% yoy decline in chemical exports in CY15. Such a scenario is likely to continue for a couple more years as a major part of the Chinese industry is likely shift to the green belt. Since Chinese export of specialty chemicals is ~10 times larger than the Indian industry, a visible slowdown in China could multiply the size of the Indian specialty industry over the next couple of years.
Two important themes from China’s new five year plan emerge – (1) innovation, and (2) implementation of environmental protection. Under innovation, the focus is on moving up in the value chain by reducing heavy industry (implying pressure to cut overcapacity in basic chemicals) and developing R&D capability in selected specialty chemicals. While the Chinese government has come down harshly the polluting chemicals industry, it is keen to provide adequate facilities for complex chemistry R&D. Within this, its focus is towards segments that can achieve global scale, but not on segments that require more customisation.
Although the Chinese government is keen to supplement innovation towards complex chemistry, its core focus remains on scalable segments. Conversely, the Indian industry has been focused on customised products.
European chemical companies in China also fear being affected by increased regulation concerning (1) penalties imposed on pollutants, (2) excessive data requirements for new intermediates, and (3) clarity about hazardous chemicals and their handling. Salaries as well as operating costs in China are rising relative to neighbouring countries.
Inference for the Indian industry: China’s excessive restrictions on its chemicals industry has already made MNCs start thinking about India as an alternate source, resulting in rapid flow of foreign direct Investment (FDI) into India. We believe this could lead to consolidation and improve the operating efficiency of the fragmented Indian industry.
Focus areas for China include – organosilicon, organic fluorine compounds (not refrigerants), engineering plastics, thermoplastic elastomers, composite materials, polyurethane, synthetic rubber (isoprene rubber), high performance carbon fibre, membranes for water treatment, coal chemicals including downstream derivatives, water treatment chemicals and solutions, and electronic chemicals.
Global Market for Specialty Chemicals Indian Specialty Chemicals Industry 26 Inference for the Indian industry: In its focus areas (see paragraph above) China would offer tough competition to Indian peers, as the Chinese government is likely to facilitate business for these areas. On the other hand, the above mentioned segments are the future area of growth as China –the global manufacturing hub of chemical – believes so.
However, India’s industry is favourably placed in the following segments – agrochemicals, coatings (particularly solvent based), colours and dyes, intermediates, leather chemicals, refrigerants, rubber additives, and textile chemicals.
Some important sub-sectors where Indian domestic market is very large are described below. Entrepreneurs should scale up production in this sectors to take advantage of internationally cost competitive production.
Agrochemicals Agriculture accounts for about one fifth of India’s GDP and the agrochemicals industry is of significant importance for the Indian economy. The Indian agrochemicals market grew at around ~8% over the last five years to reach ~US$3.8 billion in FY12 is projected to double to US$6.3 billion by 2020. With 125 technical grade manufacturers and 800 formulators, India is the fourth largest producer of agrochemicals in the world after USA, Japan and China. Indian agrochemical exports have shown an impressive growth in the past few years and it accounts for almost 50% of the agrochemical industry revenues. Manufacturing cost competitiveness vis-à-vis developed economies is expected to drive exports growth at around 15% annually in the next decade. With several products going off-patent globally, Indian firms can leverage opportunities for generics, contract manufacturing and research.
Government’s focus on achieving food grain self-sufficiency coupled with limited farmland availability and increase in usage penetration is expected to provide a further impetus to the industry. With estimated 355 MMTPA (million metric tonne per annum) food grain requirement by 2030 from current 253 MMTPA, efficient usage of crop protection products and solutions for Indian agriculture are the need of the hour. This segment has huge unrealised potential, given the present very low consumption levels as compared to the global averages. Industry friendly regulatory regime and a focus to exports can make India the global manufacturing hub of quality agrochemicals at competitive rates.
Indian Active Pharmaceuticals Ingredients (API) Market Active pharmaceutical ingredients are the active substances that are used in the manufacture of a drug and have a pharmacological effect. They provide health benefits and play a vital role in disease diagnosis, prevention, and treatment. Active
Global Market for Specialty Chemicals Indian Specialty Chemicals Industry 27 pharmaceutical ingredients may be synthesized either chemically or through biotechnological methods. They are used in a wide range of therapeutic areas such as oncology, respiratory disorders, and rheumatoid arthritis. API market in India to grow at a CAGR of 10.76% over the period 2014-2019.
The Indian pharmaceutical industry size stood at nearly US$30 billion in 2012, 35% of which was accounted for by fine chemicals. The fine chemicals market is poised for rapid growth in the next decade driven by increased focus on contract manufacturing (CRAMS) by global players to reduce costs and increasing exports to innovators (as opposed to generics).The Pharmaceutical market is expected to exceed US$62 billion by 2018 and fine chemicals would account for US$22 billion by 2018. This sector is heavily dependent on imports from China. The issue of overdependence on imports at intermediate stage needs to be addressed fast.
Dyes and Pigments The Indian colorants industry stood at nearly US$3.9 billion in 2012, and expected to grow between 9% and 12% to US$8 to US$10 billion by 2020. The steep growth is expected to be driven by boom in infrastructure market and consumer products in India and increasing scope for manufacturing for exports.
Other Sectors of Specialty Chemicals Other specialty chemicals primarily consist of paints and coatings chemicals, construction chemicals, polymer additives, water treatment chemicals and aroma chemicals. Paints and coatings is the largest segment, with a market size of ~US$4.7 billion in 2012 and has recorded a growth of 45% in last five years. Other key segments include water treatment chemicals valued at ~US$740 million is expected to grow by 9%, textile chemicals will grow to US$1.45 billion by 2018.
Construction chemicals account for a 2%–5% increase in the total construction expenses; however, they enhance the strength of buildings by enhancing the overall life of the structure and thus the maintenance costs. According to the recent FICCI report, the Indian construction chemicals market is yet at a developing stage because customers are not yet aware of the variety available or they are conscious of the costs incurred.
Despite this, the construction chemical industry has demonstrated a significant market growth with intense competition among construction chemical companies in the past 5 years with novel chemicals having properties that protect and enhance the quality of a structure. Over the following 5 years, the predicted growth rate for the Indian construction chemical industry is 15% p.a. chemicals valued US$800 million in 2012.
Global Market for Specialty Chemicals Indian Specialty Chemicals Industry 28 Food Chemicals Market Food additives are edible substances, which are directly or indirectly added to food for improving its taste, appearance, nutritional value, texture and safety. More than 3,000 types of food additives are used to enhance texture, flavour, freshness, shelf life and visual appeal of food items. Some of the commonly used food additives include flavours and essences, colouring agents, preservatives, emulsifiers and sweeteners.
Growth in India food additives market is dependent on the demand from the food and beverage sector. Strong growth in beverage market is anticipated to drive sales of food additives such as sweeteners and preservatives valued at ~US$300 million in 2012 over the next five years and polymer additives valued at ~ US$360 million in 2012.
