Surfactant Market Update

November 14, 2005

For a variety of reasons, it's been another difficult year for most producers.

Results are decidedly mixed in a survey of industry surfactant suppliers. Most bemoan the higher production costs, the margin squeeze by key customers and lackluster demand in many segments. At the same time, however, several suppliers insist that the worst is over and demand should begin to pick up by the start of 2004.

“The general state of the economy has consumers on their heels and has made them more cautious with discretionary spending than ever before,” noted Jeff Edwards, Clariant. “This impacts the personal care market in a negative way and we don’t expect a recovery this year.”

And while he insisted that 2003 has been an excellent year for his company, Neil Burns of Pilot Chemical noted that overall market demand has been sluggish.

“Margins continue to be squeezed due to upward pressure from petrochemicals and energy and downward pressure on prices due to end-user consolidation,” observed Mr. Burns.

Luigi Cazzaniga of Dow Chemical was even more specific on the causes for higher costs. “The spike in raw material costs, and especially in natural gas, has had a tremendous impact on the industry and has necessitated several rounds of price increases across a broad range of commodity and specialty products.”

Like many other observers, he pointed out that suppliers are still unable to recoup the run-up in costs from the start of 2003 and predicted that the continued high cost of natural gas is setting the market up for further price increases.

Many of the issues affecting the surfactant industry, such as rising energy costs and consolidation, are out of the control of industry suppliers. What’s worse, the pace of consolidation is expected to increase.

Fresh off its acquisition of Wella, Procter & Gamble is said to be reviving efforts to acquire Beiersdorf AG, according to an article in Handelsblatt, a German newspaper. The paper cited company sources as saying P&G was doing all it could to buy shares in the Hamburg-based group, currently controlled by insurer Allianz and family-owned coffee-to-retail group Tchibo. P&G declined to comment. If the deal finally goes through, that would give P&G three multibillion-dollar companies—Clairol, Wella and Beiersdorf—in less than two years.

Acquiring Beiersdorf, the maker of Nivea, would help P&G close the gap on France’s L’Oréal in the global skin care market. It would also boost Nivea’s position in the Americas, where Beiersdorf's first half sales fell 20% due to the strong euro and rose just 1.2% in currency-adjusted terms.

P&G is the biggest player in the global household and personal care industry and it’s a safe bet more acquisitions are on the way. As their customers globalize, more surfactant suppliers are following their lead.

“Our main focus in surfactants has been the globalization of our product offering,” explained Phil Matena of Rhodia. “Historically, Rhodia’s surfactant offering has varied regionally based on local capabilities. As our customers continue to globalize, we find it necessary to be able to supply key surfactants in all regions competitively.”

A Closer Look at North America
In North America, Colin A. Houston & Associates (CAHA), a Brewster, NY-based research firm, estimates surfactant consumption in consumer products topped 4.3 billion pounds last year, with an estimated market value of $3.6 billion. According to CAHA, these surfactants were used in 25.5 billion pounds of consumer products, worth $42.5 billion at retail. In a new report, “Surfactants for Consumer Products—North American Forecast to 2010,” CAHA estimates that the U.S. accounts for more than 80% of surfactant consumption in North America. Within the all-important U.S. market, surfactant consumption is expected to grow 3% a year (from 2.5 billion pounds to 3.17 billion pounds) to 2010. The gain will be driven primarily by the trend toward ultra laundry and dishwashing products.

In contrast, CAHA predicts U.S. surfactant consumption for personal care products will decline 0.6% a year—from 820 million pounds in 2002 to 780 million pounds in 2010—due to a decline in consumption of toilet bar soap.

Further, CAHA notes that alcohol ethoxylates have increased their lead as the major surfactant in consumer products and will continue to be among the fastest-growing surfactants through 2010. Alcohol ethoxylates, soap, linear alkylbenzene sulfonates, alcohol sulfates and alcohol ethoxylates together account for more than 72% of the total consumed.

The popularity of Wal-Mart’s own label detergent has put a sqeeze on profit margins for marketers and suppliers alike.

