Sustainable Value Creation in the Fine and Speciality Chemicals Industry

R. Rajagopal

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Library of Congress Cataloging-in-Publication Data

Ramachandran, R. (Raj), author. Sustainable value creation in the fine and speciality chemicals industry / R. Ramachandran. pages cm Includes index. ISBN 978-1-118-53967-5 (hardback) 1. Green chemistry. 2. Sustainable engineering. 3. Environmental engineering. 4. Chemical industry. I. Title. TP155.2.E58R36 2014 628–dc23 2013048674

A catalogue record for this book is available from the British Library.

ISBN: 9781118539675

Set in 10/12pt Times by Aptara Inc., New Delhi, India.

1 2014 To Chitra and Radha

Contents

Foreword xv Preface xvii Acknowledgement xxi About the Author xxiii 1 Transformations in the Fine and Speciality Chemicals Business 1 1.1 Fine and Speciality Chemicals Industry Structure 1 1.1.1 Global Chemical Industry Trends 2 1.1.1.1 Macro Trends Shaping the Fine and Speciality Chemicals Industry 3 1.1.1.2 Consolidation Continues 3 1.1.2 Managing Transitions in the Fine and Speciality Chemicals Industry 5 1.1.2.1 Manage Commoditization Threats 6 1.1.2.2 Restructure Portfolios through Mergers and Acquisitions 8 1.1.2.3 Investing in Innovative R&D Platforms 10 1.1.2.4 Leveraging Emerging Technologies 11 1.1.2.5 Tapping the Promise of Renewables 12 1.1.2.6 Rationalization of Cost Structures 12 1.1.3 Industry Shifts, Competitiveness and Markets 13 1.1.3.1 Understanding Fine and Speciality Chemicals 13 1.1.3.2 Shift of Manufacturing and Markets to Emerging Economies 15 1.1.3.3 Market Focus on Sustainable Products 16 1.2 Regulations and Fine and Speciality Chemicals Industry 18 1.2.1 New Directions in Regulatory Regimes 18 1.2.1.1 GHG and Water Footprint Mapping 20 1.2.1.2 Impact of REACH on Fine and Speciality Chemicals Industry 20 1.3 Fine and Speciality Chemicals Industry and Sustainable Practices 21 1.3.1 Sustainable Value Creation in the Fine and Speciality Chemicals Industry 21 1.3.1.1 New Growth Models Driven by Sustainability Forces 22 1.3.1.2 Customer Drives Industrial Sustainability 23 References 24 viii Contents

2 Sustainable Management: Evolution, Transitions and Tools 29 2.1 Chemical Industry: Aligning with Sustainable Development Mandates 29 2.1.1 Developing a Sustainable Strategy 30 2.1.1.1 Defining Sustainability 31 2.1.1.2 New Green Chemistry and Technology Strategies 32 2.1.1.3 Sustainability Moves Beyond Manufacturing 33 2.1.1.4 Managing Sustainability Initiatives 33 2.2 Sustainability Performance Assessment 34 2.2.1 Evolution of Tools and Metrics 35 2.2.1.1 Sustainable Value Creation Tools 36 2.2.1.2 Sustainable Reporting 37 2.2.1.3 Role of Sustainability Exchanges and Indices 39 2.2.1.4 Sustainability Certifications 40 2.2.2 Carbon Footprint Analysis 40 2.2.2.1 Trends in CFA 41 2.2.2.2 Industrial Initiatives in Lowering Carbon Footprints 41 2.3 Sustainability Trends in the Chemical Industry 43 2.3.1 Sustainability Strategies 43 2.3.1.1 Industry Strategy for Sustainable Management 44 2.3.2 Innovation and Sustainability 45 2.3.2.1 Innovations: Commercial Developments 45 2.3.2.2 Regulation Drives Innovation 46 2.3.2.3 Drivers and Limiters for Innovation 47 2.3.3 Sustainable Technologies: Reflections 48 2.3.3.1 Contemporary Trends 48 2.3.3.2 Promotional Barriers in Developing Countries 49 2.3.3.3 Future Directions 50 References 51

3 Research and Technology Directions 57 3.1 Shifts in Fine and Speciality Chemicals Technologies 57 3.1.1 Evolution of Green Chemistry and Engineering 58 3.1.1.1 Emergence of a Novel Technology Pool 61 3.1.1.2 GCT as a Sustainability Tool: Evolving Perceptions 63 3.1.1.3 Developing Green Chemistry Tools and Metrics 64 3.1.2 Strategies for Commercializing GCT Models 67 3.1.2.1 Trends in Design of Greener Processes 67 3.1.2.2 Advances in Novel Reaction Media 72 3.1.2.3 Nonconventional Process 73 3.1.2.4 New Activations 74 3.1.2.5 Leveraging Green Engineering Principles 75 3.1.3 Future Directions in GCT 77 3.1.3.1 Policy Initiatives 77 3.1.3.2 Emerging Perspectives and Future Challenges 78 3.1.3.3 The Road Ahead: What Has Been Learnt? 78 Contents ix