All these segments are expected to grow at rates above the chemical industry average, based on growth in their respective end use industries, evolving applications and changing regulatory environment. Going ahead innovation and sustainability initiatives are expected to be major factors for competitiveness. Development of processes/ products which eliminate or reduce the use of hazardous substances could become the key priority of producers. Consumers would be expected to pay premium for green chemistry and environmental preservation initiatives and appreciate this globally. Moreover stringent regulatory norms could further push the need to innovate cost effective industrial green chemicals.
Currently the domestic specialty chemical producers also face challenges related to feedstock availability, higher operational costs, outdated technology/ process, limited investment in R&D and a negative perception amongst end consumers. Apart from depending on regulatory interventions, Indian players should come together and proactively work towards collaborative investment to avert global competition.
Additionally, a separate section containing recent Thought Notes published by TATA Strategic Management Group has been included. This section provides key insights on contemporary trends and issues related to Indian businesses, especially pertinent to the chemical industry and small and medium scale industries (SMEs).
The National Chemical Policy is presently under formulation. It can trigger the growth of Speciality Chemicals industry in India, by addressing the genuine concerns of the sector.
The same include provision of quality infrastructure, availability of funds/quality manpower at globally competitive rates as also assured supply of requisite feedstock.
Global Market for Specialty Chemicals Indian Specialty Chemicals Industry 29 The PCPIR Policy can help, provided it gets implemented in the right spirit, with Anchor investors being real anchors supporting the downstream chemical industry. For a sustainable growth of the industry, it is very important to address the public perception issue, by highlighting the enabler role of the industry.
Case Study – Vikas Eco Tech Limited Vikas was incorporated in 1984. It is into manufacturing and distribution of specialty polymer compounds and additives since 1998. It manufactures high end products used in agriculture/infrastructure components, wires and cables, auto parts, textiles, electrical goods, medical goods, writing instruments, organic and inorganic chemicals, footwear, and packaging, among others.
There are many manufacturers who are teaming up with chemical companies and adopting a sustainable approach to their production process by cutting down on toxic chemicals. One such example is Vikas Eco Tech Ltd (VEL) who has recently signed a tie-up deal with Prince Pipes and Fittings Ltd. The collaboration is meant at supplying the entire range of specialty chemicals offered by VEL. The focus of the deal is on organotin heat stabilizers as a replacement for the plastic synthesizer.
Vikas Garg, managing director, VEL, said, “We are focused on developing indigenous and import replacement chemical solutions for our customers in an eco-friendly manner. Such tie-ups with large B2B customers are part of our strategy to work closely with industry leaders like Prince Pipes from product development to end manufacturing. As a company, we are committed to launch premium lead- replacement products and solutions in specialty chemicals for our Indian and global customers.” The alliance is expected to meet the rise in demands for lead-free alternative additives for PVC pipes. These dynamics eventually raise the demand for specialty polymers that promise major potential for the global chemicals industry.
It faces global competition from two large companies – Galatin and PMC. Its products are priced at 2 4% discount to the US manufacturers’ prices, and at a slight premium to Chinese ones. It has developed R&D capability to meet international standards of quality, resulting in several interests from the LatAm market. It has initiated trial orders for one of Mexico’s leading petrochemical giants for organotin stabilisers. It is focused on acquiring new clients from PVC pipes, footwear, automobiles, and packaging sectors in India (to supply specialty additives and plastic compounds).
Shree Pushkar Chemicals & Fertilisers Diversification in the right direction About the company: Recently, SPCFL concluded an IPO worth `700 million for setting up of a plant for manufacturing reactive dyes along with plants for manufacturing of h acid and vinyl sulphate ester on a new
Global Market for Specialty Chemicals Indian Specialty Chemicals Industry 30 plot of land near its existing works at MIDC Lute Parshuram, district Ratnagiri. Its capacity expansion includes – 750tpa of h acid, 1,000tpa of vinyl sulphone, and 10,000tpa of sulphate of potash (SOP) for fertiliser. Capex on these three projects would be `480 million
SPCFL manufactures dye intermediates with a capacity of 7,836TPA. Its product line comprises of dye intermediates (gamma acid, k acid, vinyl sulphone, h acid), acids (sulphuric acid, oleums), cattle feed supplement (di-calcium phosphate DCP), and fertilisers (single super phosphate SSP, soil conditioner). Capacity – 3,000tpa for dyes, 750tpa for h acid, and 1,000tpa for vinyl sulphone.
Domestic clients include Vinati Organics, Atul, DCM Shriram, Meghmani Dyes, and Amul; Huntsman among international clients. It has an exclusive marketing arrangement with Shriram Chemical and Fertilizers for SSP in Maharashtra and Karnataka and has tied up with Shivam Chemicals for marketing of DCP in Karnataka. It has also launched its own soil conditioner brand named Dharti Ratna. It has 125 dealers.
Dye intermediates have a 74% share, fertiliser 16%, and DCP/sulphuric acid 8% in terms of both value and volumes. The dye business results in acid production along with significant waste, but the company created demand for its by products and converted its waste into commercially viable products – which made it a zero waste player, thereby improving its operating efficiency.
It began operations for new reactive dyes plant with a capacity of 3,000MTPA and additional vinyl sulphone capacity of 1,000MTPA in Q1FY17. It also plans to expand its dyes capacity further to 6,000MTPA by the end of Q3FY17. To meet its captive requirement, SPCFL will add two plants for dye intermediates and planned h acid capacity of 750MTPA is likely to be commissioned in Q2FY17.
It has received a license for manufacturing mixed fertiliser NPK in Maharashtra. It has a marketing tie up with DCM Shriram, which it launched under the brand ‘Shriram Urja Mix’ in Maharashtra. In August 2016, it commissioned Sulphate of Potash (SOP) with a capacity of 10,000MTPA; commercial production will begin from September 2016. It is also setting up a calcium chloride plant with a capacity of 7000MTPA to utilize HCL (hydrochloric acid) generated in Sulphate of Potash.
SPCFL is looking at exploring a growth opportunity in the textile auxiliary chemicals space, for which it has created a capacity and expects to start commercialisation in FY18.
Global Market for Specialty Chemicals Indian Specialty Chemicals Industry 31 Gujarat Specialty Chemicals Industry
Gujarat is at the forefront in chemicals industry and today known as the ‘Petro Capital’ of India. It contributes production of 62% of petrochemicals, 51% of chemicals and 35% of pharmaceuticals of the country’s total manufacturing. Its business friendly policies have made it the first choice for investors.
The success of this sector, however, will depend on how well it’s key challenges are addressed such as import substitution, small installed capacities, low focus on technology upgradation and the poor availability of vocationally trained manpower.
The sector with linkage to knowledge based initiatives, in which India has a natural advantage, coupled with the fast surging domestic demand, has potential of making the country a global manufacturing hub of quality specialty chemicals. Already generic pharmaceutical industry has shown that India and especially Gujarat can be a leader in knowledge based specialty chemicals sector.
Gujarat already accounts for 17% of the nation’s industrial production and 25% of its exports. Gujarat possesses several advantages which have enabled it to chart a path of rapid growth and industrialization such as better infrastructure facilities, availability of skilled and semi-skilled manpower, good domestic and international connectivity and rich natural resources. The key differentiating factor has been Gujarat’s investor-friendly policy towards industrial development. These have resulted in Gujarat evolving as the hub of India’s chemical and petrochemical industry. The chemical industry is today the largest and fastest growing component of Gujarat’s manufacturing sector.
