The Surfactant Market

November 7, 2005

Mergers and acquisitions have changed some of the players in the segment, but suppliers insist the issues, including claim substantiation, mildness and multifunctionlaity, remain the same.

The Surfactant Market

Mergers and acquisitions have changed some of the players in the segment, but suppliers insist the issues, including claim substantiation, mildness and multifunctionlaity, remain the same.

You may not need a scorecard just yet, but even some experts find that the rapid pace of acquisitions has made it more difficult to keep track of all the players in the surfactant market these days—and more deals are on the way. At press time, Rhodia and Albemarle were still battling for Albright & Wilson and Witco had yet to announce a buyer for its surfactant business. Why the frenzy of activity? Suppliers point to a number of factors: globalization, demand for specialty products, critical mass and price pressures.

"Surfactant companies continue to find themselves caught between raw material pricing and the pressure for lower costs from consumer companies—particularly the large multinationals," noted Jack Fallon, vice president, surfactants, Albright & Wilson. "The price squeeze forces lower margins and results in lower returns. A surfactant company’s success depends on its ability to focus on raw material and process costs, to spend wisely on its technology efforts and manage itself well."

Although he did not comment on the pending sale of his company, Mr. Fallon insisted that the industry-wide consolidations will yield a stronger, more focused industry. While everyone waits to find out who’s buying what, most of the suppliers who spoke with happi noted that, after a slowdown in the latter part of 1998 and early 1999, sales have begun to pick up again.

"The first quarter of 1999 was a significant improvement over the third and fourth quarters of 1998," said Chuck Utberg of Burlington Chemical. "Reduced finished goods inventory levels play a significant part and there has also been improvement in the general export markets."


Acquiring Minds Want to Grow
Still, not every company is reporting strong results. Surfactant companies that can provide specialized products reported strong results last year and say the good times continue to roll in 1999, but commodity producers have been hurt by falling prices and oversupply in some areas. In these choppy waters, companies are taking different tacks to ensure smoother sailing.

Some surfactant suppliers are already reaping the rewards from recently completed acquisitions. In December, 1997 Dow Chemical Corp. purchased Hampshire Chemical Corp. as part of its acquisition of South African-based Sentrachem Ltd., and executives at both firms said their customers will enjoy several benefits from the purchase. "The acquisition gives our customers a reliable, low-cost supplier with powerful research and development resources behind it," said Art Pavlidis, commercial manager for specialty surfactants, Hampshire Chemical.

"Customers can now look at molecules that they may not have seen before," added Tom Frazier, senior market manager, Dowfax surfactants. "We’re looking at some combinations of Hamposyl and Dowfax products and we continue to launch new Dowfax molecules." On the business side, both executives said Dow and Hampshire can now share and leverage their seller resources on a global level. Craig J. Aiken, health & personal care business manager, Americas, Uniqema, agreed that acquisitions have had a positive impact on his company. "Nineteen ninety-eight was a good year for Uniqema. We have continued to focus on the specialty end of our business and the acquisition of Mona Industries is already paying dividends," noted Mr. Aiken. "While 1999 started slowly, we have continued to gain momentum. Our sales are significantly ahead of last year at this time. That is particularly significant because the first half of 1998 was very strong."

Mr. Aiken noted that the formation of Uniqema brings together the strengths of Mona Industries, Unichema, Solaveil and ICI Surfactants. "We now offer a powerful array of technology platforms, which we can utilize to develop innovative solutions to help our customers create competitive advantages," said Mr. Aiken.

Arlatone MAP 230T-60 is the first new surfactant produced as a result of Uniqema’s synergies. The material, a high purity, monoalkyl phosphate, was introduced to the press just prior to the New York Chapter of the Society of Cosmetic Chemists’ Suppliers’ Day, May 12. According to Uniqema, Arlatone MAP 230T-60 is a high-foaming, extremely mild surfactant which can be used alone or in combination with lauryl ether sulfates, amphoterics or other surfactants.