3.2 Catalytic Technologies 79 3.2.1 New Catalytic Technologies Shape the Fine Chemicals Industry 79 3.2.1.1 Homogeneous and Heterogeneous Catalysis 80 3.2.1.2 Phase Transfer Catalysis 84 3.2.1.3 Asymmetric Catalysis 86 3.2.2 Biocatalysis 88 3.2.2.1 Advances in Biotransformations through Biocatalysis 89 3.2.2.2 Advances in Biocatalysis for Fine Chemicals Synthesis 91 3.2.2.3 Biotransformations Driven by Microbial Cells 94 3.2.2.4 Future Directions in Biocatalysis 95 3.2.3 Advances in Catalysis 96 3.2.3.1 Novel Catalysis 96 3.2.3.2 Future Directions in Catalytic Technologies for Fine Chemicals 98 3.3 Enabling Technologies 99 3.3.1 Process Intensification: Concepts and Evolution 99 3.3.1.1 Process Intensification: PI Equipment and PI Methodology 100 3.3.1.2 Enabling New Process Options 101 3.3.1.3 Micro Reactor Technologies (MRTs) for Fine Chemical Synthesis 103 3.3.2 Tools for Eco-Efficient Process Development 108 3.3.2.1 Reaction and Process Design 108 3.3.2.2 Computational Tools 109 3.3.2.3 Combinatorial Chemistry Tools 110 3.3.3 Nanotechnology 110 3.3.3.1 Nanotechnology: Emerging Areas 111 3.3.3.2 Future Directions 112 3.4 Product Engineering: A Key Sustainability Tool 112 3.4.1 Product Engineering: A Multidisciplinary Approach 113 3.4.1.1 Product Design in Formulated Products 114 3.4.1.2 New Directions in Product Engineering 114 3.5 Emerging Trends in Chemical Sciences and Engineering Education 115 3.5.1 New Directions 115 3.5.1.1 Context-Based Model 116 References 117

4 Resource Optimization Strategies 135 4.1 Resource Optimization: A Systems Approach 135 4.1.1 Process Integration 135 4.1.1.1 Heat and Mass Resource Optimization 136 4.1.1.2 Water Networks 137 4.1.2 Solvent Optimization Approaches 137 4.1.2.1 Solvent Optimization Tools 138 4.1.2.2 Advances in Solvent Recovery Systems 139 x Contents

4.1.3 Water Optimization Strategies 139 4.1.3.1 Closed Loop Wastewater Recycling 139 4.1.3.2 Complexities in Wastewater Minimization 141 4.2 Waste Valorization to High Value Chemicals 141 4.2.1 Chemical Waste Recovery and Valorization 142 4.2.1.1 Waste By-products to High Value Chemicals 143 4.2.1.2 Waste Exchanges as a Route to Pollution Prevention 143 4.2.2 Valorization of Bio-Based Organic Wastes 144 4.2.2.1 Bio Wastes to High Value Specialities: Prospects and Challenges 144 4.2.2.2 Biosurfactants from Wastes 145 4.2.3 Valorization of Carbon Dioxide and Carbon Monoxide 145 4.2.3.1 High Value Chemicals from Carbon Dioxide 146 4.2.3.2 Novel Developments Based on Carbon Dioxide 146 References 148

5 Bio-Based Chemicals, Specialities and Polymers 153 5.1 Towards a Bio-Based Economy 153 5.1.1 Bio-Based Industry: Evolution and Structure 155 5.1.1.1 Bio-Based Industry Attracts Investments 156 5.1.1.2 Bio-Based Industry Adopts Diverse Strategies 157 5.1.1.3 Bio-Based Markets and Trends 159 5.2 Biorefinery and Biofeedstocks 160 5.2.1 Biorefining Technologies 162 5.2.1.1 Conversion Technologies 162 5.2.1.2 Biorefineries go Commercial 163 5.2.1.3 Future of Biorefining Technologies 164 5.2.2 Biofeedstocks 164 5.2.2.1 Emerging Trends in Biofeedstocks 165 5.2.3 Platform Chemicals: Technologies at a Nascent Stage 166 5.2.3.1 Bio-Based Products Value Chain 167 5.2.3.2 Platform Chemicals to High End Specialities 169 5.2.3.3 Future Research Directions 172 5.3 Bioproducts: Moving from Laboratory to Markets 173 5.3.1 Bio-Based Commodities 173 5.3.1.1 1,3-Propanediol (1,3-PDO) 174 5.3.1.2 Epichlorohydrin 174 5.3.1.3 Propylene and Derivatives 174 5.3.1.4 Butanol 174 5.3.1.5 Glycerine 175 5.3.1.6 Cellulosic Ethanol 175 5.3.1.7 Methyl Methacrylate 175 5.3.1.8 Isoprene 175 5.3.2 Bio-Based Fine Chemicals 176 5.3.2.1 Biosuccinic Acid 176 5.3.2.2 Acrylic Acid 176 Contents xi