Specialty Chemical Industry Adoption of cluster approach (with shared facilities bringing down the manufacturing cost) provision of quality infrastructure and assured supply of quality power/ feedstock etc. It is also important to address the public perception issue, by highlighting the enabler role of the industry. The National Chemical Policy presently being framed by the Government of India, has the opportunity of addressing these issues and triggering the growth of the sector.
Specialty chemicals is one of the thrust areas of Government of Gujarat’s Industrial Policy 2015.The State Government gives the following incentives for the manufacturing units of Specialty and Fine Chemicals:
• Graded interest subsidy for five years @ 7% for MSMEs and 2% for large industries having an actual investment up to `100 crores with maximum cap of `25 lakhs (for MSMEs) and `50 lakhs (for large units)
Global Market for Specialty Chemicals Gujarat Specialty Chemicals Industry 32 • n Industrial Park coming up in private area/GIDC estate (with minimum 25 industrial units) will be provided incentive of 50% of total expenditure limited to `20 crores • One time assistance up to 80% of the total expenditure limited to `10 crores for the cost of plant and machinery testing equipment • Assistance upto75% of total project cost i.e. building, plant and machinery, civil construction and other fixed assets needed for the project and as approved by SLAC (if GOI contribution is available). Assistance upto40%if GOI assistance is not given • One time assistance of 70%of the total expenditure limited to `30 crores (in case of international level Centre of Excellence) • Mega project with an actual investment of at least `1000 crore providing direct employment to at least2000 persons will be incentivized on case to case basis as decided by the State Level Approval Committee (SLAC).
Supply Chain Management Shifting patterns in supply and demand, cost pressures, market segmentation, third- party distribution and other factors mean that chemical supply chains need to be increasingly agile, sustainable, cost-effective, efficient and responsive to customer demands. New solutions are on the way that involve supply chain customization, improved people management, industrial parks for suppliers and manufacturers and disruptive technology such as ‘big data’ and predictive analytics that are turning risks into opportunities for today’s chemical companies.
The global shift in supply and demand also means that a one-size-fits-all approach for supply chains needs to be replaced with supply chains customized to fit different regional markets that are rapidly changing in size and composition. This is especially important as traditional distinctions between developed and emerging markets continue to evolve in an increasingly globalized economy. Speaking broadly, we might say that parts of Africa are where India was 20 years ago in terms of chemical production and consumption. India is where China was 20 years ago. And other areas, such as Latin America and the Association of Southeast Asian Nations (ASEAN) countries fall somewhere in the middle of this growth trajectory. Each region demands its own approach to the design and development of supply chains.
Changing customer base Chemical companies will continue to generate the majority of their revenues from fewer key customers. As a result, outsourcing of smaller customers to a third-party distributor will be an attractive option to enhance profitability and efficiency. In short, the shifting balance between supply and demand regions combined with the trend toward market segmentation and third-party distribution is requiring new supply chain strategies that focus on low-cost, efficient
Global Market for Specialty Chemicals Gujarat Specialty Chemicals Industry 33 supply chains for commodity chemicals and a responsive, innovative and customer- centric approach for specialty chemicals.
Align to Optimize Operational Innovation to Financial growth markets portfolio excellence drive pricing strength
Third-party Distribution Market Significant growth of third-party distribution channel
Source: Specialty Chemical Distribution Market Update, Strategic Imperatives for Suppliers and Distributors, The Boston Consulting Group, April 2014
The recent global downturn has showed us that a crisis can spur new ways of thinking and innovations that result in improved performance and profitability. In the same way, chemical companies can turn supply chain risks into business opportunities for sustainable growth. Big data, social media, predictive analytics and cloud-based solutions are disruptive technologies that influence risk in terms of margins, customer retention, market growth, product development, operational planning and many other areas. Companies can leverage big data and social media to realize customer intelligence across channels, enabling them to provide proactive and personalized customer service. Data analytics can be used to identify waste, monitor overcapacity, prevent shortages, understand the true cost to serve a particular market and gauge the impact of new customer channels.
Global Market for Specialty Chemicals Gujarat Specialty Chemicals Industry 34 Supply chain optimization requires a top-down, enterprise wide understanding of processes and technology. But equally important is a bottom-up engagement with stakeholders who are directly affected by changes in the supply chain. Changes affect both internal and external parties so companies need to consider the greater universe of stakeholders such as suppliers, customers, outside investors and shareholders. Business surveys suggest that change initiatives often fail to reach their goals – most often because of people-related issues involving leadership, communication and engagement.
Advantages of Third Party Distribution Chemical suppliers have two primary rationales for using third-party distributors.
The first is that such distributors reduce the complexity of going to market because they can serve customers more efficiently. This is particularly true for lower-volume customers because distributors are better set up to offer them value-added services.
These distributors can also bundle inventory and distribution for multiple customers, which is more efficient. And they usually have strong relationships with local customers.
The second rationale is that third-party distributors can drive growth in areas to which suppliers have no direct access. For example, distributors may have a presence in a market or a line in which a supplier would like to do business, and contracting with the distributor is far easier for the supplier than building up its own presence internally.
Both of these rationales are apparent in the North American market, which is the biggest in the world. Chemical suppliers have realized that low-volume customers have a high cost to serve (after taking into account factors such as sales, stocking and transportation costs, and credit risks). Indeed, many North American suppliers have set sales and volume thresholds for orders, and some add a surcharge for small orders as well, despite third-party distribution.
In addition to shifting to third-party distribution, many suppliers have been consolidating the number of distributors they deal with, especially during the past five years. We believe that this consolidation will continue but at a slower pace. Among the industry experts we spoke with, many cited a 50% reduction in the number of distributors they are using. But just as directly servicing low-volume customers leads to greater complexity for suppliers, using a large number of smaller, local distributors is also difficult. Which ones make the cut? Most suppliers have focused on distributors that can dedicate technical and sales resources to their products. In addition, many suppliers favour distributors that can offer value added
Global Market for Specialty Chemicals Gujarat Specialty Chemicals Industry 35 functions such as mixing, blending, and formulating, or services such as filling and packaging.
Some suppliers have gone a step further and established internal distribution centres that coordinate and oversee distribution while also providing advice to business units. The centres set criteria for assessing distributors, help business units select them, and maintain a pool of potential distribution partners.
As a result of consolidation, suppliers are forging closer relationships with a handful of strategic distributors. In such arrangements, a supplier’s sales force often works directly with that of the distributor (one may even be based in the other’s offices), and the two companies hold joint sales and technical training sessions. They also share warehouse facilities, along with customer and sales data when appropriate.
Moreover, suppliers that build the right relationships with strategic distributors have gone beyond treating them as an extension of the sales force and instead consider them a platform from which to tap into new growth opportunities. For example, a distributor that has expertise in a particular territory or with a specific customer profile that is unfamiliar to the supplier could help the supplier take advantage of those opportunities.
