Additive Suppliers Struggle To Obtain Value While Demand Shifts Eastward
The $19 billion global plastics additives industry seems to have come full circle in the last fifteen years. In the early 1990's, plastics additives were true specialty products providing significant value to customers, who were willing to pay for this value. Additives suppliers thrived with high margins and filled plants. Over the 1999-2004 period, value took a "back seat" as the industry entered a period of price erosion, cost cutting, consolidation, and lower margins caused in part by global competition, commoditization, economic downturns, rapidly increasing feedstock costs and the effect of prior patent expirations on key additive products. Now in 2005, there are signs that value is back in vogue as major suppliers have announced a series of price increases unprecedented for the industry.
To assist our clients in understanding these changing forces and identifying opportunities in this new environment, Townsend's additives group has just published its sixth global study of the plastics additives industry. The results and insights of the study were obtained from primary in depth research carried out by Townsend consultants in all regions of the world during the first six months of 2005. This most comprehensive review of the industry identifies and analyses major drivers affecting plastics additives, presents consumption data by additive type, region, and resin for fifteen of the major individual additives, and provides an extensive analysis of individual suppliers' market position in each of the additives. Profiles of sixteen major additive suppliers focus on the additives position of each supplier, their strengths/weaknesses, and strategies. For the first time, the study will feature consumption and market share data for China, presented separately.
In 2004, consumption of plastics additives globally reached nearly 22 billion lbs. worth $19 billion. One category, plasticizers, accounted for nearly 60% of the total with the remainder being composed of property extenders (e.g. antioxidants, light stabilizers, heat stabilizers, flame retardants), modifiers (e.g. impact modifiers, coupling agents, blowing agents, organic peroxides), and processing aids (e.g. lubricants, mold release, slip agents). Consumption of additives is now spread out evenly over the four major regions (North America, Europe, China, and Asia Pacific) with each region accounting for almost a quarter of global consumption. Even excluding the large use of plasticizers, PVC is the major consumer of additives, followed by polyolefins, thermosets, styrenics, and engineering polymers. Additives consumption is forecast to grow at about 4% per year over the 2004-09 period, spearheaded by 10% per annum growth in China. Consumption in the other regions is in the 3% per year range.
Besides basic resin demand, and the aforementioned margin and feedstock issues, there are numerous forces and pressures which are influencing and altering the outlook for additives. The drive for "value" is being manifested in several ways. As resin suppliers seek to reduce their number of resin grades, the specialty resin products containing additives are increasingly being made by the compounders and processors. This value shift downward in the supply chain presents an opportunity for those additive suppliers who can effectively market to this fragmented second tier. Suppliers are also focusing on selling "solutions" rather than just products to enhance their value proposition. They are providing "one stop shopping" by offering a "market basket" of products to their customers and are selling their "internal" expertise in such services as testing, safety, environmental, training, and patents in order to supplement their product offerings.
The additive industry is also undergoing major structural changes. Consolidation continues with over 50 transactions, headed by the recent blockbuster deal involving the merger of Crompton and Great Lakes into Chemtura, having taken place since 2001. In addition, the overall globalization and tilt of the industry to the East continues as the major additive suppliers create new joint ventures, particularly in China, to take advantage of the migration of key end use applications (electrical devices, TVs, toys, cell phones, computers, etc.) to that region.
Finally, various regulations and environmental issues continue to influence the decisions of the additive suppliers. The clouds hanging over halogenated flame retardants, heavy metal heat stabilizers, and phthalate plasticizers won't go away, and suppliers, with varying degrees of success, continue the scramble to find acceptable alternatives.
SOURCE: Townsend's Polymer Service & Information, Inc.