COVER STORY
PRODUCT
REPORT
SOAPS & DETERGENTS The surfactant industry squeezed between soaring feedstock costs and customers in turmoil, is getting a new roster of leaders MICHAEL MCCOY, C&EN NORTHEAST NEWS BUREAU
URFACTANT MANUFACTURERS WHO THOUGHT THEIR
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business couldn't get any more difficult in 2000 than it was in 1999 were in for a surprise. The combination of steadilyrisingraw material costs and turmoil at many customers in the laundry deter gent industry made for a tough 2000. The thin silver lining is that the restructuring that is following in the wake of these woes could lead to a new cast of leading surfactants players and a stronger industry in the long run.
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'Ά roller-coaster ride" is how Richard Lundgren, senior vice president for sur factants, oxides, and derivatives at Hunts man Corp., describes the year just ended. Business started slowly, Lundgren says, due to stockpiling at the end of 1999, but it soon ramped up. "Sales, volumes, and rev enue were rolling along well," he says. "Prof its were mixed but almost unacceptable." Then, as oil and then natural gas prices suddenly skyrocketed, profitability "went through the floor," Lundgren says. "The business went from okay bordering on not okay, to a nightmare." So far, Lundgren estimates, Huntsman has been able to pass through to customers C&EN
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COVER STORY only about 30% of the increased cost of CEO, MalcolmJozoff, had announced his ing, Jager tried to coax P&G into bringing raw materials it uses to make surfactants retirement. Company executives have products to market faster. He also pursued such as alkylphenol ethoxylates (APEs), since indicated that Dial is for sale. transforming moves such as the dual acquilinear alkylbenzene (LAB), and alcohol Meanwhile, in June, Church & Dwight sition of Warner-Lambert and American ethoxylates. Factor in energy used to run and USA Detergents, both second-tier Home Products. Dial'sJozoff signed a deal chemical plants, and the pass-through rate detergents marketers, announced they with Henkel, Europe's number two launis even lower, he says. would combine their laundry product busi- dry detergent maker, to bring out a preJames White, global business manager nesses into a new $400 million venture. mium version of Purex that would move for surfactants at Union CarCalled Armus, the venture is the the brand out of the value-price category bide, one of the world's largest third largest player in the $6 bilBut, as Steele says, these efforts "came Mumi/c producers of APEs, estimates lion U.S. retail market for laun- back to bite them." Jager's exhortations Rl-POR'I that, in the best cases, his comdry detergents and fabric sof- didn't go over well in P&G's cautious corpany has recouped one-half of teners, Church & Dwight says, porate culture, and Dial and Henkel failed its cost increases. iCWe ended the after P&G and Unilever. to convince customers to spend more for year in a lot worse shape, relaWilliam Steele, who covers an advanced version of Purex. tive to margins, than we began Indeed, Henkel and Dial announced in cosmetics, household, and perthe year," he says. sonal care companies for Banc of earlyjanuary that the premium detergent, Georg Schôning, board memAmerica Securities in San Fran- Purex Advanced, has been discontinued ber at the German utility RWEcisco, says the basic problem for and that the Purex brand has been SOAPS & DEA responsible for the Conthese household product com- removed from their joint venture; the vendea surfactants business—soon DETERGENTS panies is that they are not able to ture now includes only the Custom Cleaner to be sold to South Africa's grow as fast as they used to grow home dry-cleaning business. In addition, Sasol—describes a similar situation. "We "What we're facing is a global maturation Henkel has purchased Dial's interest in a were able to increase our LAB prices by of the industry," he says. Mexican detergents venture. only 3 cents per lb, although 7 to 9 cents The U.S. market has been mature for a per lb would have been necessary" to while, Steele explains, but until recently HENKELp which had been seeking a launrecoup costs, he says. "The situation was the big soapers were able to make up for dry products toehold in North America, similar for fatty alcohols." slow growth at home with rapid interna- is now focusing only on Mexico. The comLundgren says Huntsman has an- tional expansion. Once they established pany recently agreed to acquire Colgatenounced energy surcharges and price their worldwide infrastructures, however, Palmolive's $76 million-per-year Viva brand increases on "everything that we make," "all these companies start to look to each of laundry detergent in Mexico. Colgate, but notes that profitability difficulties other for incremental growth," Steele says. a minor player in the North American among customers in the detergents sector The result has been increasing competi- detergents market, says it is de-emphasizing detergents in favor of higher-margin makes it extremely tough to ask them to tion and falling profits. pay more for raw materials. In an attempt to fix the situation—to oral and personal care products. In this cutthroat environment, deterbridge the gap between the profits they THESE DIFFICULTIES played themselves expected and those they were making- gent industry suppliers are making use of out over the summer as two of the major household product companies launched whatever leverage they canfind.AccordU.S. detergent makers—Procter & Gam- aggressive growth programs. Before resign- ing to James Coletta, vice president of ble and Dial Corp.