Laundry Carries the Load
In the U.S., laundry detergents account for nearly 54% of household product sales, according to CAHA. Liquids now hold well over 50% of laundry detergent shares and are expected to grab 90% of the market by 2010. But other forces are having an impact on the market as well. CAHA notes that private label among such major retailers as Wal-Mart, Costco and others, remains strong and suppliers agree.

“Detergents have been, by far and away, the best market for us this year,” observed Mr. Burns of Pilot. “Our business with the private and controlled label segment has remained strong and we have seen good growth in our sales to the value-branded segment. This growth patttern fits with what is happening in the market place.”

Of course, the modern laundry process includes much more than detergent. Stepan’s Sean Moriarity noted that his company continues to develop new technology that has resulted in strong growth within the dryer sheet fabric softener market. In addition, Stepan has focused on other initiatives, including the development of new technology and products for the hard surface cleaner market.

Although hard surface cleaners is a smaller segment than detergents and allied laundry products, Mr. Cazzaniga told Happi that partnerships between suppliers and key customers have resulted in new formulations and novel packaging.

At the same time, biodegradability issues remain a concern in some regions—especially Europe. Herman Mihalich noted that Rhodia is working with its customers in Europe to manage the new directive for biodegradability, which will be enforced in 2004.

“We have several products that comply with the directive and we are working them into new formulations,” he explained.

Finding Growth in I&I
Nearly all of DuPont’s sales are to the industrial and institutional segment, particularly commercial floor waxes and caustic strippers, noted Christopher J. Martin of DuPont. He said that demand for fluorosurfactants has been shifting to telomer-based products and that’s been a favorable trend for DuPont.

With that in mind, during the past year DuPont acquired the fluorosurfactant business from Atofina and integrated its Forafac brand into the DuPont line of Zonyl fluorosurfactants.

“We have also reformulated Zonyl FS to remove an APEO surfactant that made it stable in the container. The new Zonyl FSE contains no APEO material,” noted Mr. Martin.

That acquisition also gave DuPont new manufacturing capacity in France and the company boosted its European presence by opening a technical center in Mantes, France. In the U.S., DuPont plans to expand capacity at its Pascagoula, MS plant in the fourth quarter.

Getting Personal
P&G’s string of acquisitions are an attempt to gain some buying power with key retail customers such as Wal-Mart, which over the years has managed to squeeze profits from all of its partners. Wal-Mart’s assault on margins has every company in the supply chain searching for ways to cut costs. At the same time, however, consumer demand for mildness continues to increase.

“Today’s consumer tends to lean toward fast and convenient forms of personal cleansing, while maintaining mildness and after-cleansing benefits,” observed Bob Harrison of Finetex.

To meet these consumer needs, Finetex has patented technology for a new series of mild, naturally-derived surfactants. Both Natrifine AB-40 and Natrifine T-1 are comprised of oat triglycerides that are similar in composition to those found within the skin. According to Mr. Harrison, they offer excellent foaming characteristics and the toxicological scores are much lower compared to commonly-used surfactants.

Mark Hungarland said Stepan continues to record growth in personal care, driven by advancements in high active blends and amphoterics for shampoos and body washes. “In addition, we have been successful growing our business in the skin care market segment with some new product launches,” said Mr. Hungarland.

Huntsman executives are excited by the possibilities of the company’s new S Technology that, Steven Marangos maintains, has the potential to “set the trends in the next generation of shampoo and body wash technology.”

The product is based on a transparent structured liquid system that has tremendous suspending power, has the ability to deliver actives and fragrance, is visually exciting and is preservative-free. For leave-on applications, Huntsman has launched Empiderm emollient systems for skin care and antiperspirant applications, as well as a complimentary range of Empilan nonionic emulsifiers.

Wipes Are Still Cleaning Up
Wipes continue to capture the attention of consumers and the imagination of personal care formulators. While most personal care categories are growing in the low single-digits, wipes post double-digit gains year after year.

