The Surfactant Market: More Competitve than Ever

November 9, 2005

Despite issues such as higher raw material prices and shorter lead times, suppliers remain upbeat about the market

Despite rising energy prices, higher raw material costs and a slowing global economy, many surfactant manufacturers remain optimistic about the industry. They insist the market has plenty of room for growth because performance and value-added benefits are becoming increasingly important to manufacturers of household, personal care and industrial and institutional products. For example, in the HI&I sector, low- or no-foam surfactants are becoming more popular, as are concentrated I&I formulas which are diluted by the end-user.

In the personal care segment, products that provide real consumer perceivable benefits are more important than ever as marketers try to differentiate their products from the competitor’s brand. And no matter what the segment, speed to market has become more competitive than ever as finished product companies look to gain a handhold in emerging product categories.

“Surfactant suppliers must develop and introduce innovative, cost effective, unique surfactants that allow formulators to develop new and improved products,” noted Elliot Cohen of DeForest Enterprises, Boca Raton, FL. “Identical products with low profit margins will lose market share to the largest of the manufacturers.”

Casey Chemical, a Pittsburgh-based company that links buyers and sellers of wide-spec surfactants, could profit in a climate of rising raw materials costs. “Customers have become more aggressive than ever about minimizing their costs to maximize profitability,” said Jim Casey. “Customers are looking for raw material sources that can add value to a product by using their technical and marketing knowledge to find continuous streams of lower-cost alternatives from side-streams, tailings and start-and-switch materials.”

Of course, personal care and household product segments, are more resistant to economic slowdown than other consumer product segments. “These industries have not been impacted as severly as the IT and heavy manufacturing sectors,” noted Matthew Jurczyk of Uniqema, Wil- mington, DE. “Many consumers perceive cosmetics and toiletries as a daily necessity, or one of life’s little luxuries.” Because of this, our markets are heavily influenced by style and convenience trends, added Mr. Jurczyk. “That’s why we strive to remain in the forefront of product innovation.”

Many of the suppliers Happi contacted noted that rising energy costs wreaked havoc with profit margins in 2000. Fred Hessel of Cognis, Ambler, PA, noted that his company has a corporate initiative to reduce the cost of doing business and has invested in reducing supply chain costs and adding value to customers to offset other cost increases.

Neil Burns of Pilot Chemical, Red Bank, NJ, said that all indications seem to be that the pressure has plateaued and he predicted that there won’t be any increases during the next 3-6 months. He said his company remains bullish on the surfactant industry for the forseeable future as some suppliers have exited the category, are undergoing reorganization or reducing capacity. All of which gives Pilot more room to operate.

“It’s been a tough year from a profit standpoint, but that won’t continue,” he insisted. “We have enough new business in the pipeline and have posted nice double-digit growth for the past 12 months.”

Formulation Trends
While surfactant suppliers work hard to improve their bottom line, many of them noted that novel formulation ideas or multipurpose products have presented new opportunities for them. For example, Terri Romeo of Lonza, Fair Lawn, NJ, told Happi that demand for cationic surfactants such as quaternary ammonium compounds continues to outpace other categories of surfactants due to their use in antimicrobial formulations.

“The consumer’s desire to purchase antimicrobial products which kill germs remains a strong sector,” noted Ms. Romeo. To capitalize on the trend for milder personal care products, Lonza is supporting benzethonium chloride as an active ingredient for use in hand soaps and sanitizers with reduced irritation profiles. She told Happi that the company has also experienced good growth in its Barlox line of controlled foam surfactants. “Cust- omers are also looking for more vegetable-derived esters to replace animal derived versions, due to concerns over BSE,” said Ms. Romeo.

According to Mr. Hessel of Cognis, convenience and health/wellness are two major trends in the personal care and household product segments. For example, he noted that products that offer consumer-perceptible benefits, such as facial wipes, have been well-received by consumers. “The need for milder surfactants with new sensory effects has become apparent as consumer product manufacturers are looking for ways to differentiate themselves from their competition.”

In the past, he continued, producers would harmonize to a common surfactant platform and use additives to differentiate their product from a competitor’s.

Mr. Cohen noted a reduction in the use of phenolic-based surfactants in finished products, especially those overseas. He said the trend will eventually be adopted by U.S. marketers in the distant future.

Chuck Utberg of Burlington Chemical Co., Inc., Burlington, NC, agreed with Mr. Cohen that nonylphenol and alkylphenol are being formulated out in favor of specialty surfactants and with good environmental profiles. “Another trend is toward low VOC acqueous degreasers,” said Mr. Utberg. “These products are made possible with specialty surfactants. Increasing environmental pressures should continue this trend.”

Mr. Jurczyk called research and development and innovation the “lifeblood” of this industry. “If anything, we have seen an increase in R&D activity. There are prime opportunities for entry of new surfactants that deliver new benefits for the consumer and enable cosmetic and toiletry producers to differentiate their offerings.”

Just last month Uniqema introduced Prodimidum 2, a second-generation liquid nonionic surfactant designed as an alternative to DEA-based amides in personal care products. The product is being launched initially in the Americas market.

The product is said to provide the same favorable ingredient composition profile of the original Promidium and provides improved characteristics as a “near drop-in” replacement for conventional liquid nonionic surfactants. According to Uniqema, Promidium 2 provides excellent foam boosting, stabilizing and fragrance solubilization in formulations. At the same time, this new technology provides outstanding salt tolerant viscosity control in formulated products, even when compared to traditional DEA-based alkanolamides.