5.3.2.3 Adipic Acid 177 5.3.2.4 Furfural 177 5.3.2.5 Sorbitol 178 5.3.2.6 Levulinic Acid 178 5.3.2.7 Glucaric Acid 178 5.3.3 Biospecialities 178 5.3.3.1 Biolubricants 179 5.3.3.2 Biosolvents 179 5.3.3.3 Biosurfactants 180 5.3.3.4 Bioadhesives 180 5.3.3.5 Miscellaneous Specialities 180 5.3.4 Biopolymers 180 5.3.4.1 Evolution of Biopolymers 181 5.3.4.2 Driving Innovations in Bioplastics 181 5.3.4.3 Biopolymers Going to the Market Place 182 5.3.4.4 Polymeric Resins from Plant Oils 183 5.3.4.5 Algal Bioplastics 184 5.3.4.6 Bio-Based Natural Polymers 184 5.3.4.7 Bio-Based Polymers: Commercial Challenges 184 5.4 Lab to Markets: Challenges of Commercialization 185 5.4.1 Strategies for Growth: Diverse Perspectives 185 5.4.1.1 Commercialization Barriers 186 5.4.1.2 Sustainability Strategies in Bio-Based Chain 188 5.4.1.3 Future Directions for a Bio-Based Economy 189 References 191

6 Sustainable Practices in the Fine and Speciality Chemicals Industry 199 6.1 Shifts Towards Sustainable Practices 199 6.1.1 Investing in Innovative Models 199 6.1.1.1 Moving to the Next Level in Sustainability Management 200 6.2 Sustainable Practices in the Pharmaceutical Industry 201 6.2.1 Sustainabile Transitions 202 6.2.1.1 Sustainable Initiatives 202 6.3 Sustainable Practices in the Crop Protection Chemicals Industry 203 6.3.1 Evolving Sustainability Trends in Crop Protection Chemicals 204 6.3.1.1 Diverse Strategies 204 6.3.1.2 Biopesticides 205 6.4 Sustainable Practices in the Oleochemicals and Surfactants Industry 205 6.4.1 Shifts Towards Sustainable Models 205 6.4.1.1 Newer Approaches to Novel and Safer Surfactants 207 6.4.1.2 Biosurfactants 210 6.4.1.3 New Technologies Redefine Oleochemicals 211 6.4.1.4 Sustainability Trends 212 6.5 Sustainability Practices in the Personal and Home Care Chemicals Industry 214 xii Contents

6.5.1 Sustainability Practices gain Momentum in the Personal and Home Care Sector 215 6.5.1.1 Industry Developed Rating Standards and Indices 215 6.5.1.2 Greener Product Innovations 216 6.5.1.3 Shift to Natural Products 216 6.5.1.4 Future Directions 217 6.6 Sustainable Practices in the Coatings Industry 217 6.6.1 Transitions to Sustainable Models 217 6.6.1.1 Innovative and Sustainable Coating Technologies 219 6.6.1.2 Sustainable Practices at Industry Level 220 6.6.1.3 Developments in Sustainable Coating Additives 221 6.6.1.4 Future Directions 222 6.7 Sustainable Practices in the Adhesives and Sealants Industry 223 6.7.1 Transformations in the Adhesives and Sealants Industry 223 6.7.1.1 Development of Sustainable Adhesives and Sealants 223 6.7.1.2 Commercial Developments 224 6.7.1.3 Future Directions 225 6.8 Sustainable Practices in the Lubricant and Greases Industry 226 6.8.1 Emergence of New Generation Lubricants 227 6.8.1.1 Biolubricants: Market Trends 227 6.8.1.2 Biodegradable Lubricants: Trends 228 6.8.1.3 Product Certifications 229 6.8.1.4 Future Directions 229 6.9 Sustainability Practices in the Colourants Industry 230 6.9.1 Evolution of the Colourants Industry 230 6.9.1.1 Emergence of Hi-Tech Colourants 231 6.9.1.2 Industry Initiatives Address EHS Concerns 232 6.9.1.3 Transitions to Sustainable Practices 232 6.9.1.4 Future Directions 237 References 238

7 Sustainable Value Creation Strategies 245 7.1 Why Sustainable Value Creation? 245 7.1.1 Evolving a Strategy for Sustainable Value Creation 245 7.1.1.1 Value Creation Initiatives 246 7.1.1.2 Approach to Create Sustainable Value 247 7.1.1.3 Strategic and Operational Approaches 248 7.2 Innovating for Sustainable Value Creation 249 7.2.1 Innovation in Practice 249 7.2.1.1 Capturing Value Through Innovations 251 7.2.1.2 New business models 253 7.2.1.3 Collaborative Innovation 254 7.2.2 Innovation in Technology, Feedstocks and Materials 255 7.2.2.1 Technology 255 7.2.2.2 Feedstocks 255 7.2.2.3 Materials 256 Contents xiii