Because sales growth is so critical, suppliers no longer use only basic metrics, such as the number of sales reps that are covering a region, to assess the sales capabilities of their distribution partners. Instead, they are looking one level deeper, at sales force productivity; using hard metrics, such as sales volume; and analyzing leading indicators, such as contacts with customers, the size of the pipeline, and related data.
To determine which distributors they should prioritize, in terms of both assessing their current vendors and spurring improvements, some suppliers are also using performance management tools. For example, a clear set of soft and hard targets gives distributors definitive objectives to hit. And financial incentives, such as rebates and volume awards, can encourage distributors to help suppliers hit their financial and operational targets.
Because these relationships can be so mutually beneficial, they usually last for the long term. Once the relationship between a supplier and a distributor is well established, switching out is rather rare, because the cost of such a change—in terms of both time and money—can be substantial. Among the experts we spoke with, only 5% said that they switch out at least one distributor annually. And that typically occurred only because of repeated technical problems, product quality issues, or when one of the partners changed ownership. Suppliers do indicate some willingness to change distributors on the basis of price, but given the cost of
Global Market for Specialty Chemicals Gujarat Specialty Chemicals Industry 36 switching, the incentive must be significant—10% to 20% lower than the cost of working with the current distributor. However, the market is becoming more dynamic because of frequent acquisitions and a shift toward strategic distribution partners.
Types of Distributors The specialty-chemical-distribution market in North America includes three main types of companies:
Global companies known as full-liner distributors—including Brenntag, Univar, and Nexeo Solutions—typically offer both commodity and specialty product lines. Suppliers tend to rate these companies well in terms of product quality and reliable, flexible deliveries, largely because of their expanded distribution networks across North America.
Regional distributors have a footprint sufficient to cover one of the four main geographic territories in the US—the Midwest, the Northeast, the South, or the West. So-called super regionals, such as Harcros Chemicals, serve two or more regions and may even have a national presence. Regional distributors tend to do well in product expertise, supplier collaboration, and value-added services for
Regional and Super-Regional Distributors are Growing Faster than Full-liner and Local Distributors
Revenues for the top 100 distributors ($ billion) 15 CAGR Comparison with 2011-2014 (%) Average (pp) +4.6%
10 3.8 –0.8
6.3 +1.7 5
3.6 –1.0
0 2011 2011 Full-liner distributors1 Local distributors with less than Regional and super-regional distributors with US$200 million in sales more than US$200 million in sales
Note: Revenue includes the top 100 distributors only; companies with negligible revenue in 2011 were excluded. Growth rates include both organic and M&M growth. Revenue data for regional, super-regional, and full-liner distributors reflects our estimates of their specialty-chemical business alone. All growth rates include commodity and specialty chemicals. 1 Full-liner distributors include companies with a significant commodity-and specialty distribution business. Source: ICIS Top 100 Chemical Distributors, 2011 and 2014; BCG analysis.
Global Market for Specialty Chemicals Gujarat Specialty Chemicals Industry 37 customers. Many customers find that regional distributors are able to be more flexible and are more willing to offer technical support than their global counterparts.
Local distributors focus on a narrow niche in a small geographic area and usually offer limited product lines. Of the three, regional players have been growing the fastest in the US. Super regionals have been growing particularly fast because they have been gaining market share as suppliers reduce the number of distributors they work with. Specifically, global full-liner companies posted a compound annual growth rate of 3.8% from 2011 through 2014, while local players grew at 3.6%. But regionals grew several percentage points faster during the same period—at 6.3%.
In addition, M&A has reshaped the landscape for US distributors during the past four years. Distributors are seeking to expand in order to provide better coverage across the country, fill in gaps in their portfolios, and become strategic partners. In some cases, regional companies have acquired local distributors and small regional players.
Suppliers’ Strategy Given the changes under way in specialty chemical distribution, suppliers that serve the North American market should focus on three objectives.
Suppliers Have Three Objectives for the Strategic Management of Distributors
Define the Business Case • Estimate the system cost and total profit pool of a region or business line. • Compare distribution models (third-party versus self-distribution) • Determine how many distributors to work with, by region and business line. Select Distributors • Select partners with attributes that support the business case, such as financial strength, reputation, and business ethics. • Build the relationship by setting pilot and volume targets, signing contracts, and training the distributor. Govern the Relationship • Monitor the relationship by using tools such as KPIs and strategy sessions. • Manage performance by defining benefits and consequences and following through on the basis of the distributor’s performance. • Reshape the portfolio of distributors over time according to goals Source: BCG analysis.
Define the Business Case Delineating a clear business case for working with distributors—one that is aligned with the company’s go-to-market and sales strategies—is essential. Suppliers need to analyze their current cost to serve for customers, including factors such as logistics, freight, and warehousing. They also must ensure that their go-to-market and sales
Global Market for Specialty Chemicals Gujarat Specialty Chemicals Industry 38 strategies support an overall growth strategy, including market segments in which the use of distributors could lead to faster growth. It may be more efficient for suppliers to reach some customers by using their own internal sales staff. Conversely, a third-party distributor may already have relationships with target customers that the supplier has not yet reached.
Select Distributors Suppliers must assess and select distributors using clear objectives. They should determine KPIs based on their go-to-market strategy and growth objectives. For example, given the importance of technical expertise and sales efficiency, suppliers should have a means in place to rank distributors along both dimensions—for the distributors they currently work with as well as for potential new partners. On the basis of that assessment, they can then thin their portfolios and select a smaller number of strategic distributors with which to collaborate more directly.
Govern the Relationships with Distributors Once the right distributors are in place, suppliers need a process for managing relationships with them. This element includes configuring pricing and rebate structures to steer distributor performance. It also requires setting up the right information-sharing interfaces with distributors, supported by underlying technology. Suppliers should track and communicate the performance of distributors, using the KPIs they have identified, on a monthly and quarterly basis. And if a supplier chooses to establish an internal centre to manage distribution across the entire portfolio of channels, then the supplier should clarify the centre’s responsibilities and mandate within the organization, along with the method by which the centre will interact with business units.
As the North American market for specialty chemicals continues to grow faster than the overall chemicals industry, clear opportunities for both suppliers and distributors are emerging. Those players will need to understand the dynamics of the market and develop the right business model in order to capitalize on those opportunities. For suppliers, the objectives are to develop a clear business case for outsourced distribution, evaluate and select distributors accordingly, and manage them as true strategic partners. For distributors, the objectives are to build up institutional expertise in both technical capabilities and sales force effectiveness, make strategic acquisitions to increase their size and scale, and manage brands effectively.BCG, Specialty Chemical Distribution in North America, May 2016
Global Market for Specialty Chemicals Gujarat Specialty Chemicals Industry 39 Future Strategies for Gujarat Specialty Chemicals Exports
There is great scope for Gujarat entrepreneurs to take advantage of of India’s expertise in chemistry and the gradual shifting of opportunities from China to India. Dyes and pigments are more of the commodity in nature due to less pricing power of the supplier and huge volatility in end product prices. However China’s sustained exit from this segment provides growth opportunity for Indian players. Technocrats with strong chemistry focused product portfolio can better meet customers’ changing requirements. The companies must move up the value chain and since a large number of raw materials and intermediates are available in Gujarat itself or easily imported coupled with a strong base of chemical hubs make Gujarat a front state in specialty chemical manufacturing. Companies present in these spaces invest a large amount of their revenues towards R&D. As chemicals have endless applications, the scope is immense and the only restriction is viability of products. Many companies have invented 300-400 products, of which, they are actively supplying 15-20 products on a regular basis. Thus, innovation and coming out with a unique viable product is the key to future growth. We give below some of the strategies, manufacturers can adopt to move into high-tech, high value products.
