A Closer Look at the Specialty Sector
The high-end version of the chemical supply chain, the specialty chemicals sector supplies products that are the closest to the consumer. The main trends affecting the industry are therefore dictated by the need to move together with the verticals that industry finds itself in, from nutraceuticals and pharma, to food, construction, electronics, water treatment, packaging, personal and home care.
Globally, this is a saturated, mature and highly regulated market, susceptible to fluctuations in raw material prices and regulatory developments. With all these factors outside of the industry’s control, what chemical players can do best is tailor solutions for their customers, offer competitive sustainable products, invest in their channels to the market and in horizontal integration to improve their market position.
“Chemicals are present in 95% of manufactured goods and are used as feedstocks in the upstream of various value chains. Therefore, chemical companies play a vital and enabling role in offering more sustainable solutions for a resource-efficient, carbon-neutral and circular society.”
EngLeong Goh, Managing Director, BASF (Malaysia) Sdn Bhd and Head of Malaysia-Singapore Business Area
Wanting to get closer to its customers in China and India and reduce time to market, Nouryon is driving expansion projects in these countries: “We invested €90 million to increase our organic peroxides capacity in Tianjin, China, as well as announcing added capacities at our Ningbo facility to produce two key intermediates for our organic peroxides business. In addition, Nouryon is building the largest MCA plant in India, as part of a JV with Atul. These projects are due to come live in 2021,” said Sobers Sethi, senior vice president, Emerging Markets and China, Nouryon.
Digital platforms offer another means of being closer to customers. Croda, for instance, invested this year in a digital platform in China; the Dot.CN portal will make Croda’s brands available to customers in their local language.
Inovation Across Verticals
Food and nutrition
Although the pandemic disrupted food supply chains, taking a big toll on the retail and restaurants sector and bringing into focus home food deliveries, the outlook for the food industry is undeterred; food is the most basic need for a growing global population expected. The global food ingredients market expects growth at CAGR 7.8% between 2019 and 2027, of which APAC is the biggest market, according to Research and Markets. These projections give MNCs a great incentive to focus on the segment.
Shirley Qi, the new president of Evonik in the SEEANZ region, hinted that four out of six innovation growth fields for the company are in the life-sciences business: sustainable nutrition, healthcare solutions, advanced food ingredients, and membranes, completed by cosmetics and additives. “Our innovation strategy is heavily focused on biotechnology and is shaped under a sustainability mindset,” she said.
Singapore has its own big plans in the food space. The government’s “30 by 30” strategy has set a target to produce 30% of the country’s nutritional needs locally by 2030. In a country where only 1% of the land is available for agriculture, tripling its current local production is a challenge that calls for out-of-the-box solutions, such as vertical farming or floating fish farms and making the best use of land, water and energy.
The 30 by 30 strategy has opened the door for the biotech sector. Going into a JV with A*STAR, private equity fund, Hafnium Hafaway invested in agri-tech to form biotech platform Fermatics. Fermatics uses an E-coli bacterium fermentation technology to make tailor-sized molecules that are difficult to obtain through chemical synthesis or are expensive or less energy efficient to extract directly from raw materials.
The trend towards eco-friendly food alternatives encourages activity in this space: “Singapore just approved lab-grown meat for sale and we believe that cultured cell protein could indeed be part of novel ingredients to replace meat in everyday food applications. On this end, we are looking to partner with young and agile companies to develop solutions for the growing demand for meat and seafood alternatives,” said Dirk Lorenz-Meyer, member of the Board of Behn Meyer Group.
Pharma and healthcare
From plastics and latex to pharma active ingredients and medical gases, the chemical industry has been heavily involved in responding to the healthcare crisis triggered by Covid. For instance, Croda is one of the excipient suppliers for the Pfizer vaccine, Evonik delivered the first batches of lipids for the mRNA-based vaccine for BioNTech, while Linde supplies oxygen to medical units, and Cariflex is a global leader in isoprene rubber latex, used in medical closures and surgical gloves.
Precedence Research expects the pharma chemicals market size to almost double in the next decade from a global value of US$104 billion in 2020 to US$197.4 billion by the end of 2030. Also, the growing awareness of healthy lifestyles will be driving the nutraceuticals additives markets, while compulsory masks-wearing is expected to continue in the next couple of years, driving demand in the polymers space.
Home and personal care
Lockdowns had a big impact on consumer behaviors in the home and personal care segment, changing attitudes around hygiene, as well as shifting beauty rituals. Nevertheless, global demand for surfactants used in cosmetics and personal care products is expected to see healthy growth, supported by low prices and recovering consumer demand. The APAC surfactants market, with the largest application in detergents, soaps and cleaners, is poised to reach US$7.83 billion by 2027, at CAGR 5.4%, according to Data Bridge Market Research.