7.2.3 Innovation in Supply Chains 256 7.2.3.1 Chemical Management Systems 256 7.2.3.2 Chemical Servicing 257 7.2.3.3 Chemical Leasing 257 7.3 Strategic Cost Management 257 7.3.1 Strategic Cost Management: A Key Tool 258 7.3.1.1 Green Chemistry and Technology Tools 259 7.3.1.2 Cluster Models: A Key to Sustainable Manufacturing 259 7.3.1.3 New Operating Models 260 7.3.1.4 Product Portfolio Rationalization 261 7.4 Prognosis for the Future 261 7.4.1 Moving up the Value Chain 261 7.4.1.1 Managing Sustainability Goals 262 7.4.1.2 Innovation to Markets 263 7.4.2 Emerging Perspectives in Sustainable Technologies 264 7.4.2.1 Technology Transfer 264 7.4.2.2 Technology Strategy 265 7.4.2.3 Human Resources Development: Shifting Focus 266 7.4.3 Game Changers in the Industry 266 7.4.3.1 Game Changing Technologies 267 7.4.3.2 Power of the Consumer 268 References 270

Index 273

Foreword

There are few industries in the chemical enterprise as foundational to modern life, as we have come to know it, or as diverse, as the fine and speciality chemicals industry. There is no part of modern society that is untouched by this industry. And yet, despite the breadth, penetration and diversity of the sector, it is likely that relatively few people in modern society appreciate just how dependent their way of life is on the products produced by the fine and speciality chemicals industry. For those of us who have been a part of this industry over the past 30 years, we have borne witness to an astounding degree of change within companies considered to be the major players. The pendulum has swung from a number of large, integrated, and diversified chemical manufacturers with a portfolio of speciality chemicals, to a host of niche players in different and key areas of speciality chemicals manufacture. We have also witnessed a shift in the industry from the developed world to the developing world and a major recapitalization of the industry in those parts of the world. Implicit in that growth has been the growth of a supply chain that has increased the complexity of timely introduction of new products to market. Layered over this structural change has been the equally astounding growth of a complex web of regulations promulgated in response to concerns about new and existing chemicals finding their way into humans and the environment. Chemicals management regulations like the U.S. Toxic Substances Control Act in 1976 paved the way for the Registration, Evaluation, Authorisation and Restriction of Chemical substances (REACH) law enacted in the European Union in 2007. Meanwhile, there was an explosive growth of regulations to control emissions and waste entering the environment. The hazard-based approaches that underpin such government regulations for chemicals management continue to be actively debated by industry which prefers a risk-based approach to chemicals management. In turn, this has often led to an uneasy detente.´ Beginning in the late 1980s, some in the industry began to talk about the idea of sustainability, but most were working to come to some level of equilibrium with pollution prevention. Momentum has grown over the past 20 years, with a tipping point being reached in the middle of the first decade of this century. Most of the companies inthe specialities and fine chemicals industry, at least those with an international presence, now routinely talk about sustainability and how it can be an engine for growth. This has not been an easy transition for some, and there are still those whose products, at best, are arguably less sustainable than others, or at worst, are unsustainable. In this respect, we are likely to see continual change on a comparable scale to what we have witnessed over the past 30 years or more as companies move into new chemicals that preserve or even better, improve upon, efficacy of function while becoming more sustainable. xvi Foreword

That is why a book like this is important. As you will no doubt discover through reading it, the changes mentioned above are catalogued, described and expanded upon to give a comprehensive understanding of the industry and how it has changed. These changes are put into the context of how the industry has positioned itself to move towards a future which is likely to be less dependent on non-renewable feedstocks and more dependent on feedstocks derived from biological sources. As new technologies have become available there has been an evolution towards agriculturally-derived materials, or those that are beginning to harness the possibilities of new platform molecules offered through synthetic biology. This represents sustainable value creation from a renewable feedstock perspective. There has also been an evolution in our understanding of what is green or sustainable in the context of the batch chemical operations that characterize the specialities and fine chemicals industry. While batch chemical operations are likely to be used for the foreseeable future, some have begun to explore alternate reaction spaces, separation technologies, and other unit operations that promise to be more mass and energy efficient than a traditional batch operation. Our vision of the centralized multi-purpose batch chemical plant is likely to move towards a plant with a much smaller footprint and one that sees smaller plants distributed in more locations. This represents another part of sustainable value creation from a technology perspective. Implicit in sustainable value creation is the continuing need for innovation in all areas of the sector. On a micro scale, innovation can be unsettling, unpleasant, or disruptive, especially when competitors innovate their way to a new product or process that threaten each others’ business. On a macro scale, it is innovation that moves the industry and society forward. I encourage you to read this book and learn the lessons it provides through a comprehensive global picture of the specialities and fine chemicals industry and by describing a potential path for sustainable value creation.

Dr. David J. C. Constable Director American Chemical Society Green Chemistry Institute, USA Preface

