Published July 2015
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 customers product. Products and services in the specialty chemicals industry require intensive knowledge and ongoing innovation.
Commodity chemicals are sold strictly on the basis of their chemical composition. They are single-chemical entities. The commodity chemical product of one supplier is generally readily interchangeable with that of any other.
During the last 10 years, the specialty chemicals industry has experienced slower growth and lower overall profitability within a more competitive environment than in the preceding period. Since the Great Recession, global consumption of specialty chemicals has grown in fits and starts. After plunging 10% in value from 2008 to 2009, consumption grew 16% in 2010, only to fall again in 2011. After a very anemic growth of less than 1% in 2012, consumption rebounded 7% in 2013 and grew another 4% in 2014. Despite an unsteady macroeconomic environment, global manufacturing and construction industries grew in 2014 and specialty chemical demand followed in consequence.
The following pie chart shows world consumption of specialty chemicals by type:
In 2014, the worlds five largest specialty chemicals segments—specialty polymers, construction chemicals, industrial and institutional cleaners, electronic chemicals, and surfactants—had a market share of about 37%; the 10 largest segments 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.
The specialty chemicals business is 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.
The specialty chemicals industry is now trying to improve its margins by implementing price increases to compensate for higher R&D, energy, and raw material costs. This development has been especially noticeable for adhesives and sealants, paints, plastics additives, paper and water treatment chemicals, surfactants, and lubricants. Specialty chemicals such as food additives, flavors and fragrances, and electronic chemicals can still be defined as classic specialty chemicals. They are sold in relatively small quantities and are protected from pricing pressures because they represent a small percentage of the total cost of the final product. Beyond pricing improvement, specialty chemical companies are trying to meet their financial targets by cutting costs and developing new products and faster-growing markets.
During 2014-19, volume consumption of specialty chemicals is expected to increase at close to 4% on a global basis. The combined consumption in North America, Western Europe, and Japan will grow more slowly at about 2% per year. Growth in the developed nations is constrained by debt, adverse demographic factors, and tighter fiscal policies. However, growth in emerging markets will be much higher. In particular, China will have the highest growth rate of all regions during the next five years. China is seeing some short-term setbacks in its economy and the forecast of consumption for specialty chemicals has been downgraded slightly from the historical range of 8-9% to 7% per year. Nevertheless, it will continue to power the growth of global specialty chemicals during the next five years. In general, the emerging markets offer more dynamic prospects for the specialty chemicals industry because of rising consumer-driven economies and industrialization.