Increasing Exports from Gujarat – 4 GLOBAL MARKET FOR ... · Global Market for Specialty...

Increasing Exports from Gujarat – 4

Suhayl AbidiEditor, Foreign Trade Update

GOG-AMA Centre of International Trade

Handbook - 45/2017

GoG-AMA Centre for International Trade

GLOBAL MARKET FOR SPECIALTY CHEMICALS

Increasing Exports from Gujarat - 4GLOBAL MARKET FOR SPECIALTY CHEMICALS

Compiled bySuhayl Abidi

For any queries, please contact: [email protected]

First Published: March 2017

Published byGoG-AMA Centre for International TradeAhmedabad Management AssociationTorrent-AMA Management CentreCore-AMA Management HouseATIRA Campus, Dr. Vikram Sarabhai Marg, Ahmedabad 380 015Phone: +91-79-2630 8601 • Fax: +91-79-2630 5692Email: [email protected] • Website: www.amaindia.org

Contents

Introduction 1

Global Specialty Chemicals Market 3

Indian Specialty Chemicals Industry 23

Gujarat Specialty Chemicals Industry 32

Future Strategies for Gujarat Specialty Chemicals Exports 40

Robust Infrastructure for Gujarat Specialty Chemicals Exports 46

Specialty Chemicals Technologies and Innovation Trends 52

Global Market forSpecialty Chemicals Introduction 1

Introduction

Specialty chemicals are produced by a complex, interlinked industry. In the strictestsense, specialty chemicals are chemical products that are sold on the basis of theirperformance or function, rather than their composition. They can be single-chemicalentities or formulations whose composition sharply influences the performanceand processing of the customer’s product. Products and services in the specialtychemicals industry require intensive knowledge and ongoing innovation. Therefore,they face strict market entry barriers and command higher prices.

Commodity chemicals, on the other hand, are sold strictly on the basis of theirchemical composition. They are single-chemical entities. The commodity chemicalproduct of one supplier is generally readily interchangeable with that of any other.

Industrialization and urbanization have driven significant changes to trades andeconomies. The rising population and their increased dependency on textiles, foodadditives, consumer goods, and infrastructures are ensuring a flourishing growthfor specialty chemicals. The wide range of chemicals used in the production ofadhesives, agrochemicals, lubricants, cosmetic products, flavours and food additives,fragrances, textiles, and construction materials are earning significant revenues forthe industry.

Examples of specialty materials include materials or additives that extend shelf lifeor preserve product quality, lightweight materials that reduce fuel consumption orother energy costs, antimicrobial materials that reduce the risk of infections, andballistic resistant materials. Other examples include performance enhancing oreco-friendly additives that provide differentiated colours or effects, such as consumerapplications that glow in the dark, change colour in light, provide colourharmonization, or unique performance or process enhancing characteristics(antistatic, antioxidant, anti-sticking, flame retardant, resistant to UV light, etc.).Some specialty materials can be engineered to provide enhanced structural orfunctional performance (e.g., noise reduction) or deliver enhanced design or visualaesthetics. Specialty materials can also be applied to traditional materials such assteel, wood, vinyl, polyester, aluminium, and others to enhance the properties ofthese materials, providing improved weatherability, weight characteristics, durability,colour retention, stain or scratch resistance, flame retardancy, chemical resistance,or gloss control. Due to their superior attributes, specialty materials are increasinglybeing used across a wide range of end markets.

The largest specialty chemical segments in 2015 were construction chemicals,specialty polymers, electronic chemicals, and surfactants. These accounted for 37%

Global Market forSpecialty Chemicals

of the industry’s global sales. About half of the world consumption of specialtychemicals goes into only four end-use industries—soap, cleaning, and cosmetics;food and beverages; construction; and electrical and electronics. Other importantend-use industries for specialty chemicals include motor vehicles, oil and gas mining,and paper and pulp. The adhesives, paints, and coatings products generate thehighest percentage of revenue compared to other types of products.

The specialty chemicals business continues to transition. Historically, North American,Western European, and Japanese firms have dominated this business. They still do,but no longer to the same degree. With trade liberalization, the spread of processtechnology, the breakdown of numerous economic barriers, the rapid growth ofthe newly industrialized Asian economies, and rising standards of living in manydeveloping countries, the centre of gravity of the global chemical industry is shiftingtoward the Middle East, where cheap petrochemical feedstocks are available, andAsia, where labour costs remain relatively low and economic growth is high. Chineseand Indian manufacturers have become key players in several specialty chemicalmarkets. However, the concept of China as a low-cost producer is gone since thecountry is shifting away from an export focus to meet growing domestic needs forhigher-value, downstream products. As competition increases and mature productsbecome commoditized, innovation remains one of the few sources of competitiveadvantage.

The Fine and Speciality Chemicals industry in India represents a US$30 billionmarket, which is growing at 10-12% annually – faster than the chemical sector asa whole. The industry not only serves the local market, but also the global one andis globally competitive in many sectors, including China.

According to P&S Market Research global specialty chemicals market is expectedto grow at 5% CAGR during 2016-2022.

The factors driving the growth of the global market include large base of end-useindustries, high demand from Asia-Pacific, increasing demand from automotiveindustry, and technological advancements in the global specialty chemicals market.The growth of the global specialty chemicals market is largely driven by high demandfor specialty chemicals agriculture and construction industries. The growingconstruction activities in Asia-Pacific and development of environment friendlyproducts offer ample revenue generation opportunities to the manufacturers ofspecialty chemicals.