With the shift towards a low-carbon economy, sustainability is now a central concern of the chemical industry, and more so for the fine and speciality chemicals business. Climate change, urbanization, demographics, food security and healthcare related mega trends continue to influence and shape sustainability practices in the fine and speciality chemicals sector in diverse ways. Addressing social and environmental concerns while defining business goals is steadily gaining momentum in this industry. In its efforts to meet business and sustainability goals, the industry has been innovating across all of its business functions from sourcing, R&D, manufacturing, and supply chains. New advances in chemical sciences and engineering have accelerated the development of sustainable products and solutions. In the last decade the case for sustainability based business goals was substantiated with several successful launches of high performance and sustainable products for a wide range of societal and economic activities. Delivering competitive high performance products and solutions that meet customers’ sustainability demands has become the new normal in the fine and speciality chemicals industry. This transition also brought about structural shifts in structures, procedures and systems to manage strategic sustainability goals. The emerging norms have opened up new avenues for sustainable value creation in this industry despite the complexities. New regulations, consumer pressures, high costs of raw materials and energy coupled with shrinking margins pose additional barriers to growth. In recent years new business, technology, operating and supply chain models have been adopted across the fine and speciality chemical segments to address the sustainability goals of each company. This book is an attempt to trace the dynamics of the global fine and speciality chemicals industry in the backdrop of mega trends that are defining the present and future of this industry. It addresses strategies in R&D, technology development, regulatory responses, design of sustainability models and, more importantly, customer servicing models. It also analyses approaches to resource optimisation, development of bio-based chemical economy and integrating sustainability practices in diverse segments of the fine and speciality chemicals industry. Finally, it discusses innovative value creation approaches that integrate sustainability protocols into business goals. This book is expected to be useful to students, researchers, educators, management students, technology developers, policy makers, entrepreneurs, business managers, R&D and sustainability professionals in chemicals and, in particular, the fine and speciality chemicals business. The global mega trends have driven rapid transitions in the fine and speciality chemicals business. Chapter 1, “Transformation in the Fine and Speciality Chemicals Business” discusses these transformations within the industry in the backdrop of sustainability forces. It explores transitional challenges emanating from commoditisation of specialities, mergers xviii Preface and acquisitions, emerging technologies, and the promise of renewable based products. While highlighting the impact of eastward migration of markets and manufacturing and regulatory frameworks, it discusses the emergence of markets for sustainable products and new customer models. Developing and managing sustainable models requires effective tools and metrics to support decision making on key factors that determine sustainability performance. In an industry as diverse as fine and speciality chemicals in terms of end use markets served, it is indeed a challenging task to identify and integrate the right model. Chapter 2, “Sus- tainable Management: Evolution, Transitions and Tools” discusses the development and relevance of sustainability criteria and the complexities in performance assessment with different criteria being adopted by companies operating in different speciality chemicals segments. It addresses trends in development of tools, including sustainable value creation tools, the emerging role of sustainability exchanges, indices and the importance of certifications. While focusing on the relevance of carbon footprint analysis and the impact of new regulatory trends on product innovations, it brings forth barriers in transferring sustainable innovations to developing regions. Research and technology initiatives in the fine and speciality chemicals industry are increasingly based on innovations to deliver eco- efficient and competitive products and solutions to the consumer. This has been aided to a significant extent by synergies between multiple scientific disciplines as well as the deployment of green chemistry and engineering tools. Chapter 3, “Research and Technology Directions” discusses strategies to leverage the potential of a host of green chemistry and technology platforms to develop sustainable products with desired functionalities. It delineates diverse tools and approaches with specific emphasis on new raw materials, synthetic process design, novel reaction media, non conventional processes, new activations, and design of safer chemicals. Advances in catalytic and biocatalytic technologies and the significance of process intensification involving micro reactions, multifunctional reactors, reactive distillations etc., in the fine chemical manufacture are analysed. Besides computational and combinatorial tools, it also addresses developments in nanotechnologies and the rapidly emerging discipline of product i.e. formulation engineering in the speciality chemicals industry. It emphasizes the need for newer approaches in chemistry and chemical engineering education to train professionals in sustainability management. Resource management and optimisation is a key concern in the fine and speciality chemicals industry towards lowering the environmental footprint of products and processes. In recent years there have been significant advances in our knowledge about tools and methodologies to optimally generate and use energy, water, solvents, and feedstocks. Val- orisation of synthetic waste by-products and agriculture based residues has also opened up avenues for high value fine chemicals. Chapter 4, “Resource Optimization Strategies” discusses the importance of rationalizing the use of energy, water and solvents in fine and speciality chemicals manufacture by adopting process integration, solvent optimisation and closed loop water recycling tools. It addresses developments in valorisation of wastes from agricultural, fruit and vegetable processing to produce high value fine chemicals, while citing new approaches to convert flue gases to ethanol and its derivatives using novel gas fermentation technologies. The shift towards a sustainable bio-based economy came from a combination of factors including access to multiple renewable feedstocks, consumer demand for bio-based Preface xix products, advances in bio process technologies, favourable government policies, and more importantly the potential for greenhouse gas reduction from bio platforms. Though commercial developments in platform chemicals and derivatives have now moved a few products towards markets, the bio-based industry faces considerable challenges from regulatory, sustainability, and consumer forces. Chapter 5, “Bio-Based Chemicals, Specialities and Poly- mers” discusses the evolution, structure and promise of a sustainable bio-based economy while also addressing future prospects and barriers. Besides analyzing strategic approaches adopted for the development of bio-based products, it covers recent developments in biorefineries, bio-based feedstocks and technological challenges in converting biomass toplat- form chemicals and high value products. Addressing the commercial status of some of the key bio based commodities, fine and speciality chemicals and polymers, the chapter describes developments in bio based product certifications, sustainability measurement and bio labelling practices. It discusses the multiple challenges to the commercialisation of bio- based products and the need for enabling policies and technologies to ensure sustainability across the bio value chain. The fine and speciality chemicals business is likely to go through structural changes driven by increasing consumer preferences for sustainable products and solutions. The highly regulated segments of speciality chemicals face pressures from decreasing margins and increasing demand for sustainability. Chapter 6, “Sustainability Practices in the Fine and Speciality Chemicals Industry”, discusses the evolution of sustainability practices, opportunities and limits in some of the highly regulated fine and speciality chemical segments like pharmaceuticals, crop protection chemicals, oleochemicals, personal care, coatings, adhesives, lubricants and colorants. It addresses developments in the pharmaceutical industry and crop protection chemicals industry and the increasing role of bio pesticides in ensuring more sustainable practices. Developments in renewable based oleochemicals and bio surfactants, as well as advances in the personal and home care segment, in adopting green chemistry tools are discussed. The chapter also assesses recent developments in sustainability practices in the coatings, adhesives, lubricant and colorants industry in developing sustainable products and solutions. In an industry where business and operational models are continuously in transition, it is a challenging task to develop sustainable value creation models. This arises from diverse business fundamentals in each segment of the fine and speciality chemical industry. Gaining competitive advantage by adoption of best practices has rationalized not only cost structures but also led to sustainable value creation. Chapter 7, “Sustainable Value Creation Strate- gies” analyses innovation options to create value amidst complex sustainability challenges. It discusses the need for adopting sustainability protocols and explores new growth opportunities arising from unmet needs of the customer. It highlights the potential for sustainability through innovations in the development of technology, feedstocks and supply chains and describes the importance of strategic cost management tools, new manufacturing models and, in particular, cluster models for ensuring sustainable manufacturing. Looking into the future it discusses the importance of sustaining sustainability models, capacity building initiatives and game changing technologies that enable sustainable value creation. Dear Reader, I hope you find this book useful in gaining insights on strategies neededin the fine and speciality chemicals industry to create sustainable value.