Castor Oil Derivatives Gujarat produces 85% of Castor oil in the world. It is a valuable raw material for personal care products, alkyd resin, paints and coatings, lubricants and speciality chemicals. Entrepreneurs should look into the various micro-markets in which this raw material can be used and find opportunities. CASTOR oil waxes made from the purest castor oils, used in personal care products, esp. for antiperspirant sticks, lip gloss, eye shadows etc. There is a large scope for improving India’s earning from castor by converting the castor oil to various derivatives.
Unfortunately, in spite of substantial advantage of raw material, Gujarat has shown little competitive advantage when creating derivatives from castor oil. Over 100 derivatives are known till date and these natural products are replacing synthetic petroleum based products in many industrial applications.
There are two main obstacles in making Gujarat a world leader in derivatives.
1. R&D – There is no specific R&D and product development centre in Gujarat devoted to castor oil research and the first need is creation of a world scale R&D Centre with skills enhancement facilities upto PhD level. 2. The Indian industry, especially in Gujarat operate on a small scale. For example, In China the largest sebacic acid plant, an important derivative, is 40,000 tonnes
Global Market for Specialty Chemicals Future Strategies for Gujarat Specialty Chemicals Exports 40 capacity and the smallest is 24000 tonnes capacity. In India, the largest plant is 10,000 tonnes capacity. This makes Indian product less cost-competitive in world market.
China imports castor oil from India, converts to derivatives and sells these as high value-added products.
More than 30 countries including China and Brazil are increasing castor oil production and in current year, 25% less acreage has been devoted to castor oil production due to un-remunerative prices. If this trend continues, Gujarat will lose its advantage within 10 years.
The High Performance Plastics (HPPs) This market includes producers and processors of high performance polymeric resins/ materials, including nylons and other polyamides, polyimides, sulfone polymers, liquid crystal polymers, and polyetheretherketone (PEEK). HPPs are typically higher priced, low volume, highly specialized polymers used in applications requiring a combination of engineered properties. HPPs can replace metal, ceramic, and thermoset parts with lighter weight parts with specifically engineered features. In addition to offering benefits such as lighter weight, ease of manufacture, assemble, or recyclability, HPPs also may offer improved appearance and can be designed to offer a host of other specific advantages, including: Superior short and long term
Overview of Selected High-Performance Plastics
High-Performance Plastic Key Performance Attributes Typical Applications Fluoropolymers Chemical resistance, low coefficient of Electrical insulators, bearings, friction,low surface energy, flame resistance, seals, non-stick coatings, resistance to UV sunlight surgical patches, and grafts exposure, and weathering. Polyimides (PI) Thermal stability, chemical resistance, Flexible cables, high-temperature high tensile strength, flex resistance, adhesives, insulating films, and flame resistance and medical tubing Polyamides, including High mechanical strength, rigidity, good Gears, fittings, bearings, and nylons stability under heat, and chemical resistance tool covers Polyphenylene Sulfide Heat and electrical insulation with Electrical insulation, specialty (PPS) strong chemical, and thermal resistance membranes, gaskets, and packing/insulation/sealing Liquid Crystal Polymers Stiffness, high-temperature resistance, Miniaturization in electronics (LCP) and high flow Aromatic polyketones, Excellent mechanical and chemical Bearings, piston parts, pumps, including polytherether- resistance properties that are retained valves, and cable insulation ketone (PEEK) in high temperature
Source: William Blair Research
Global Market for Specialty Chemicals Future Strategies for Gujarat Specialty Chemicals Exports 41 thermal stability · Chemical and radiation resistance · Pressure resistance · Resistance to flame and burning · Improved mechanical properties, including stiffness, strength, toughness, creep, wear, and fatigue.
Applications for High Performance Plastics Offering a combination of attributes generally not found in more commodity or general purpose resins, HPPs are used in specialized applications across a wide range of applications and end markets, including tank linings, pumps, flanges, and fittings used in oil and gas applications, as well as in many automotive and electronic applications. Strong demand, particularly in the electronics, aerospace, and automotive sectors, has driven accelerated growth in recent years. Sulfone polymers offer hydrolytic stability and transparency (along with FDA approval), making them suitable for food or medical applications. Liquid crystal polymers provide added stiffness, high temperature resistance, and high flow, making them ideal for miniaturization in electronics. PEEK (an aromatic polyketone) is an HPP used only in extreme environments. PEEK combines several attractive properties in one material, offering improved temperature resistance, mechanical strength, chemical resistance, and aging properties relative to more traditional resins. Aromatic polyketones, one of the most expensive high performance thermoplastics, offer outstanding thermal stability, mechanical properties, and chemical resistance. Because of this unique combination of performance characteristics, aromatic polyketones are increasingly being used as a replacement for metals, particularly in instances where lightweighting is important. One important driver of future growth for HPPs will be the evolution of 3 D printing. HPPs, such as ULTEM (a polyetherimide that is less expensive than PEEK but with similar performance features), are becoming increasingly popular feedstocks for 3 D printers. As 3 D printing evolves from prototyping to commercial parts manufacturing volumes, demand for HPP feedstock will continue to accelerate. Additionally, and perhaps most importantly, as the price of major polymer inputs (crude oil and natural gas) has plummeted, the cost of HPPs has also declined on average, making them even more competitive alternatives to traditional materials.
Market Size and Growth HPPs are a relatively small market compared with commodity or general purpose plastics, representing approximately 3% of the global plastics market based on dollar volume of shipments, but are an even lower proportion of pounds shipped due to their relatively high prices per pound. Demand for HPPs, however, is growing at rates significantly in excess of the broader market. While the benefits of HPPs are undisputed, their relatively high (but declining) purchase and process costs continue to make them susceptible to competition from less costly, lower
Global Market for Specialty Chemicals Future Strategies for Gujarat Specialty Chemicals Exports 42 performance materials. According to Global Industry Analysts, Inc., the HPP market is projected to be approximately US$18.2 billion globally by 2020, representing a compound annual growth rate of 5.5% from 2015. This projected growth rate is higher than historical growth rates. Growth in the HPP market has accelerated in recent years due to increased demand for higher performance materials and the ongoing substitution of traditional materials. In recent years, HPPs continue to replace wood, glass, and metals in many applications. HPPs can be custom engineered to yield unique combinations of the advantages they provide.