John Gormley, technical manager, health & personal care, Americas, said Arlatone MAP 230T-60 is better than similar products on the market because it has a lower krafft point (which improves product clarity) and provides enhanced solubility because it is preneutralized and concentrated to 60% actives. "These features improve the stability of formulations at low temperature and simply make it easier to formulate," said Dr. Gormley. "In addition, Arlatone MAP 230T-60 provides a conditioned after-feel to skin or hair and does not irritate skin."

During the press conference, Uniqema executives also noted that the company has renamed the Monafax MAP products Arlatone MAP.

Stepan too, has been active in the acquisition field. Stepan’s Mark Hungarland told happi about three significant acquisitions that took place in 1998. First, the company acquired the remaining 50% of its Colombian joint venture partner, Stepan Colombiana. Then, in July, it acquired selected surfactant product lines from DuPont’s specialty chemicals unit, which included phosphate esters, specialty ethoxylates and other specialty quaternaries and polymers for the plastics and fibers markets. Finally, in November, Stepan Canada acquired the Canadian anionic and cationic surfactant business from Boehme Filatex Canada.

Other Points of View
But not every surfactant supplier approves of the acquisition frenzy. These dissidents insist smaller can often be better. Barbara Woldin, marketing specialist, Croda, noted that the increase in mergers may cause some cosmetic manufacturers to look for alternative sources due to a dwindling number of suppliers.

"Consolidations and the cost-containment measures that tend to follow can alter the focus and/or budgets of areas such as research and development, production or marketing," noted Ms. Woldin.

Similarly, Alan Halman, commercial director, Manro Performance Chemicals, suggested that it will take time for some companies to get accustomed to a new business culture. He also suggested that there may be a problem when a chemical company just gets too big. "Will they be able to identify opportunities quickly or respond to changing market needs?" he proferred.

Mr. Halman insisted that Manro remains firmly independent and has no plans for a major M&A. "We do, of course, have extensive relations with global feedstock producers with whom we have a common interest in the supply chain and we call on our independence to convince our major customers that we simply have their well-being as our motivator."

DeForest Enterprises continues to develop innovative surfactants and has increased its manufacturing capacities during the past year, advised Pam Militello. She, too, suggested that size doesn’t always matter when it comes to surfactants. "We are one of the last small specialty surfactant companies that has not been acquired by a large company. This allows us to maintain the flexibility to work very closely with our customers. This flexibility eventually diminishes once you are acquired by a large company."

Neil Burns, vice president of marketing, Pilot Chemical, said all the acquisitions have helped boost his company’s sales and profits to record levels. "We’re taking share away from our competitors in the detergent and personal care segments," said Mr. Burns. "There is still a lot of uncertainty surrounding these acquisitions and that benefits companies that are more stable." Greater demand stemming from all this uncertainty has enabled Pilot to increase its sulphonation capacity by 50%.

Issues, What Issues?
Most surfactant suppliers who spoke with happi said issues that have had an impact on the industry for several years continue to remain important to their customers. No matter who they’re buying materials from, marketers want multifunctional, mild products with good environmental profiles.

Tom Schoenberg of McIntyre Group, noted that the biggest formulation trend of 1998—the removal of DEA amides from formulas—continues to have an impact on the industry. "If you examine the ingredient label of the major brands, you will see DEA amides have been replaced," noted Mr. Schoenberg. "We see this trend continuing with all alkanolamides. This is now the challenge to the formulating chemists in 1999."

Suppliers had a hard time describing new issues that are impacting the surfactant industry and were similarly hard-pressed on the subject of new finished product trends. After all, body washes and shower gels have been firmly established for years. On the household side, one or two suppliers noted the increasing popularity of automatic dish detergent tablets.