“Demand for wet wipes is still growing rapidly,” noted Riva Brinet of Seppic. “We have conducted lab studies on wet wipes and are now able to promote some of our surfactants for wet wipe formulations.”

Seppic has also conducted detailed studies on several surfactants including Oramix CG110, a vegetable-derived nonionic surfactant. New data on this material detail its solubilizing power of essential oils and fragrances in foaming formulations. New toxicological data on Oronal LCG underscore its excellent tolerance to skin and eyes. New data on Montaline C 40 highlight its ability to thicken non-ethoxylated surfactants as well as its dermo-protective effect and its purifying role in wet wipes. Finally, Seppic has published new data on the use of Proteol Oat as a co-surfactant.

Clariant recently introduced new rheology modifiers/polymeric emulsifiers that are more effective at lower pH than other conventional rheology modifiers. Also new is a behentrimonium chloride quat that contains a more friendly diluent and new grades of sodium cocyl isethionate that allow for ease of handling, as well as provide harder, lower odor and longer-lasting syndet bars.

Typical bar soap dries skin. But Stepan researchers have developed a unique anionic/nonionic blend, Alpha-Step BSS 45LM, which is especially made for a combo soap bar.

“This patented technology, involving sulfonated methyl esters, allows one to improve characteristics such as skin feel, foaming, mildness and moisturization, while improving bar soap processing parameters,” said Mr. Hungarland.

Stepan also introduced two emollients, Stepan PTC and 3T. According to company executives, both provide a “cushion” effect in skin care formulations. They are also completely saturated, stable to oxidation and excellent fragrance solubilizers.

As a diester, Croda’s patented Cromollient SCE is not a surfactant but has been found to lower surfactant irritation in vitro (TEP Assay). Results measuring percent of intercellular leakage show that the addition of Cromollient SCE to a SLES-based formula dramatically reduces surfactant irritation as much as 40% at real-use dilutions.

Cromollient SCE is ‘hydro-active’ and surfactant-soluble and functions as a solubilizer and hair detangler, as well as an anti-irritant. The diester produces clear systems for body washes, facial cleansers, liquid soaps, aftershaves and shampoos.

For skin care products, Cognis has introduced several new products including: Eumulgin HPS, a high performance solubilizer for personal care; Cosmedia SP, a cost-effective, emulsifying polymer with outstanding sensory properties and Cosmedia SPL, the liquid form of Cosmedia SP, that’s even easier to handle. It is also said to be ideal to adjust viscosity.

For hair and body care formulas, Cognis introduced Plantapon LGC Sorb, which is billed as the next generation anionic APG that retains the excellent mildness of the APG surfactants while improving important consumer-related attributes such as foam and sensory acceptance.

Plantapon S combines the ultimate mildness of protein surfactants with the skin feel improving attributes of acyl glutamates. Cetiol LDO is an easily processed lipid additive for cosmetic cleansing preparations such as shampoos, shower gels and foambaths. Lamesoft TM A is more than a simple wax dispersion, but demonstrates a distinctive performance profile that perceptibly enhances the care properties such as hair conditioning effects out of shampoo formulations, according to executives at Cognis.

“As the market determines the success of raw materials, APG products are still going strong,” insisted Henk DeJonge of Cognis. “New applications, such as wipes and facial cleaners, and new claims, such as deep pore cleansing, in the personal care market are perfectly suited for the use of APG.”

Scher Chemical reports strong demand for its raw materials devoted to shampoo and conditioner sales. In addition, Steve Scher told Happi that the introduction of water-soluble esters has been well-received by customers.

Consumers want hair care products that boost shine and manageability and clean gently without stripping hair.

Household Product Applications
For the dish detergent category, Dow Chemical recently introduced Triton EF, a low-to-no foam surfactant with improved wetting and detergency for rinse aids and autodish applications.