Barriers to Entry and Margin Profile Technical, regulatory, and commercial entry barriers in the HPP market are high. These materials typically offer mechanical and chemical advantages that make them difficult to replicate. As a result, prices of these materials are often relatively recession proof and not subject to the same level of volatility as commodity grade materials.
End Market Applications The principal markets for HPPs are aerospace, medical, electrical/electronics, general industrial, and automotive. Technological advances in the development and processing costs of HPPs will continue to enhance the appeal of these materials. In addition, most HPPs travel extremely well due to their low weight and relatively high value, making them a prime candidate for export into emerging markets.
HPP Usage by End-Market Segment
Others Medical 12% Automobile 5% 18%
Aerospace 14%
Electrical/ Electronics Chemical/ 32% Industrial 19%
Source: Global Industry Analysts, Inc.
Global Market for Specialty Chemicals Future Strategies for Gujarat Specialty Chemicals Exports 43 Transportation Polyketones, polyphyenylene sulfide (PPS), sulfone polymers, and polyetherimide are popular chemistries in the aerospace and automotive markets. They provide excellent flame retardant capabilities and increase stability in corrosive environments. In addition, to comply with fuel efficiency standards, automakers are improving engine efficiency and drastically cutting vehicle weight. HPPs are being used in everything from heat resistant engine covers to bumpers and other moulded parts, such as intake manifolds, radiator tanks, and door mirror stays. Asian automotive manufacturers, in particular, are increasingly using HPPs to help lower vehicle weights and reduce costs. According to Plastics News, over the last decade Chinese engineering plastics production value has grown more than 20% annually. Due to the increased use of these materials in electronics, growth in the Asia Pacific region (where many electronics manufacturers are concentrated) is expected to be particularly strong for HPPs. As a result of this trend, China is becoming a larger player in some markets, such as PPS, where it accounts for about 30% of global production capacity.
Medical Another example is the increased use of HPPs in medical applications. Solvay’s Ixef brand polyacrylamide (PARA) has been substituted for ABS and polyetherimide (PEI) in several medical applications because of its unique combination of mechanical properties. Solvay’s medical grade Ixef resins are produced in a broad range of gamma stabilized colors, making them well suited for single use medical device applications that must maintain excellent aesthetics despite repeat sterilization by gamma radiation or other methods. These resins are also lighter weight than traditional alternatives. OEMs of large medical equipment and hand held medical devices continue to switch from less robust materials, such as PC or ABS, to more specialized materials, which can handle repeated sterilization.
Metabolic Engineering and Synthetic Biology Feedstock Efficient and sustainable microbial production through cell factory synthetic biology is a promising enabling technology in the transition from an economy based on fossil fuels towards an economy based on renewable biomass resources. The synthetic biology of fine and speciality chemicals is a bio-manufacturing technology that, by 2020, is envisioned as providing cheaper economical, predictable and sustainable routes to an enlarged portfolio of novel, diverse, and previously expensive products in many sectors including cosmetics, flavours, polymers, and pharmaceuticals.
A roadmap to commercialization of such products will need to both integrate and navigate the scientific and technological knowledge accumulated in patents into
Global Market for Specialty Chemicals Future Strategies for Gujarat Specialty Chemicals Exports 44 the biodesign process, so as to reduce transaction costs and lower the risk of failure as well as to maximize the innovation capabilities of the synthetic biology pipeline. One reported estimate suggests that by 2025 bio-production will represent up to 28% of the global chemical market (US$614Bm).
Industrial bio-production is nevertheless a complex process whose analysis requires multi-scale approaches integrating cell, bioprocess, and ecosystem models with economic, innovation and policy considerations. Recent advances in metabolic engineering and synthetic biology have led to an increase in the portfolio of both key building block chemicals and fine chemicals that can be microbially produced from biomass feedstock.
Gujarat State already has started building an ecosystem for development of biotechnology under Gujarat State Biotechnology Mission. It should help develop a research institute for development of sustainable substitute and new chemical entities for specialty chemicals. The venture fund should be active in funding entrepreneurs who show promise in both technology and marketing.
Case Study – Fairchem Specialty Limited Fairchem Specialty is a merged entity of Adi Finechem (AFC) and Privi Organics (PO). AFC is an India based company manufacturing oleo chemicals and intermediate neutraceuticals. It manufactures products such as linoleic acid, dimer and monomer acid, and nutraceutical intermediates such as natural mixed tocopherol concentrate. It has a manufacturing unit at Sanand in Ahmedabad, Gujarat. Privi Organics is one of the leading manufacturers of aroma chemicals such as Amber Fleur, dihydromyrcenol (citrus character), and citral derivatives. The combined entity will be renamed Fairchem Specialty. Privi enjoys a dominant position and economies of scale in all its product categories. Moreover, its new production site (Unit 3 at Mahad) began commercial production and would provide long term stability to the business.
Utilizing Waste Products of Edible Oil Industry Soya, Sunflower, Corn, Cotton (SSCC) Refining Process, extraction of waste products and subsequent manufacturing of sustainable, renewable specialty chemicals
The two companies Adi and Privi produce 60+ types of high performance niche chemicals with end use in varied industries such as paints, adhesive, inks, FMCG, and perfumes. • The merged company will develop processes to add value to various by products formed in the manufacturing process, leading to further expansion of operating margins.
Global Market for Specialty Chemicals Future Strategies for Gujarat Specialty Chemicals Exports 45 With a strong 60 member R&D team, Fairchem will develop alternate and more competitive manufacturing routes and then scale up its process – from grams to kilograms, to metric tonnes. Fairchem is working towards scale up of a green enzymatic fat splitting technology that will provide cost advantage over the traditional process. Privi is setting up a unique modern pilot plant at Navi Mumbai in collaboration with the Institute of Chemical Technology – the first of its kind in India to undertake various researches under one roof.
Robust Infrastructure for Gujarat Specialty Chemicals Exports
Product Development and Marketing Assistance The major costs for the specialty chemicals companies are not feedstock or raw material, but product development and marketing activities. In the past, we saw well-funded, heavily marketed products with a lifecycle that lasted years, if not decades. Consumers grew up with these ‘familiar faces’ and became loyal customers. Today, products are replaced by new market introductions at a much faster rate. We also see what might be called ‘tangential’ products where, for example, a successful hand lotion is followed by several spinoff products that offer variations in functionality and fragrances.
Global Market for Specialty Chemicals Robust Infrastructure for Gujarat Specialty Chemicals Exports 46 Consumers stay better informed about ingredients that may potentially harm them or the environment. Because they know more, they are often more skeptical regarding claims made by product manufacturers, whether in advertising, packaging, websites or point-of-sale materials. Consumers are also demanding full transparency from manufacturers about their sourcing methods, product, ingredients and sustainability practices.
This requires one or more Product Development Centres which can seize the changing trends and move fast to bring such products or ingredients to the market. There is also a need to include biotech into product development innovation centre. Synthetic biology has a big role to play in the future development of fine and specialty chemicals production.