Specialties are in Good Shape
But no matter what the finished product formula, it’s more likely than ever to contain a specialty surfactant. While commodity surfactant suppliers have struggled during the past year, specialty surfactant suppliers insist that 1998 was a very strong year and maintain that the outlook remains bright for the foreseeable future. "The formulators want to differentiate their products from others on the market and they’re looking at specialty surfactants such as our Hamposyl surfactants, to enhance their formulations," said Mr. Pavlidis.

Hamposyl surfactants are extremely mild, making them particularly well suited for personal care formulations. In addition, they create exceptional lather in the presence of hard water or sebum, according to Mr. Pavlidis. Furthermore, Hamposyl surfactants are substantive to skin, hair follicles and metal surfaces so they impart good conditioning benefits to hair and even have anti-corrosive properties when added in aerosol-dispensed formulas. Hamposyl surfactants are anionic, but are also compatible with cationics and nonionics, enabling chemists to formulate Hampshire surfactants with other surfactants while maintaining a homogeneous system. Said Mr. Pavlidis, "Hamposyl surfactants enable the formulator to create relatively low-cost formulas that have better conditioning properties."

Hamposyl surfactants are recommended for shampoo and body wash products at 3-5%, "but most of our growth has come in from the shampoo category where the consumer is looking for substantivity," said Mr. Pavlidis.

The household cleaning category has been relatively flat for several years. Sure, there has been the occasional spike in sales when a novel product enters the market but, for the most part, marketers are merely taking share from one another. In this atmosphere, many established brands are introducing extensions that incorporate bleach and other materials into the finished formula in an effort to distinguish themselves from the competition.

Dow Chemical’s Dowfax line of surfactants has capitalized on the household cleaning category’s move toward performance products. According to Mr. Frazier, during the past year, Dowfax surfactants have been used more frequently in liquid laundry detergents, hard surface cleaners and bleach-based formulations. Dowfax acts as a good fragrance-coupling agent in bleach.

"The Dowfax molecule is not one-dimensional," noted Mr. Frazier. "There are many applications for this anionic surfactant. Customers can see the performance benefits."

According to both Mr. Pavlidis and Mr. Frazier, demand for multifunctional ingredients will continue to grow as consumers demand more from their personal care products or household hard surface cleaners. "The consumer wants luxuriant lather, good skin feel and conditioning properties," insisted Mr. Pavlidis. "They’re not willing to accept just any product based on price." Demand for quality ultimately has an impact on surfactant suppliers.

"Two or three years ago there was a very distinct difference in the uses specified for commodity and specialty surfactants," recalled Mr. Frazier. "Now chemists aren’t so rigid in their definitions and they’re willing to look at a performance chemical. As a result, customers are choosing our products over commodity or the higher-priced niche specialty surfactants."

Chuck Utberg of Burlington Chemical agreed. "Customers want to differentiate their products and they are increasingly willing to utilize specialty surfactants to do so," he noted. "They provide performance characteristics that commodity surfactants do not." He noted that low- and controlled-foam products have become more prevalent in hard surface cleaner applications.

Fair Lawn, NJ-based algroup lonza is experiencing solid sales growth in two key categories of specialty surfactants, amine oxides and cationics, said Terri Romeo, associate director, marketing, I&I, algroup lonza. "We expect the trend to continue, driven by the increased demand for antimicrobial products," added Ms. Romeo.

Manro has been aggressively expanding into dry surfactants. Last year, the company commissioned a 12,000 metric ton unit that produces fatty alcohol sulphates as high density solids (powders, needles and granules) in a process that is much more economical than traditional techniques, according to Mr. Halman.

In 1999, Albemarle re-entered the surfactants business with the introduction of a line of quaternary compounds sold under the Asur surfactant name. "We currently have 11 products primarily designed for hard surface cleaners with more on the way," said John McChesney, Albemarle. "At the same time, we re-energized our efforts for Admox amine oxides as ingredients for both I&I and household cleaners."