—stumbled badly in the eyes ofWall Street. SURFACTANTS At P&G, the troubles started in March LAB is favored over alcohol in developing countries when the companywarned that earnings per share in itsfiscalthird quarter, which ends in Other regions Western Other regions 12% Europe March, would drop 10 to 11%, rather than rise 18% 34% 7 to 9% as previously expected. Three Asia-Pacific months later, the company announced a 22% 36% North warning about itsfiscalfourth quarter, revealAmerica 12% ing at the same time that its chief executive officer, Durk I. Jager, had resigned. Similar problems emerged at Dial, producer of budget-priced Purex laundry North South Western America America detergent. In March, three days after Europe 32% 20% U% P&G's first bombshell, Dial announced that itsfirst-halfearnings would be down 2000 detergent alcohol demand • 2000 LAB demand = 10 to 12%, compared with previous expec1.6 million metric tons 2.5 million metric tons tations of ariseof that amount. Dial issued SOURCE: Colin A. Houston & Associates another warning inJune, and by August its
"We ended the year in a lot worse shape, relative to marginSp than we began the year." 20
C & E N / J A N U A R Y 1 5, 2001
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COVER STORY ity leadership in LAB, expanded its global project, set for completion by mid-2002, reach in late 1999 through the acquisition involves construction of a plant employing of Deten, Latin America's leading LAB Shell's Hydroformylation process and increproducer. Mark Quintyn, Petresa's commental expansion of three existing units. mercial director, says the purchase Sasol, meanwhile, saidinMay that itwould increased the company's capacity to go ahead with its own new 560,000 metric tons per year amongplants detergent alcohol plant in in Spain, Brazil, and Canada. Secunda, South Africa. Expected to be commisAlthough LAB supplies are adequate, sioned in March 2 0 0 2 , both Quintyn and Schôning point to limthe plant will add 120,000 ited availability of feedstock «-paraffin as metric tons of capacity to something of a wild card in the LAB marthe world market. ket. A downed Shell plant in Malaysia restarted last year, providing some relief, Sasol officials say this but no new paraffins capacity is expected project will go ahead as for the next two years, Schôning says. TO SUCCEED, specialty planned despite t h e chemicals makers must acquisition of Condea, offer the innovative ingrePRICES ARE RISING everywhere, but they announced in December. dients that the soapers arerisingon some products more than othIn fact, they expect to need to expand their offerers. Consequently, detergent buyers and reap synergies by being ings. "If you don't have FAST ACTION Detergent suppliers alike are seeking out those prodable to market the new new products and new granule formulation ucts where raw material increases have plant's output through ideas that attract con- disperses quickly on been the least onerous. Condea's existing distrisumers, then the power of addition to water. bution network. Shell's Colquhoun acknowledges that your brands goes away," there has been some "tactical switching" The market for LAB, Coletta says. "I've been to more meetings from ethylene-based surfactants like deterthe other major commodity surfactant raw in the last few months where there is a gent alcohols to paraffin- and oleochemicalmaterial, is somewhat better supplied, but renewed emphasis on having strong brands based surfactants as a result of the recent still in good balance. Max Negrin, project and innovating with them." underlying feedstock trends. "There have director for a new study of the global LAB been such excursions in the past and no market put out by the consulting firm Commodity surfactant suppliers, on the doubt will be in the future," he says. "Long Colin A. Houston & Associates, says other hand, are more limited in the innoterm, we believe the growth prospects for 425,000 metric tons of LAB capacity will vation they can bring. In the big-volume alcohol-based surfactants are robust." be added around the world between 1999 detergent alcohol market, producers are and 2005—enough to keep the market in relying on a dearth of new capacity in Oleochemical surfactant makers in parbalance. After 2005, however, planned new ticular are smiling because prices for palm recent years to thwart attempts by buyers capacity will not be sufficient to satisfy to bargain down prices. and coconut oils have fallen sharply in the global demand growth of 3.6% annually, past year while that of ethylene was rising. Bill Colquhoun, product vice president Negrin says. The change for coconut oil is most drafor higher olefins and derivatives at Shell matic: prices earlier this month were 16.5 Chemicals, the number two detergent alcoAccording to Negrin, 70% of the new cents per lb, versus 41 cents ayear ago. Ethhol maker, notes that in a global market of LAB capacity in the next five years will be ylene, meanwhile, is about 30 cents per lb, close to 2 million metric tons annually, no installed in the Asia-Pacific region. Howup from 20 cents a year and a new alcohol plant has