R. Rajagopal

Acknowledgement

I wish to acknowledge all my mentors, collaborators, friends and family members who have been a source of immense support and encouragement over several years. I am particularly grateful to Professor. M. M. Sharma for his guidance and invaluable insights from the conceptual stage to structuring and finalization of the manuscript. Our interactions provided me with immense learning opportunities. I am equally grateful to my mentor and research guide, the late Professor. S. Seshadri for enabling me with the knowledge and skills needed for the practice of synthetic organic chemistry. I take this opportunity to thank Dr. Ashok Malte for teaching me the nuances of industrial practices in synthetic chemistry and Dr. Prakash Karpe for training me in plant engineering and project management when I was a fresh entrant to the chemical industry. I am deeply indebted to Professor Chitra Natarajan, my life partner, for the continued motivation and support in all my ventures. I express my special thanks to Professor Jan Hesselberg, Oslo, Norway, for the invaluable experience provided by him during our collaboration on the environmental and socio economic impact of hazardous technologies in emerging economies. I cherish my interactions with Professor S B Chandalia while working on critical issues at the interface of chemical industry and environment. I am very thankful to Dr David J. C. Constable, Director, American Chemical Society Green Chemistry Institute, USA, for writing the foreword for this book. I very much appreciate the support of Ravi Raghavan, Vijay Raghavan, T. G. Seelan, R. Sarasija, Phillip Logan, Rajeev Pandia, Dr S. Siddhan and Vinoo Mathews over the last two decades. I also thank Professor N. Sekar, Professor G. D. Yadav, Dr Raj Hirwani, Dr Surendra Bhatia, Krishna Padia, Bhadresh Padia, and Nitesh Mehta, for their support. I am grateful to Tata Rao, Biju Pillai, Pankaj Dutia, Rushab Vora, and Mukund Bhalerao for their unconditional help. I would like to express my sincere thanks to Sarah Hall, Sarah Tilley, Rebecca Ralf, Jasmine Kao of Wiley for their guidance, Patricia Bateson for her help in the copyediting process, Shikha Jain and Shalini Sharma for their support during production stages. I thank my family whose support has been unwavering in my journey to this point. Finally, I thank all my friends who are at the forefront of civil society initiatives in ensuring sustainable economic practices.