Other Facility Upgrades
For the past several years, Norman, Fox & Co. has invested substantially in upgrading and expanding production facilities, according to Jim Morgan. "As our competitors closed or relocated their west coast factories, we realized that we would need to upgrade ours if we were to have the ability to fill the vacuum they created," said Mr. Morgan. "As a result, our soap manufacturing and chemical synthesis facilities are in great shape."

Earlier this year, Norman, Fox & Co.’s most ambitious expansion came on line. The plant now enables the company to manufacture liquid soap, methyl and other esters, alkanolamides and related oleochemicals under a wider range of reaction conditions and on a larger scale. "It also allows us to custom pre-blend ingredients for our customers on a much broader scale—from 100 gallons up to and including full tank cars," said Mr. Morgan.

Burlington Chemical is in the process of becoming more vertically integrated. When phase two of the synthesis plant expansion is completed, it will more than double Burlington’s current reactor. The project is expected to be online by the first quarter, according to Mr. Utberg.

Bill Eveleth, marketing manager, household, algroup lonza, noted that his company debottlenecked its production capacity late last year to accommodate growing demand for algroup lonza’s full range of amine oxides. "The move supplements our integrated position in tertiary amines and is in line with our commitment to offer our customers the best quality and economics in this chemistry," said Mr. Eveleth.

Croda recently expanded its corporate offices in Parsippany, NJ. The new wing, according to Ms. Woldin, gives the company a dozen more offices and several meeting rooms. Regarding personnel matters, there have been several key moves at Croda in recent months. Dr. Keith Hopkins has been named chairman of Croda International Plc, following the retirement of Michael Valentine. Mike Humphrey was named group chief executive. In the U.S., Kevin Gallagher was appointed president, following the retirement of Charles Irace. Also, Rob Comber was named vice president, research and development and Murray Karten was hired as director of purchasing. Both are new positions.

Regional Expectations
With multinationals holding sway throughout the household and personal care industry, issues such as the "Asian Contagion" can have a major impact on sales. In other words, when Indonesia sneezes, sales throughout Southeast Asia can go cold. But luckily for surfactant suppliers and their customers, economies around the world are beginning to get back on their feet.

Mr. Fallon of Albright & Wilson said the economic recovery is already underway in Brazil and Asia. "Brazil is a well-developed market with sophisticated tastes in many sectors. I don’t believe it will be too long before the return (of a strong economy) occurs," insisted Mr. Fallon. "Likewise, signs of recovery are starting to show in Asia. In our own business, the environment is beginning to stabilize and several areas are showing growth."

Mr. Burns said that Korea may have turned the corner and is on its way to becoming financially sound. "We shipped some products throughout the Korean slump and now it is turning around," said Mr. Burns.

Despite economic woes in some parts of the world, Larry Thomas, global business director, biocides, algroup lonza, said demand remains strong in Asia and Brazil even though suppliers have experienced margin compression as a result of currency moves. "Recovery from down cycles today is faster than ever, but it’s difficult to say whether significant currency and demand recovery will occur this year," said Mr. Thomas. "However, long term we are commited to these growth regions, as evidenced by our addition of personnel in Brazil and Asia Pacific."

Looking further ahead, some suppliers insist over-capacity will continue to plague the surfactant industry. Mr. Halman of Manro Performance Chemicals said 1999 will continue to be a difficult year for many suppliers due to downturns in many regions and static demand where growth was expected. "Demand may be returning but capacities for anionics, nonionics and amphoterics have not declined—in fact, they’ve increased. Over-capacity continues and Europe is no exception."

Mr. Hungarland of Stepan Company said the outlook for 1999 is similar to 1998, noting that there is still significant over-capacity for sulfonation in Europe, Asia and parts of the Americas. "Continued consolidation in both the customer and supplier base has meant that both sides tend to think and act with more of a short-term mentality," said Mr. Hungarland. "That has typically resulted in lower margins for surfactant producers."