The personal care market was greatly stressed in the early parts of 2020 due to reduced social interactions and the closing down of beauty salons. Henkel, a world leader in beauty care, reported improvements since: “We are seeing partial recovery in the professional hair market as hair salons reopen. While retail sales remain challenging, we have expanded our omnichannel strategy by increasing our presence and selling our professional and retail hair products on e-commerce platforms, such as Lazada and Shopee, as well as securing distribution of our Schwarzkopf hair brands in Singapore’s largest grocery retailer, FairPrice,” said Thomas Holenia, president of Henkel Singapore.
“APAC is the world’s biggest market for personal care and the home of many innovative beauty trends such as K-beauty (Korean), J-beauty (Japanese), C-beauty (Chinese), or the Ayurvedic beauty culture in India, each gaining more currency worldwide.”
Laurent Nataf, CEO & President Asia Pacific, Azelis
In the electronics space, the pandemic left a mixed picture. Store closures and the slowdown in the automotive sector are levelled out by a boom in demand for data centers and other commercial infrastructure, as well as the heightened use of home electronics.
CMC Materials, the former Cabot Microelectronics, is a leader in consumable materials supplied primarily to semiconductor manufacturers. Kuo Chun Wu, global business director at CMC Materials, told GBR the semiconductor industry had a very good 2020: “(Growth) has been driven by demand from smartphones as 5G launches globally, as well as recovering automotive and industrial sectors. There are also additional signs of recovery in memory with both DRAM and NAND customers running at high capacity utilization.”
CMC Materials is focused on innovating closely with its customers to make sure its chemicals meet the design of next-gen technologies, including memory chips, CPUs for mobile phones, computers, or servers. Each innovation takes between 1.5 to 2 years to develop to specifications, Wu told GBR.
Owing to China’s dominance in electronics production, APAC holds a value share of 46.8% for electrical and electronics products, with many of the semiconductor manufacturers producing in the region.
An interesting trend that started in 2020 is the global shortage of chips used in the electronics and automotive sectors. Growing electrification in car designs and the popularity of electric vehicles see the automotive market compete with the electronics industry for parts and materials, including chips. The drop in vehicle sales prompted automakers to cut their orders for chips, and when demand rebounded, chip manufacturers had already committed their orders to the IT and electronics sectors. The global shortage for chips (and semiconductors) should benefit chemical suppliers for these high demand products.
The automotive industry was already fretting about the economic slowdown and lower demand in 2019 while handling more stringent environmental pressures and adapting their portfolios for the EV transition. These concerns were shared by chemical players supplying into this industry. Chemical companies that were exposed to the automotive sector were the most impacted in the first half of 2020.
Sean Spencer, VP and MD, Afton Chemical Asia Pacific, an additive technologies supplier for lubricants and fuels, noted encouraging signs of recovery: “The industrial sector was able to recover mainly due to the rebound in Chinese manufacturing, while the commercial transport sector recovered as people changed their buying behaviors to delivery services. Finally, the demand for passenger car utilization is growing at a faster-than-expected rate, people making less use of public transportation and increased domestic travel as international flights became unavailable.”
The EV market is the fastest growing segment in the automotive space, posing new challenges to chemical suppliers. Afton has been working with OEMs to understand the different lubricant needs for hybrid and electric vehicle designs, and it recently introduced the first ETF (electric transmission fluid) additive package for the e-mobility sector.
However, many chemical solutions for the hybrid and EV space are still in the development stages, as the market is young. John Hong, Asia Pacific sales director at Infineum Singapore, believes the EV industry will entail radically different requirements for the chemical company, but while mobilizing its R&D to prepare for this upcoming future, Infineum’s commercial arm braces for positive growth in the traditional lubes and fuels additives industry: “This is certainly not a sunset industry by any means and the outlook for the next five to 10 years is for strong and sustained growth. However, lubricants need to evolve to meet pressures for lower emissions,” said Hong.
The packaging industry fosters growth in both the paper and pulp chemical industry and plastic additives. Innovation in the packaging industry is motivated by higher demand for sustainable packaging as well as greater safety and hygiene requirements. Innovating to support its customers in meeting their sustainability goals, Buckman, a global leader in the pulp and paper industry, introduced to the market a fiber modification enzyme technology through which papermakers can use less fiber. In the plastics space, Borouge is working on innovations around increasing the recyclability of its plastics by simplifying their composition to mono-materials.
Construction and infrastructure
The construction and infrastructure sectors are estimated to account for about 20% of total revenues generated by the global specialty chemical market, according to BCG data. However, with many infrastructure and development projects delayed, growth in this space has been subdued since 2020, though a niche sub-sector emerged during this time: as people spend more time at home, demand for light building materials like sealants or paints used in DIY work and renovations peaked. Attuned to GDP and population growth, the construction sector is expected to run at 7.8% CAGR growth, stimulated by rapid urbanization in developing countries.
Images courtesy of DIC and Lubrizol