been built in more ever, the two industry leaders half ago, and is poised to rise as than five years. today are Western companies— PRODUCT much as 5 cents per lb in JanuThe only major expansion has come Condea and Spain's Petresa— REPORT ary because of the recent natufrom Condea, which over the past three and they manufacture mostly in ral gas price surge. years has increased capacity across its sysEurope and North America. Rob Frohn, who heads Akzo tem of three fatty alcohol plants by Schôning says Condea is in the Nobel's surface chemistry unit, 120,000 metric tons per year, to a total of midst of expanding LAB capacsays the impact of lower feed500,000 metric tons. Schôning says the ity at its Augusta, Italy, facility stock prices has been dramatic company will bring on an additional from 120,000 to 220,000 metric in Southeast Asia, where Akzo 10,000 to 20,000 tons by the end of 2001, tons per year— a project that will operates a joint-venture fatty "securing Condea's position as the world's make Augusta the largest single S0APS & acids plant. "Two years ago, leading supplier." LAB plant in the world, he notes. DETERGENTS Asian plants were at 6 0 % of But with growth rates for alcohol-based Condea's Baltimore plant is capacity or less," he says. "Today, surfactants expected at 2 to 4% per year in undergoing conversion from they are running full out. That's an amazdeveloped countries and 3 to 7% in develolder monochloroparaffin technology to ing turnaround." oping economies, Colquhoun says there is the newer Pacol process developed by the Fred Hessel, North American Care Sura need for a new world-scale plant every process technology firm UOP. Schôning factants business director at Cognis, the two to four years to sustain growth. says Condea expects to decide later this chemicals unit of Henkel and the world's Shell stepped up in November by year on the "medium term" future of its leading oleochemical producer, agrees that announcing board approval for a previously Porto Torres, Italy, plant, which also uses companies like Cognis are enjoying the curproposed 150,000-metric-ton alcohol the monochloroparaffin route. rent picture. "Right now, it's a fairly good capacity expansion in Geismar, La. The Petresa, which rivals Condea for capacLonza's biocides unit, being able to help customers grow is one sure-fire way to get on their good side and avoid competing on price alone. Although some of the soap manufacturers' grander schemes have failed, they are still very interested in sales, or top-line, growth, Coletta says, because earlier efforts to improve the b o t t o m line by cutting costs out of the supply chain have largely run their course.
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market for the oleochemical producers versus the petrochemical producers," he says, although oleochemical-based surfactants typically contain ethylene oxide or other petrochemicals that arerisingin price. WHOLESALE SWITCHING from one surfactant class to another is unlikely, Hessel contends. Long-term contracts and formulation restrictions keep some consumers from changing their surfactants. Plus, he adds, supply is just as snug for many oleochemical surfactants as it is for synthetic detergent alcohols. Still, Hessel sees growth opportunities for Cognis, although not so much due to the price of its surfactants as their performance benefits. For example, he notes that the new highly compact detergent tablets launched last year in the U.S. by P&G and Unilever run the risk of "nonionic bleed"—a phenomenon in which liquid nonionic surfactants such as alcohol ethoxylates bleed out of a product when formulated at high concentrations. Cognis'APG brand alkylpolyglucoside surfactants, on the other hand, are solid at room temperature and are well suited to tablet manufacture, Hessel says. APGs can also help soapers get around a second tablet problem called gel phase, in which a nonionic surfactant gels up during dilution in the wash—an unwelcome occurrence when quick dissolution is desired. RESPONDING to customer concerns over ethylene-based surfactant prices, Stepan is coming out with a new oleochemicalbased laundry surfactant. Edward Buening, Stepan's vice president for laundry and cleaning products, says the company is applying its expertise in producing sulfonated methyl esters for the bar soap market to feedstocks like palm oil. The process, which Stepan wants to apply to U.S. vegetable oils, yields a long-chain surfactant suited to laundry applications. Buening says the new product will compare favorably to workhorse LAB sulfonates and alcohol ether sulfates. Oleochemicals haven't had the same price runup," he says, "so there's an opportunity to look at an oleobased sulfonated methyl ester for laundry use that has an attractive cost target." Among synthetic surfactants, pricepressured customers are taking a new look at alkylphenol ethoxylates, according to Huntsman's Lundgren, and are coming away with a new appreciation for their costperformance advantages. Lundgren acknowledges that APEs have come under fire for perceived degradation and endocrine disruption problems, but he says HTTP://PUBS.ACS.ORG/CEN
TRENDS
Options increase in dry bleach sector elling sodium perborate and sodium percarbonate as bleaching agents to North American laundry detergent producers is a fairly mature business conducted by two traditional suppliers, but newcomer OCI Chemicals plans to repaint that landscape.