During the past 12 months, Stepan has introduced a variety of materials with environmentally-friendly profiles. For example, Steposol SC is a vegetable-based product that can be used to eliminate hazardous, toxic and environmentally harmful solvents. It can be used to replace or be used in conjunction with N-methyl-pyrrolidone, toluene, xylene, d’limonene, dibasic esters, propylene carbonate and other organic solvents. It is a more aggressive solvent and does not leave a heavy residue as compared to straight methyl soyate, Stepan executives said.

Steposol SB-W is a methyl soyate product that acts as a partial replacement of environmentally-sensitive solvents such as xylene, NMP, MEK and acetone. It is a natural-based material that is low in VOCs, has a high flash point and excellent solvency.

It is used in parts washing, graffiti removal, asphalt release, ink removal, tank cleaning and formulated products applications. It also is an excellent extender for many solvents.

Steposol DG-A is a cationic/nonionic blend for use primarily in water-based degreasing applications. It quickly dissolves grease, oil and dirt and provides an excellent solvent alternative. It is acid- and alkaline-stable, as well as water-soluble. It is being used in general purpose degreasing applications, car wash and heavy duty cleaning applications.

For household product applications, Cognis has introduced a wide range of materials during the past year. For example, Polyquart Ampho 149 polymer improves gloss retention and rinse-off behavior in hard surface care applications. Eumulgin HF 70 is a foaming, cold-processable solubilizer with excellent color stability. It is said to be particularly suitable for gel rimblock applications.

Mr. DeJonge also pointed out that APG is ideal for hard surface cleaners that make “non-streaking, non-filming, safe for surfaces” claims, as well as in fabric care products promising to be gentle on fibers.

Global Expansions
Although some industry suppliers insist that the last thing the surfactant industry needs right now is more capacity, several suppliers have made moves aimed at niche segments. For example, in June, Stepan brought on-stream a polyol plant at its existing surfactant site in Wesseling, Germany. Company executives said the plant enables Stepan to meet the growing demand for aromatic polyester polyol products in Europe and export markets. The company also expanded its esterquat fabric softening manufacturing capabilities in Voreppe, France; Matamoros, Mexico; Stalybridge, UK and Millsdale, IL to meet the growing need for ester quats. These moves follow several key acquisitions in the surfactant market for Stepan. Two years ago, the company purchased Manro Performance Chemicals in the UK to extend its presence in Europe. Last year, it added to its European portfolio with the acquisition of Degussa Italy biocide and amine oxide business.

Most recently, the company purchased the methyl chloride and benzyl chloride quaternaries, amine oxides, betaine and ethanolamide business of Pentagon Chemical Specialties, based in Workington, UK.

Huntsman has continued to globalize and integrate its personal care business from its European base by increasing manufacturing capabilities in North America centered on Guelph, Canada and Dayton, TX plants. The company is established in Asia through a Malaysian central sales office backed up by an R&D center in Melbourne, Australia.

Pilot has increased capacity by 25% at its detergent intermediates plant in Cincinnati via a series of “Right Way to Manage” projects that are aimed at eliminating waste and improving capacity availability.

In 2002 Cognis began a comprehensive initiative to update and further strengthen manufacturing capability in North America. Just one year after the program began; the company is beginning to reap the benefits.

There have been significant investments at all current North American production facilities, which includes: Cincinnati, OH; Charlotte, NC; Kankakee, IL, Mauldin, SC and Toronto, Canada.

“The recent closure of our Hoboken, NJ facility allows Cognis to expand its Midwest state-of-the-art, ISO- certified manufacturing facility,” observed Mr. DeJonge. “The Hoboken manufacturing site operated in a residential location, which precluded Cognis from making large-scale investments. The changes will increase the efficiency of Cognis’ North American manufacturing network, and will result in improvements in quality, service and support to customers.”

Other companies are consolidating operations too. Dow Chemical, for example, consolidated part of its surfactant production capacity in order to maximize asset utilization in North America. For example, production of select surfactants and polyglycols at Dow’s Institute, WV facility is being moved to other U.S. production sites.

Mr. Cazzaniga said these moves were made to get Dow’s business to a sustainable level of financial health. If price pressures continue to mount, more surfactant suppliers may find themselves making similar moves.