Example: Manchester Synthetic Biology Research Centre for Fine and Speciality Chemicals (Manchester Institute of Biotechnology) Synthetic Biology is an emerging science that has the capacity to transform the global industrial landscape in sustainable manufacturing process across all industrial sectors, including healthcare, sustainable energy, green chemistry, pharmaceuticals, novel materials and bioremediation and to address major societal grand challenges. It has the potential to provide new sustainable manufacturing processes that reduce our dependency on carbon fuels (oil and gas). Synthetic Biology requires cutting- edge research at the interface of biology, engineering, chemistry and computing science.
Breakthrough products from this emerging technology can transform the value- added exports from Gujarat. Some of the areas for high-performance materials could be aramid fibres, multi-functional nanofibres, bioprocessing of agricultural waste and enzyme engineering for new materials.
The Centre also accepts industry funded PhD students to work with the Centre on projects for the development of: next generation bio-fuels; high throughput screening and assembly platforms for SynBio; business models and strategies for the commercialisation of disruptive technologies.
Vocational Training The following example provides a solution to skilled worker training:
“PI-DDU-AI Certified Vocational Training Course on Chemical Plant Operators”
PI Industries is conducting regularly a 3 months certificate course for B.Sc. and M.Sc. pass outs titled “Chemical Plant Operator” jointly with DDU-Anchor Institute. PI Industries Ltd. has taken up this as part of their CSR activity and is providing
Global Market for Specialty Chemicals Robust Infrastructure for Gujarat Specialty Chemicals Exports 47 financial and placement support whereas Anchor DDU has supported by providing technical, faculty, training infrastructure and other related support to materialize this course. PI is pursuing this training programme along with DDU faculty for empowering and skilling more and more under privileged students and to make chemical industry more safe and environment friendly.
Programme Objective To help Science Graduates/ Post Graduates (B.Sc./M.Sc.) from economically weaker sections of society to undergo a specially designed training course to enhance their employability.
This is an Accredited Certified Programme.
Higher Education India will need over 14,000 highly skilled, chemical engineers within the next decade to join the specialty chemical industry alone. A potential short fall of 8,000 to 10,000 chemical engineers is indicated driven by limited talent from Tier 1 universities and lack of attractiveness of the chemical sector for employment. To resolve this shortfall, the industry must improve the value proposition for chemical engineers while the Government should work in collaboration with industries to upgrade the current chemical departments in Tier 2 universities to become state- of-the-art departments (in terms of infrastructure, faculty qualifications, industry interaction, and administration) in Gujarat.
Gujarat, with its vast and diversified chemical industry is poorly placed in tertiary education and R&D in this knowledge driven industry. Many of specialty chemical companies are small and cannot undertake product development and customisation on their own. The industry for the future needs both a high institute of chemical engineering and technology as well as a R&D Centre for developing specialty products in different areas.
Product Development and Green Technology Worldwide, this industry spends approximately US$50 billion a year in R&D developing new products, and US$60 billion in capital.
Specialty chemicals differ from commodity in that they are generally custom designed for the user and the application environment, and cannot be bought like commodities such as petrol, solely on a price basis. Key end markets include pesticides, specialty polymers, electronic chemicals, surfactants, construction chemicals, industrial cleaners, flavours and fragrances, specialty coatings, printing inks, water soluble polymers, food additives, paper chemicals, oil field chemicals,
Global Market for Specialty Chemicals Robust Infrastructure for Gujarat Specialty Chemicals Exports 48 plastic adhesives, adhesives and sealants, cosmetic chemicals, water management chemicals, catalysts and textile chemicals.
This consumer driven sector is all about meeting specific customer needs as opposed to large scale products and economies of scale. As a result, rapid product design and time to market based on a robust stream of information is critical. Products are typically batch designed and require flexible production because of changing raw materials, processes, operating conditions equipment and the product needs of customers.
As a result, the customer and supplier have to work together in a very close manner to react to this constantly changing environment.
Unique issues for product development in the Specialty Chemical Industry
Product development must meet a significant number of technical requirements on top of addressing each individual customer’s application environment. For example, in coatings, products have technical requirements (hardness, salt spray testing, gel time, gloss, etc.) and each customer has different manufacturing layouts in terms of ovens, conveyer lines, ambient temperature, humidity, line speed, etc. Even in large markets like home appliances, manufacturing customers have multiple application environments with separate product requirements that employ different technologies to coat an appliance.
Product diffusion and SKU management are critical to success. Even small chemical companies may offer hundreds or thousands of products, and the accompanying inventory, selling, process and handling requirements are challenging. A systematic approach is critical to success and avoiding financial difficulties.
Safety and compliance requirements are large and ever changing. The production and application of chemicals presents inherent safety and environmental risks, and the chemical industry is regulated at the local, state, national and international levels (EPA, REACH, CLP, etc). The documentation and compliance requirements are similar to health care, and product development, customer management, and documentation are essential.
No detailed benchmarking of product development metrics is available. There are no accurate publicly available metrics that allow industry players to benchmark and compare lab and sales personnel new product development.
Raw material costs and processes are changing continuously. Rapidly changing input costs and processes can quickly obsolete or make certain products or technologies more or less expensive on an almost daily basis.
Global Market for Specialty Chemicals Robust Infrastructure for Gujarat Specialty Chemicals Exports 49 Important external trends shaping the industry that impact product development:
Globalization: The overall chemical industry is completely global, with new markets, suppliers, and customers emerging at breathtaking speed. The ability to match customer needs and accompanying documentation and support requirements are a significant challenge.
Commoditization: As new technologies are introduced, they are often commoditized and appropriate product development and the concentration on the right markets are key to ensuring profitability and return on capital.
Consolidation: The chemical industry averages over 300 major deals globally per year. The result is increasingly large and complex corporations that have disparate product lines. Connecting the right sales person and right product to a customer is more difficult.
These factors combine to make product development a complex, exciting and challenging undertaking in the space. Specialty Chemical companies will increasingly need new technology tools to manage the product development process. Gujarat should start now to make itself ready for this challenge.
India constitutes about 3% of the global speciality chemicals market, this sector has great potential and is to grow to 6-7% in 2023 with market size in the range of US$80-100 billion.
The critical success factor for the industry is its capability to provide product/ application development at a favourable price-performance ratio. The cost centre in this sector is in the areas of product development and marketing activities, hence the focus on improving products and usage intensity of speciality chemicals, to develop new products to give them a competitive edge in the marketplace, with unique features and benefits.
One of the main challenges will be to focus on taking the industry to the Green zone – eco-friendly products and processes, address the pollution issues and ensure zero discharge in water and air. This would also mean that industry has to look at developing proper technology that helps in moving towards green zone.
NCN Chemistry – An Example of Building Expertise Established in 1908 and for many years known under the name SKW Trostberg, AlzChem has long been producing advanced intermediates based on its core NCN- chemistry chain (Figure 1). From four basic raw materials – coal, limestone, air (nitrogen) and electric power – it builds in consecutive reaction steps complex molecules, all of which have a typical N-C-N bond sequence in common.
Global Market for Specialty Chemicals Robust Infrastructure for Gujarat Specialty Chemicals Exports 50 Although the initial steps of this chain in particular are labour-intensive, AlzChem is one of the very few survivors which resisted the transition of this chemistry to China. The company seeks to balance the disadvantage of producing in the high cost environment of Germany through a focus on quality, service and customer focus.