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In August, OCI, a U.S. unit of South Korea's Oriental Chemical Industries, announced plans to build a sodium percarbonate plant in Decatur, Ala. The plant, expected to start up in the fourth quarter of this year with annual capacity of 40,000 metric tons, will be the second of its kind in the U.S. Oriental Chemical Industries is a large company active in Asia in everything from petrochemicals to pharmaceutical intermediates. Its U.S. subsidiary, in contrast, makes only one product—soda ash—at a Green River, Wyo., plant that it acquired in 1996 from Rhône-Poulenc. Kyle Wendel, OCI's director of sales and marketing, says the company is building the Alabama plant in anticipation of a trend toward using sodium percarbonate in detergent powders and dry bleach products. The project also represents a downstream integration from soda ash, one of two percarbonate raw materials along with hydrogen peroxide. Today, sodium perborate monohydrate is the primary nonchlorine bleaching agent used by U.S. laundry detergent makers. This is because percarbonate can be less stable than perborate in laundry formulations, particularly in the presence of oxygen-scavenging compounds such as zeolite builders. Solvay Interox is the only current U.S. producer of sodium perborate and percarbonate, making both persalts in Deer Park, Texas. The European producer Degussa-Huls is also a player in persalts; it acquired DuPont's sodium perborate monohydrate business in 1994. Shawn Blansett, product manager for persalts and consumer products at Solvay Interox, reports that North American demand for persalts increased last year. For perborate, growth was primarily due to increased incorporation into powdered laundry detergents to impart color-care and antimicrobial qualities. Percarbonate demand increased as well, he adds, thanks to its popularity as an all-purpose household cleaner. OCI, however, is betting that it can move percarbonate directly into the laun-
dry market through improvements in stability. Wendel says the company accomplishes this in two ways: through a proprietary dry reaction process which avoids crystallization and through application of a thin stabilizing coating. "Our technology makes a particularly stable sodium percarbonate," he says. Wendel notes that Europe—often a harbinger for U.S. laundry developments—is already trending toward percarbonate as part of a move away from water discharge of boron-containing compounds such as sodium perborate. Indeed, Finland's Kemira Chemicals said it will more than double its sodium percarbonate plant in Helsingborg, Sweden, from 20,000 to 45,000 metric tons per year by the end of 2001. So far, according to Blansett, Solvay has seen no specific environmental pressure in the U.S. related to the elimination of boron. Nonetheless, the company is developing suitable detergent formulations that include percarbonate, he says. On top of environmental considerations, Wendel points out that percarbonate becomes active at lower wash temperatures, which could mean less need for the bleach-activating compoundssuch as tetraacetyl ethylenediamine or sodium nonanoyl oxybenzene sulfonate— that are often used with sodium perborate. He claims that soapers can formulate lower-cost percarbonate-based detergents as a result. Both Wendel and Blansett acknowledge that the North American detergent market continues to shift away from powders to liquids, which for stability reasons can't accommodate a persalt bleach. However, Wendel notes that within the powder segment, more and more products are bleach-containing. Blansett adds that laundry tablets could open a new market for peroxygen bleaches as well. The bleaching agent that manufacturers of these dry products choose in the future will go a long way to determining the success of OCI's new plant. Blansett expects that both perborate and percarbonate will continue to be used in laundry formulations, with the choice depending on washing conditions, formula stability, and performance requirements. Wendel, not surprisingly, has a stronger opinion. "Sodium percarbonate," he predicts, "will play a much bigger role in detergents of the future." C & E N / J A N U A R Y 15, 2001
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COVER STORY industry efforts to explain the science behind APEs to customers are working. "If anything, we are seeing a rejuvenation of the APE business," he says. Union Carbide's White gives a lot of the credit for the health of the APE business to the APE Research Council, an industry association that seeks to understand the human health and environmental profile of APEs and their biodégradation intermediates. "We continue to be bullish on the environmental acceptability of APE surfactants," White says. Union Carbide's surfactants business will become part of Dow Chemical if and when Dow finally reaches an agreement with federal antitrust regulators on the issues that have held up its purchase of Carbide for so long. The larger Dow surfactants