R. Rajagopal

About the Author

R. Rajagopal graduated as a chemical technologist from the Institute of Chemical Technology, Mumbai, India, from where he obtained his Ph.D.Tech. degree in 1989. He has three decades of experience in the chemical value chain with research experience in synthesis of functional heterocyclic compounds, optimization of low waste fine chemical processes and design of inherently safer synthetic alternatives. This complements his industrial experience in project management, production and hazard control. As a strategy advisor he is now involved in developing strategies for business diversification, customer engagement models, portfolio rationalization, structuring alliances, and sustainability practices. He provides technology advice for industrial and environmental projects and participates in rural health care, education and skills development initiatives. He has several research publications and authored around one hundred features and position papers on oil and gas; petrochemicals; fine and speciality chemicals; life science chemicals; bio energy and bio-based chemicals. He has also authored several trend analysis reports on management of feedstocks, cost, technology, industrial safety and environment as well as fuel cells, nano, catalytic, micro reaction and green chemical technologies. He has co-authored custom industry reports on outsourcing practices in the pharmaceuticals and bioinformatics industry. He is the co-author of the book, “Environmental Perspectives of Chemical Industry: Socio-Economic and Technological Imperatives” and has contributed chapters in other books. He has published two books on Indian classical and folk music. He has spoken at international forums as an invited speaker and conducted workshops in chemical value chains, competitive intelligence, green chemistry and technology platforms as well as inherently safer chemical processes. He now researches and documents technology, regulatory and sustainability practices in chemical, energy, agriculture and natural resource sectors. He plans to actively engage in resource management and capacity building initiatives in the above domains. He is the founder of KnowGenix, a growth strategy firm with chemicals, materials, energy and renewable practices.

1 Transformations in the Fine and Speciality Chemicals Business

1.1 Fine and Speciality Chemicals Industry Structure

Rapidly changing demographics, global trade and labour patterns, increasing technological obsolescence combined with stringent environmental regulations and consumer pressures pose both short and long term challenges for the fine and speciality chemicals industry. Globally four macro trends influence the course of this industry – global population, climate changes, urbanization and food security. The demographic changes and the shift of power from West to East have also led to a different set of realities. The chemical industry and, in particular, the fine and speciality chemicals industry is passing through a challenging phase with margin squeeze, loss of consumer market and economic slowdown in Asia Pacific, Latin America and South Asia – some of the fastest emerging markets. The end-use markets are today subjected to a wide range of global and regional regulations and product protocols. Across diverse segments of economy – oil and gas, life sciences, electronics, information technology (IT), construction, materials, energy, mining and agriculture – there is a high dependence on fine and speciality chemicals. The value proposition that these performance chemicals offer is equally matched by growing concerns about their manufacture, use and disposal in a safe manner. Technology and market shifts within the end use segments are radically influencing the way fine and speciality chemicals are being designed, developed and taken tothe market place in sustainable ways. Through the last decade rapid technology obsolescence and advances within the end use markets have been matched by innovative responses by from the fine and speciality chemical industry in product development, operational models and business structures. However, these have come at a high cost for the industry due to high costs of energy, feedstocks security, research and development (R&D) and, more importantly, the prohibitive costs related to meeting climate change and sustainability mandates. Notwithstanding its importance to all sectors of the economy and significant

Sustainable Value Creation in the Fine and Speciality Chemicals Industry, First Edition. R. Rajagopal. © 2014 John Wiley & Sons, Ltd. Published 2014 by John Wiley & Sons, Ltd. 2 Sustainable Value Creation in the Fine and Speciality Chemicals Industry progress made, the chemicals industry still faces a real concern over a shrinking resource base and increasingly negative climate change impacts. These factors have been pushing the chemical industry and, in particular, the fine and speciality chemicals industry to seek new growth options. At an operational level the industry has resorted to rationalization of cost structures across diverse business functions through integration of new technologies, manufacturing models and novel feedstocks. Leveraging the potential of newly emerging chemical technologies while aligning with global sustainable development mandates has been a guiding force for the industry.

1.1.1 Global Chemical Industry Trends The world chemical industry value chain from oil and gas in the ground to high value specialities in our personal lives has witnessed defining changes in business, financial, technology, manufacturing, marketing and supply chain models. Since the 1990s the industry structure has been continuously changing due to shutdowns, consolidation and mergers and acquisitions (M&A). To a great extent these shifts have been driven by slowly falling margins, volatility in oil and gas prices, increasing energy prices and shifts in market geographies. These have been complemented by shifting consumer preferences for envi- ronmentally benign products and stringent regulatory mechanisms. There have been some defining changes in the global chemical industry with new feedstocks, both renewable and fossil based, forcing a rethink on the future of the chemical economy. The Middle East (ME) region with oil reserves dominated the 1970s to 1990s, while the last decade saw a shift of chemical hubs from the ME to the Americas and other parts of the world with shale gas finds. This shift is bound to alter the dynamics ofglobal chemical and fine chemical industry in several ways. With a new-found edge in feedstocks coupled with tremendous technology capability across the entire spectrum of the chemical businesses the West is bound to emerge as a major force in the future and in the process alter the industry structure. It has been a story of rapid growth for the chemical industry which was once valued at US$171 bn in 1970 to a staggering US$4.2 trillion in 2010 (Davis, 2009). Such growth has been mainly driven by the rapid expansion of the Chinese chemical industry from US$100.4 bn in 2000 to US$900.3 bn in 2010. During the 2000–2010 period while India grew at around 14% and China at around 24% respectively, growth had levelled out at 5–7% in Japan, the United States and Germany (American Chemical Council (ACC), 2011a). According to the Organization for Economic Co-operation and Development (OECD) projections, developing nations will account for 30% of global production and 33% of consumption by 2020 (OECD, 2001), which is in alignment with projections by the American Chemical Council for China at 10% y/y and India at 8%, in contrast to growth rates of under 4% in the United States, Canada and Europe (Swift et al., 2011). Between 2000 and 2010 BRICS (Brazil, Russia, India, China and South Africa) saw a doubling of chemical sales from 13 to 28% of global sales. This period also saw mega scale chemical facilities and infrastructure being set up in China, India and Brazil (OECD, 2011). Africa is poised to make its mark in the global chemical arena with increasing growth from the sub Saharan and North African regions. With a rise in living standards, governance and investment in oil and gas sectors the signs of emerging chemical markets are clear. Demand for pharmaceuticals, speciality Transformations in the Fine and Speciality Chemicals Business 3

Figure 1.1 Mega trends inﬂuencing the ﬁne and speciality chemicals industry consumer chemicals, electronics, clothing, etc., are likely to drive growth (Manda and Mohamed-Katererem, 2011).