The basic process for production of calcium carbide has remained unchanged since its inception. This is made in a furnace heated by electric power to a temperature of >2,000°C and removed as melt. As the yield of the synthesis drives the economics of the downstream products and the composition of the carbide is crucial for their quality, AlzChem recently installed a scaled-down model of the furnace.
By applying modern methods like Six Sigma and Design of Experiments, the reaction mechanism is now much better understood. Consequently, power consumption has been significantly reduced, while at the same time increasing the variety of coal tolerated by the process, including new sources of carbon-containing residue. The carbide quality can now be fine-tuned to optimise the quality of the downstream chain products.
Calcium Calcium Dicyan Guanidinium Nitro Cyanamide Carbide Cyanamide Diamide Salts Guanidine
CAD Perlka Dormex Dyhard Bioselect Propellant
Desulfurizing First artifical Plant growth Hardener for Chaotropic For air bags agent for nitrogen regulator for hot melt epoxy agent for pig iron fertilizer bud breaking, curing processing of e.g. grapes recombinant proteins
AlzChem produces downstream products from hydrogen cyanamide and dicyandiamide in multi-purpose plants that were initially established to derivatise N-C-N intermediates further into captive products like creatine.
Although for many it is only known from chemical textbooks, the chemistry and reaction technology involved in the production of calcium carbide and calcium cyanamide serves as solid basis to branch out into various end markets, which start with basic steel refining and fertilising, include areas like powder coating and culminate, after numerous reaction steps, in products for life science and food applications manufactured in plants managed according to GMP standards.
Typical products like cyanamide, DCDA and guanidine contain at least one N-C-N unit and can be used as multifunctional reagents to create highly diverse heterocyclic
Global Market for Specialty Chemicals Robust Infrastructure for Gujarat Specialty Chemicals Exports 51 five- or six-membered rings. Guanidine derivatives play a vital role in the energy cycle of life, which opens up several avenues for their applications.
Cold Supply Chain Due to distance from India to developed markets in US, EU and Japan, coly chain is a bore viable option for transportation. The development of cold chain systems is a force multiplier that can generate exports and open new markets over multiple sectors over an extended period, rather than a one-off export transaction that can be quantified simply as an export success. Export promotion and trade policy agencies should focus on the development of international cold chains by working to develop an effective international regulatory environment, increase skill level of workforce, and encourage infrastructure investment, thereby promoting the benefits of Indian services
Specialty Chemicals Technologies and Innovation Trends
Natural Substitutes in Food Chemicals Market Majority of specialty chemicals are synthetic which may have adverse effects on the environment, thus affecting flora and fauna. Therefore, environmental protection agencies have imposed various environmental regulations on the synthetic chemicals usage due to their toxic nature, which may hinder specialty chemicals market size over the forecast timeframe. For instance, the European Union has banned atrazine and acetochlor herbicides. Also, in June 2015, France and Denmark banned glyphosate for usage in lawns and gardens.
In order to consolidate their market share in India food additives market, food additive manufacturers are recommended to focus on production of food additives from natural resources in order to garner the attention of health-conscious Indian population. Currently, these naturally- derived additives account for a minority share in almost all the product segments including preservatives, emulsifiers and colourants.
However, demand for these natural food additives is projected to grow at a faster pace when compared to artificial food additives. Rising demand for natural sweeteners in India can be attributed to increasing awareness levels among consumers. The effects of excess artificial additives on human health has become a major concern as government and regulatory bodies are focussing on ensuring that only best quality foods reach consumers.
Global Market for Specialty Chemicals Specialty Chemicals Technologies and Innovation Trends 52 Increasing consumer and media focus on food safety is one of the major driving forces driving technological improvements in the food additives industry. Increasing media coverage on incidents related to food adulteration by food companies would inhibit the penetration of harmful additives.
Food additives manufacturers are focussing on upgrading their product portfolio in accordance to the growing requirements of product manufacturers. It has also been observed that a growing number of food additive companies are widening their product portfolios with launch of healthier substitutes. Also, product positioning by the way of product differentiation or price differentiation is the need of the hour.
Increasing awareness about health benefits of natural additives, marketing initiatives by leading additive manufacturers, implementation of strict regulatory norms, coupled with increasing per capita income and changing lifestyles are anticipated to bolster growth in India food additives market through 2021.
“Shift from harmful artificial sweeteners to plant-based sweeteners can be attributed to rising health-consciousness among consumers. This is expected to continue boosting the country’s natural sweeteners market in the coming years. Stevia, a naturally obtained zero-calorie sweetener, is gaining popularity in the country, and this trend of growing consumer adoption of natural products with natural additives is expected to gain strength over the next five years.
Specialty Chemicals from Carbohydrates The cost factor, as well as the finite nature of oil-based raw materials, has led to concentrated research on finding ways to convert renewable biomass into fine chemicals. Sustainability and protection of the environment are also important factors – hence the global move towards a bio-based economy. New technologies that can produce bio-based chemicals and renewable energy through the introduction of biochemical synthesis alternatives are keenly sought.
Carbohydrates are extremely abundant in nature, representing about 75% of the annually renewable biomass. As a result, this raw material seems to be an obvious choice to consider when investigating technologies that can generate chain products, such as chemical intermediates and derivatives for the fine chemicals industry.
Compared to coal, oil and natural gas, terrestrial biomass is considerably more complex, constituting a multi-faceted array of low and high molecular weight products: sugars, hydroxy and amino acids, lipids and biopolymers, such as cellulose, hemicelluloses, chitin, starch lignin, and proteins.”
Global Market for Specialty Chemicals Specialty Chemicals Technologies and Innovation Trends 53 In principle, there is enormous potential to derive fine chemicals from renewal resources, including carbohydrates, lignocellulosics, and waste. Research is required to convert carbohydrates into various specialty chemicals.
Metabolic Engineering To provide sustainable and renewable chemicals for the world, metabolic engineering has been widely used in the past two decades to produce a wide range of compounds, including biofuels, biopharmaceuticals, and polymers. In general, metabolic engineering aims to use cells as factories for chemical production.
To achieve this goal, strategies from both synthetic biology and systems biology need to be adopted. In brief, synthetic biology contributes to metabolic engineering by creating diverse biomolecular devices for precise and controllable regulation of biosynthetic pathways while systems biology uses in-depth analysis of cell metabolism to achieve the rational design of biosynthetic pathways.
Harvard scientists have developed a method for creating custom-designed biosensors that can dramatically accelerate the metabolic engineering of organisms for high-yield speciality chemical production. Metabolic engineering has led to the development of many different high-producing yeast and bacteria strains that are or will be applied to the commercial production of speciality chemicals. With traditional approaches, however, that process takes years to determine the necessary mutations that provide the desired performance. Researchers at Harvard’s Wyss Institute for Biologically Inspired Engineering and Harvard Medical School (HMS) have tackled this problem with the development of new biosensor technology that can be used to screen millions of strains rapidly for target compounds to identify the most productive variants.
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