The Resurgence of Speciality Chemicals
Specialty Chemicals May Issue
A few years ago I read a McKinsey article about how specialty chemical companies were getting squeezed by an oversupply of capacity. This was causing pressure on their historically generous margins and was resulting in what was called, “commoditization of specialties.” As with most McKinsey articles they did a great job outlining the problems, but the solutions would require you to hire them.
If we fast forward to now certain companies within the specialty markets are capitalizing on our new normal. An interesting development I’ve seen is the rise of engineered wood such as cross laminated timber, glulam, and laminated veneer lumber growing at around 15% CAGR over the past few years and is projected to keep growing at this pace while traditional lumber has soared in prices over the last year.
Specialty wood adhesives are what hold together engineered wood and there has been a battle between isocyanate technology versus formaldeyhde technology playing out over the last few years. I think things have settled down somewhat as polyurethanes become more ubiquitos and demand for isocyanates shifts towards higher value end markets. Either way both of these technologies seem to be on the upswing.
A similar story is playing out in the composites market and automotive adhesives. Increased demand for wind turbines, composites for cars, utilizing of aluminum for car frames, and joining composites to traditional materials has resulted in growth for specialty structural adhesives and composite grade specialty polymers. Add in raw material shortages due to the Texas Freeze and we have a perfect storm of high prices and a fractured supply chain. This is a great opportunity for suppliers that were looking to land new customers in the composites and adhesives markets.
Another similar story is playing out in electronics. Don Clark for the New York Times wrote:
The supply problems are as multifaceted as the nearly $500 billion semiconductor business. Manufacturers turn silicon wafers to chips in complex processes using chemicals, gases and costly machines. Finished chips cross national boundaries dozens of times to partners that package, test and ship them to hardware makers and distributors.
The semiconductors needed for chips are in short supply based on demand, but its more than just semiconductors needed to make chips used in electronics. The specialty chemicals that go into chip fabrication are also in demand and the companies supplying those chemicals have had a great 2021 Q1 such as Sumitomo. If it looks like I’m trying to paint the picture of a trend then you are right.
Essentially, it’s a good time to be a specialty chemicals producer and if you are a chemist looking to get a job the specialty chemicals market is a great place to start. It’s where I started. When specialty chemical makers have businesses that are growing and ideally large profit margins then this is good for the incumbents, but it can make it harder for newer entrants to get started-up.
One area where I think we will see growth for specialty chemical makers would be companies looking to turn “waste” material such as rubber waste, plastic waste, food waste, or emissions into high value materials. This can be done via a number of approaches, some of them might be biomanufacturing while others might be pyrolysis. It’s not that I believe we will run out of oil anytime soon, but rather it will be a point of differentation for suppliers to point out how much of their supply chain is sustainable.
This Guardian article about twenty firms (I’m honestly surprised it’s this many) producing 55% of the world’s plastic waste has been all over my newsfeeds lately. There have been a lot of calls for these companies to pay more for their inadvertant waste that I think will go mostly unheard. I think the opportunity here is around a company looking to utilize waste streams as raw materials with government support to de-risk the enterprise.
I’m a bit skeptical that biobased chemicals and materials are the only answer, especially with limited arable land that will likely be needed to grow food for a growing population. Turning waste into valuable products will define our next fifty years so that instead of drowning in the stuff we don’t want it will be taken away by someone trying to turn our unwanted stuff into the next thing we will buy.
We will have specialty chemical companies and perhaps a “specialty waste companies.” We are already starting to see them with companies attempting to recycle plastics through chemical transformations and recycling clothing back into clothing. Batteries are another good example of how a “waste” material could be mined for it’s material components. I hope to read about more of these companies in the coming years.
Specialty Chemical Plastic Additives goes through this annual cycle and reports that try to predict base on interviews of those among the suppliers who have their own alternative facts and narratives. Overall the predictions are the same when the reality is always different. Basically paint it blue and call it new and repackage the products and call it a new name or add 50 ppm of something and call it a new product new substance; etc. Instead of providing solutions to problems that truly exist the vendors continue to provide solutions to problems that do not exist and add a new dimension of other issues they create that were predictable if they only had the expertise instead of a group of individuals that form a group of syncophants patting each other on the back of how great they have done. The problems today that have had no solutions include long term thermo-oxidative stabilization at 150C for PP and especially PE. OIT at 200 C and 190C that extends beyond the current norms, permanent broad wavelength protection for all plastics, permanent UV protection and inhibition of yellowing of condensation polymers, denucleation agents, post polymerization second order glass transition inhibitors for polyolefins, broad non warping colorants that are inexpensive and act as physical property enhancers, spectral enhancers that synergize with organic UVA currently on the market to can control bathochromic and hyperchromicity and much much more.