organization will then be one of several that are emerging as new leaders in the global surfactants industry UP-AND-COMERS include Sasol,whichis acquiring Condea; Petresa, with its enlarged LAB portfolio; and Huntsman, which has built up a formidable surfactants business in recent years and recently struck a deal to acquire Rhodia's European surfactants business. Businesses still for sale in the surfactants industry include Henkel's Cognis unit and Crompton's industrial surfactants unit. Some industry watchers say Clariant's detergents business, which downsized significantly in Europe last year, may also be a divestment candidate. Joel Houston, president of Colin A. Houston & Associates, says the selling of surfactant assets reflects a dissatisfaction among many players with the result of earlier restructuring efforts. "People are finding that restructuring, especially in Europe, isn't accomplishing corporate targets," he says. "There's overcapacity, profits are down, and companies can't reinvest—so options are limited." Akzo Nobel's Frohn agrees that profits are lower in Europe than in the U.S., especially in the oversupplied ethoxylated surfactants market. As a result, Akzo's strategy has been to hunker down and
streamline in Europe while expanding in sends a clear signal to the market that we're the U.S. and Asia. Frohn says Akzo will very serious about surfactants." Ford also hopes Dow can do its part to decide in the next few months whether to build an Asian finishing plant for the remedy what he sees as a lack of innovacationic surfactants it produces in the U.S. tion in the surfactants business. "I think and Europe. It's also considering a 30% this industry has been stagnant when it expansion of its fatty acid plant in Malaysia comes to new molecules," Ford says. "Most and is looking at incremental expansion of of what's been developed has been line extensions or adaptations of its recendy refurbished plants in existing products. There haven't McCook and Morris, 111. PROIHCT been too many quantum leaps Lundgren says Huntsman KI-,PÇ>RT in technology" remains bullish on surfactants, despite the current profitability AS A MODEST EXAMPLE of woes. Unlike Rhodia and other innovation from within DoVs exiting specialty chemical comexisting portfolio, Ford points panies, Huntsman is well posito a unique Hampshire product tioned in overall raw material launched in 1999 that combines integration, he says. Plus, as aprisurface activity and chelating vate company, "our owners are SOAPS & more patient when it comes to DETERGENTS action in one biodegradable molecule. The product, Hampshire earnings," he says. "They don't need to report monthly and quarterly gains." LED3A, is formed by reacting fat-soluble The Rhodia purchase takes Huntsman lauroyl chloride with the chelating agent further into specialty surfactants, Lund- ethylene diamine triacetic acid, "Today our gren notes, as have internal moves bring- researchers are working on some products ing the company closer to customers in with much greater reach than where we niche industries such as agrochemicals, currently play," he says. mining, and pulp and paper. Eyeing the Ford sees the current industry consolicurrent unhappy corporate climate, he sees dation, although painful, as ultimately an opportunity for Huntsman to get even working to the benefit of innovation in deeper into surfactants. "We have never surfactants. "It's healthy for the marketbeen so busy studying acquisitions as we place," he says. "It will force us to become were in 2000," he says. more innovative and creative as we work with customers." Consultant Houston is more measured DOW CHEMICAL, another highly integrated company, is looking forward to a in his view of the consolidation, saying the larger role in the industry as well, accord- surfactants industry will reap its full bening to David Ford, DoVs global business efit only if buyers operate their new assets more prudently, closing unneeded plants director for surfactants. DoVs traditional presence in surfactants where necessary And, although industry has been through the niche Dowfax line of integration from basic feedstocks to end alkyldiphenyl oxide disulfonate surfactants. products is improving, he notes that imbalThen, in 1998, Dow acquired Hampshire ances remain; Huntsman, for example, is Chemical, which added sarcosinate and acyl still highly dependent on purchased detergent alcohol, and Condea is still deficient glutamate surfactants to its lineup. Ford's job was created in June 2000 in in ethylene oxide needed for ethoxylation. Houston's conclusion is that the suranticipation of bringing Union Carbide's APEs and specialty surfactants into the fold. factants industry has more work to do to iC We felt we would have enough critical mass reach its full potential. "The restructuring and breadth that it warranted a dedicated story is not finished," he says. "There is business," he says. "Forming the business another chapter to be written." •
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