Overview of the Specialty Chemicals Industry
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Published: July 2014
After three years of recovery from the Great Recession, global demand for specialty chemicals weakened again in 2012, and in 2013 remained at a growth level similar to 2012. Manufacturing industry activity globally grew slightly and specialty chemical demand followed in consequence. The crisis in the eurozone is no longer acute, with countries like Greece or Spain showing positive signs, while France and Italy remain critical. The U.S. economic recovery proved healthy and the emerging markets grew at a lower pace, but are still the locomotives of the global economy—especially China.
Specialty chemicals are produced by a complex, interlinked industry. In the strictest sense, specialty chemicals are chemical products that are sold on the basis of their performance or function, rather than for their composition. They can be single-chemical entities or formulations (combinations of several chemicals) whose composition sharply influences the performance and processing of the customer’s product. Products and services in the specialty chemicals industry require intensive knowledge and ongoing innovation.
The following pie chart shows world consumption of specialty chemicals:
The specialty chemicals business is an industry in transition. Historically, North American, Western European and Japanese firms have dominated this business. However, with trade liberalization, the spread of process technology, the breakdown of numerous economic barriers, the rapid growth of the newly industrialized Asian economies and rising standards of living in many developing countries, the center of gravity of the global chemical industry is shifting toward the Middle East, where cheap petrochemical feedstocks are available, and toward Asia, where labor costs are low and economic growth is high. Increasingly, North American, European and Japanese specialty chemical producers look to developing regions for growth. Many have established manufacturing facilities in Asia and elsewhere and at the same time, Chinese and Indian manufacturers have become key players in several specialty chemical markets. However, the concept of China as a low-cost producer is gone, since China is shifting from an export focus to meet growing domestic needs for higher-value, downstream products. As competition increases and mature products become commoditized, innovation remains one of the few sources of competitive advantage.
In 2013, the world’s five largest specialty chemicals segments—specialty polymers, construction chemicals, industrial and institutional cleaners, electronic chemicals, and surfactants—had a market share of about 36%; the ten largest segments (which include flavors and fragrances, water-soluble polymers, specialty coatings, catalysts and food additives) accounted for 61% of total annual specialty chemicals sales. Each specialty chemicals business segment comprises several subsegments, each with individualized product, market and competitive profiles.
During the last ten years, the specialty chemicals industry has experienced slower growth and lower overall profitability within a more competitive environment. The predicted growth rates for 2013–2018 are 2.0% for the three major regions (North America, Western Europe and Japan), and 3.8% on a global basis.
Several specialty chemicals segments are projected to grow faster than the 3.8% average annual growth forecast for all specialty chemicals during 2013–2018. Growth prospects for some of these segments—notably oil field chemicals, electronic chemicals for semiconductor processing, specialty polymers (high-performance and engineering thermoplastics), radiation-curable coatings, construction chemicals and emission control catalysts—are favorable because the outlook for the corresponding end-use industries has brightened. Segments such as nutraceuticals, cosmetic chemicals, and flavors and fragrances owe their auspicious prospects to rising levels of disposable income in the developing world and renewed (if less than robust) consumer spending in North America, Western Europe and Japan.
In general, however, the higher growth rates reflect the optimistic outlook for China, Other Asia and other emerging markets, where manufacturing activities—notably automobile and electronic production—are expanding significantly. In many cases, these activities are contracting in the three major regions as operations shift to nations with lower labor costs, raw material abundance or other advantages.
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