The Forces Shaping Specialty Chemicals
Or what I consider to be the future of specialty chemicals
Hey there, welcome back to this issue of the newsletter focused on specialty chemicals. If you don’t know what specialty chemicals actually are you go here for my explanation. If that’s too difficult or lengthy, think of the chemical industry a the restaurant industry and commodity chemicals are like potatoes, eggs, onions, and specialty chemicals are the spices, pickled jalapenos, key limes, black garlic, and stuff you have to hunt for in specialty stores. The chemists and product engineers are like the chefs and cooks working in the kitchen (labs) to make stuff we just expect to be served up to us. We only notice when things get disrupted.
The two big forces I see shaping the specialty chemicals markets are sustainability and an evolving regulatory environment.
This issue of the newsletter is sponsored by:
Sustainability
Sustainability has been a hot topic for years and it’s especially fashionable to talk up efforts when oil prices are high. When it comes to sustainability in chemicals there are typically a few routes to go:
Biobased or biomass derived chemicals
Alternative energy powering operations or materials going into renewable energy
Using recycled or waste content in your products
Developing non-animal routes to chemicals and/or materials (heparin, leather, etc)
Chemicals or materials that cause less harm or toxicity
Combinations of the above
I’ve written about this stuff here already when it comes to Eastman, biosurfactants, recycling clothing, plastic waste, and more. Even when I was talking to a former chemical executive about what forces will shape the chemical industry the two things that came up were sustainability and digitization. I’ve focused here on sustainability quite a bit and I shouldn’t be your only source of information and I think Craig Bettenhausen is probably on the right trail for C&EN based on some limited exchanges we’ve had on LinkedIn.
Sustainability sounds great and it’s a powerful storytelling tool, but we need to remember that chemical and materials companies exist in a capitalist structure. Investments into sustainability and doing “good” for the world must also reflect positively for the company’s bottom line eventually. Any specialty chemical should be yielding a minimum of 15% when it comes to earnings before income tax, depreciation, and amortization (EBITDA). The higher the margin via the EBITDA percentage the better. If your product is sustainable then that’s even better, but if you are just sustainable at a lower margin? I suspect that product never makes it to market (unless it’s part of some larger strategy).
In any business profit and returning money to shareholders comes first because without profit you don’t have a company. Making that profit sustainable is important because it’s a way that the chemical industry can regain some soft power. If the chemical industry can become the enablers of a green and sustainable future while enabling the public to “eat their cake” and not feel guilty then this is definitely better than being viewed as the polluters. A recent editorial in Chemical Processing really dives into chemical companies becoming the enablers of a sustainable future.
I suspect that all of the efforts to curb emissions, make material economies more circular, and to utilize non-fossil based feedstocks will ultimately mean more profits. Doing well by doing good. I just need to figure out who will be leading in these spaces in the next 10 years and get my Charles Schwabb account ready.
Regulatory
If the chemical industry can regain a significant amount of soft power in the coming years in theory they might even enable lighter regulatory burdens or even help shape future regulations to be in favor of our sustainability enablers.
The Environmental Protection Agency and the state of California are the two big forces when it comes to regulatory changes. California has an interesting role because of how big of an economy that California represents. Companies that do business in all 50 states often have to be compliant with all federal, state, and local regulations and California is often viewed as being the most stringent. As states start to enact more legislation around how chemicals are used, disclosed, and manufactured this can create a more complex operating environment, but in theory one that is safer. I think we just need to figure out a balance between bringing new chemical products and materials to market that have evidence of being safer or lower impact on the natural world.
One thing that has been around for awhile now is moving surfactants away from alkyl phenol ethoxylates (APEOs). This class of nonionic surfactant has been shown to have toxicity to aquatic life. The EPA now enacts what is known as a significant new use restriction or SNUR on APEOs and you can read about how these impact new uses of the APEOs, but what I’ve seen in the past few years has been most companies moving away from APEOs completely. If you are a coatings formulator you may notice that many latex emulsions are now marketed as APEO free.
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The move away from APEOs has created a significant opportunity for other surfactant technologies and if we combine sustainability with surfactants we get biosurfactants. I’ve got no idea if biosurfactants can supplant APEO applications, but I do know that in talking to Craig (he is working on a story for biosurfactants) that at a recent personal care trade show it was a hot topic of discussion. Craig, I’m eagerly awaiting your cover story (you should interview Oliver Thum at Evonik).
Another example from California’s air board involved oriented strand board (OSB) and formaldehyde emissions. For decades, phenol-formaldehyde resins were the resin of choice for making OSB, but once California started limiting how much formaldehyde could come off a board it opened up an opportunity for polymethylene diphenyl diisocyanate (pMDI) producers like Huntsman and Covestro.
My point here is that state and federal level regulations can significantly influence chemical and material decisions in the supply chains responsible for delivering products that we used to build houses and protect infrastructure. These regulatory changes can create significant opportunities for both start-ups and established chemical companies.
The big thing I think we need to have some more clarity around is how to bring new chemicals to market faster if they have shown evidence to be better for the environment, reduced toxicity to nature, or have a benefit around slowing or reversing climate change. I’ve had some people write to me expressing frustration around developing completely new chemicals and materials that enable customers to move away from chemicals and materials of concern, but end up getting blocked by the EPA over what appears to be just confusion.
If anyone from the EPA wants to chat let me know. Email me here or DMs are open on Twitter too @Tpolymerist
If you are in the specialty chemicals space I keep my eye on sustainability and regulatory changes as key forcing functions in what you need to keep up with in the space. I’ll keep my eyes on things, but if you are a chemist or professional in the space and want to talk about what you are seeing let me know.