1.1.1.1 Macro Trends Shaping the Fine and Speciality Chemicals Industry Growth in the end-use industries, novel applications, focus on innovations and sustainability remain the key drivers for the fine and speciality chemicals market. The global fineand speciality chemical industry is governed and driven by macro level determinants, which are likely to shape the industry in the coming years (see Figure 1.1). Meeting these needs will need companies to look for innovative and sustainable options in R&D, manufacturing, supply chain and business strategies. Newer opportunities from energy, materials and health care are likely to emerge. These will call for multitechnol- ogy and market platforms. Investments in new products, global service platforms and in innovative R&D programmes are poised to increase in the next few years. With Asian growth slowing down Western firms that had invested for a long time in Asia have been facing a tight margin crunch. Operational models that were easy to adopt in developed nations needed a lot of modification to synergize with Asian regional realities, leading to customized region or country specific models (Verity et al., 2013).

1.1.1.2 Consolidation Continues The fine and speciality chemicals industry is a complex and dynamic industry that isalways in a state of perpetual transition. Uncertainties abound in this sector due to ever changing business structures and market fundamentals. Besides the impact of sharp decreases in sales and profits, producers have been grappling with challenges of demand shifts, margin squeeze and product protocols in regulated markets. These trends are compounded by the slowdown in life sciences, automotive, construction and other user segments that have a high level of fine and speciality chemicals component. Amidst this turmoil, managing 4 Sustainable Value Creation in the Fine and Speciality Chemicals Industry transitions and creating value have become central to the growth strategies of fine and speciality chemical players – in diverse markets such as pharmaceuticals, crop protection chemicals, home care and personal care, coatings, additives, colourants, food ingredients and water treatment. With a revenue of over US$700 bn spread over 30 odd subsegments with diverse geo- graphic spread the speciality sector today is differentiated by large players with multilo- cation, multiproduct, multimarket focus and multiplatform capability on the one side and niche players with focused products and markets on the other. Despite the reach and technology capability of bigger players the growth has come from niche players with focused portfolios. The global fine and speciality segment slowly saw a recovery after the recessionary trends in 2009–2010 period. Despite the revival, however, production of chemicals (and most other manufactured goods) remained below prerecession levels. China and India emerged as major growth hubs followed by Brazil. Through this period speciality majors aggressively pursued diverse routes – cost cutting, acquisitions, portfolio restructuring, new product launch, market forays, and innovation models in response to slowdown and profit squeeze. China and India, in particular, anticipate double-digit or near-double-digit gross domestic product (GDP) growth. End-use markets for speciality chemicals continue to recover. Growth prospects for speciality polymers, biocatalysts, nutraceuticals, personal and home care, speciality coating additives and speciality surfactants continue to witness steady growth. In recent years, medium sized companies like Ecolab, International Flavors & Fragrances and Sigma-Aldrich in the United States and Altana and Merck KGaA in Germany have proved to be highly profitable with unique models. The high entry barrier, strong brand image and track record of innovations have enabled these niche companies to remain leaders in their respective segments. This model also provides for better opportunities to develop sustainable products and solutions. BASF’s acquisition of catalysts firm Engelhard and Ciba Speciality Chemicals and Dow’s acquisition of US-based Rohm and Haas and recently Clariant’s acquisition of Sud Chemie were major strategic decisions. Globally the speciality chemicals segment followed the fortunes of commodity businesses with rapid commoditization of specialities. The highly attractive speciality segments that attracted major investments witnessed a drastic climb down. Since the recent recessionary trends across the world global demand growth in specialities has been difficult to predict. The global speciality chemicals market is also a highly competitive market. Due to wide scope of applications and overlap of many chemicals across various segments, companies such as DuPont, BASF, Akzo Nobel, etc., have a strong presence across a host of application segments. Through 2011 to 2012 the speciality chemicals industry witnessed a slowdown forcing companies to restructure operations, both internal and external transformations. BASF, DSM, DuPont and Evonik are among the speciality chemicals operators (or diversified companies with speciality businesses) that have responded to slowing demand with internal transformations. DuPont’s decision to divest its automotive paint business to Carlyle was yet another similar transformation and enabled it to focus on agriculture and nutrition. In several instances acquisitions were made as a strategy for forays into adjacent areas. For instance, BASF’s US$1.02 bn acquisition of Becker Underwood gave it access to a coating technology that can be extended to protect seeds.