After several years of decline, private label detergents and personal care products are gaining strength in the U.S. again, on the growing strength of large retailers such as Wal-Mart and large supermarket chains, noted Neil Burns of Pilot Chemical. “I don’t expect the trend to reverse itself any time soon. In fact, if the economy gets tighter, the shift toward private label products will move even faster.”

Additions and Expansions
Perhaps the biggest supplier move in the past year was Dow Chemical’s acquisition of Union Carbide. The deal was announced last year, but only completed in the first quarter of 2001. Art Pavlidis of Hampshire Chemical Co., a subsidiary of The Dow Chemical Co., said that the merger makes Dow Chemical one of the top 10 surfactant manufacturers in the world. “With our portfolio, we can provide solutions to a wide array of customers’ needs,” noted Mr. Pavlidis. “The customer will benefit from our ability to draw on the resources of one of the largest chemical companies in the world.”

The Union Carbide acquisition added the Tergitol and Triton surfactant lines to Dow’s portfolio, giving the company an incredibly strong portfolio of both specialty and commodity surfactants to offer customers throughout the world, according to Mr. Pavlidis.

“With our expanded product line, enhanced technical know-how and strengthened resources, we can now offer formulators a much broader range of products with significantly greater appeal for personal care formulations, among many others,” explained Mr. Pavlidis. He noted that the company has already found complementary applications between the Union Carbide products and the existing Dowfax and Hampshire surfactant lines.

As part of the merger, Dow also acquired the Amerchol Corporation, a subsidiary of Union Carbide. Amerchol produces a range of products for personal care applications including water soluble resins and lanolin, glucose and their derivatives.

“We believe that these products from Amerchol, combined with the portfolio of Dow surfactants sold into personal care, will give us a much fuller package of products, as well as services, to offer personal care manufacturers throughout the world,” said Mr. Pavlidis.

Expansion Plans Explained
Several surfactant suppliers told Happi about expansions that have taken place during the past year. For example, Burlington Chemical added another 5000-gallon capacity reactor as part of its plan to be more vertically integrated. According to Mr. Utberg, production capacity for PEG esters, DES quats, ester quats, phosphate esters, fatty amides and imidazolines is greatly increased. “Along with that,” he added, “we are now offering custom chemical manufacturing for these and similar chemistries along with blending and packaging services.”

The newest expansion was the creation of the LubeRos division for the production and marketing of additives for metalworking and lubricants. According to Mr. Utberg, the emphasis is on sustainable chemistry, offering much-improved environmental profiles on the products vs. petroleum-derived ones. Products include water- and oil-soluble lubricity additives, lubricant bases, emulsifiers, corrosion inhibitors and rust preventatives.

In an effort to distance itself from Henkel, Cognis was set up as a separate company. Now Cognis is being offered for divestment, which will eliminate the perceived competitive situation between customers and Cognis, according to Mr. Hessel. “This has created new opportunities for closer cooperation with some major customers and we are beginning to see the results,” said Mr. Hessel. In addition, Cognis broadened its Care Chemicals portfolio in recent months through the acquisition of Vinyals, a botanical supplier and the formation of a global distribution agreement with Aarhus Oliefabrik, a manufacturer of refined and exotic oils.

“These developments increase Cognis’ ability to serve as a one-stop shopping source for our customers and give us some additional tools in our toolbox to develop new, innovative finished products and concepts for our customers,” said Mr. Hessel.

Mr. Cohen of DeForest Enterprises told Happi that his firm will eliminate several commodity products and add several new, unique specialty products in the second half of the year. “The smaller to medium sized manufacturers must look to develop improved and more efficient products as compared to the large conglomerates,” he insisted.

During the past year, Casey Chemical established a surfactant return program which allows users of surfactants to sell wide-spec products to other surfactant users, opening alternative distribution channels to manufacturers who normally had to dispose of product that had potential uses. In addition, the company expanded its website (www.caseychemical.com) to make the site more visible to surfactant producers and users. Through the website, Casey uses its technical and marketing knowledge to facilitate movement of products that would have otherwise been disposed of, according to Mr. Casey.

More Blends on the Way
Lonza continues to work with surfactant suppliers to develop surfactant and preservative blends to better meet the needs of formulators. Glydant Plus Liquid and Dantogard Plus Liquid are just a few of the new products that Lonza offers to meet the needs of surfactant suppliers, according to Ms. Romeo. Lonza has also expanded its line of vegetable-based esters and can now offer vegetable-based versions of all products in its line.

In recent months, Pilot Chemical has bulked up from a financial standpoint by bringing on Union Bank as a financial backer. According to Mr. Burns, the company now has the resources to make acquisitions or major investments. “We’re actively looking for acquisitions to complement what we do, whether its household or personal care or a complementary technology,” said Mr. Burns.

Next year, Pilot will celebrate its 50th anniversary and Mr. Burns said the company will step up its marketing efforts to highlight milestones to manufacturers in the household and personal care industries. “We now have the financial muscle to reinvigorate our presence in that area,” he said.

Surfactant suppliers know that in today’s competitive marketplace, they cannot afford to stand still. Change is inevitable, whether through acquisition, entry into new markets, new product development or improvements in speed to market. Successful surfactant companies will embrace these changes and ultimately use them to create a competitive advantage over their competition.

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