Among the various types of specialty chemicals, the agrochemicals segment heldthe largest share (15.9%) with the market size of US$131.4 billion in 2015 in theglobal specialty chemicals market. The construction chemicals segment is anticipatedto witness the highest growth at a CAGR of 6.8% during the forecast period. The

Introduction 2


construction chemicals segment in the global specialty chemicals market was valuedat US$79.3 billion in 2015, and it is anticipated to reach US$125.6 billion by 2022.The high growth in the construction chemicals segment is attributed to the increasingconstruction activities in Asia-Pacific, and increasing focus on buildings renovationin developed economies and government initiatives for green buildings.

In 2015, Asia-Pacific held the largest share (39.7%) in the global specialty chemicalsmarket with a market size of US$340.4 billion. The specialty chemicals market inthe region is anticipated to witness the highest growth at a CAGR of 7.2% duringthe forecast period. The major reasons behind the growth of the specialty chemicalsmarket in the region include increasing infrastructure investment, and high demandin major end markets, such as construction, automotive, agriculture, packaging,textiles, and personal care. In addition, the high demand for specialty chemicals inChina and India are creating ample growth opportunities for the Asia-Pacific specialtychemicals market. The specialty chemicals market in India and China are expectedto grow at a CAGR of 14.6% and 7.3% respectively during the forecast period.

The global specialty chemicals market is extremely fragmented with the presenceof many international, regional, and local vendors. Though the market is dominatedby the global players, several regional and local vendors control the market byproviding profitable and high-specialty chemicals for niche applications. Thecompetitive scenario in the market will become more intense in the coming yearswith the increase in technological innovations and product development.International players are likely to grow inorganically by acquiring regional or localplayers during the forecast period.

This sector provides technocrats a wide range of business choices in small andMedium Enterprises (SMEs). The aim of this handbook is to provide an overview ofthe entire specialty chemicals sector to enable SMEs in Gujarat state to set andexpand industries in various sub-sectors of specialty chemicals sector with a viewto, not only service Indian costumers but also move aggressively in the vast globalmarket arena.

Global Specialty Chemicals Market

The scope of the entire specialty chemicals market is expansive and encompassesseveral end-user industries in it. According to analysts at Allied Market Research,the industry is set to reach an impressive US$233.5 billion by 2020. The competitivelandscape of the entire industry is vibrant, as many key players are collaborating



with different industries to pool their resources and market their products. This is atestimony to the immense potential of the entire industry to scale new heightswith the advent of time.

Rapid population expansion has elevated food security concerns in underdevelopedand developing countries due to improper storage infrastructure and food grainsdistribution. This as a result, leads to increasing high yield-enhancing agrochemicalsdemand owing to propel specialty chemicals market share over the forecasttimeframe. According to the World Bank, farmers may have to upscale their yieldby 50% per hectare by 2050 owing to boost agrochemicals, such as fungicides,demand by 2024.

The automotive industry is one of the most lucrative industries for the specialtychemicals market share. These are used as polymers and plastic additives, paintsand coatings and adhesives and sealants in the automotive. China, Japan, India,South Korea and the U.S. lead the global automotive sector by accounting over55% of production global cars and commercial vehicles production in 2015.Increasing middle-class population and increasing automotive appeal haveprompted car manufacturers such as Audi AG, Mercedes Benz and BMW AG inAmerica and Europe to enter Asia with small cars that are especially designed tomeet requirements in Asian automotive industry. Furthermore, global personal andcommercial vehicles production in 2015 was roughly around 90 million. Thisconsequently will drive specialty chemicals market size owing to its widespreadapplication across automobiles. In addition, lubricants use in the automobiles tomaintain engine smoothness will further complement industry growth.

Surge in Demand for Eco-friendly Specialty Chemicals

Majority of specialty chemicals are synthetic which may have adverse effects onthe environment, thus affecting flora and fauna. Therefore, environmental protectionagencies have imposed various environmental regulations on the synthetic chemicalsusage due to their toxic nature, which may hinder specialty chemicals market sizeover the forecast timeframe. For instance, the European Union has banned atrazineand acetochlor herbicides. Also, in June 2015, France and Denmark bannedglyphosate for usage in lawns and gardens.

A large number of environmental concerns and conscious efforts by industrialistsand governments to reduce carbon footprint has propelled the demand for eco-friendly products.

Regulatory bodies and governments of various nations are raising concerns overthe extensive use of industrial chemicals. The limelight has shifted from effectivechemical usage to eco-friendly chemicals that do not pollute the environment and



have less carbon footprint. Apart from creating finished products that follow thegreen protocol, these chemicals also have less toxic effluents after the manufacturingprocess. Regulatory bodies are putting in collaborative efforts with governmentsand approving grants and subsidies for manufacturers who use green chemicals intheir processes.

There are many manufacturers who are teaming up with chemical companies andadopting a sustainable approach to their production process by cutting down ontoxic chemicals. One such example is India’s Vikas Eco Tech Ltd. (VEL) who hasrecently signed a tie-up deal with Prince Pipes and Fittings Ltd. The collaboration ismeant at supplying the entire range of specialty chemicals offered by VEL. Thefocus of the deal is on organotin heat stabilizers as a replacement for the plasticsynthesizer.

Cost Benefit Proposition of Specialty Materials Continues to Improve

The superior performance, structural, and processing attributes of specialty materials(which include composites, elastomers, high performance plastics, specialtychemicals and coatings, and exotic metals and alloys) have long been recognizedby manufacturers across industries. The substitution of specialty materials fortraditional materials has been limited to date by the relatively high cost of thesematerials. However, over the past several years the cost benefit proposition ofusing specialty materials has improved on both sides of the equation. As the costbenefit proposition for specialty materials continues to become more favourable,we expect further substitution of these materials for traditional materials.

In terms of benefits, specialty materials manufacturers continue to achieveincremental improvements in weight reduction, durability, fire retardancy, colourretention, noise reduction, antimicrobial properties, and heat and electric insulation.Specialty materials manufacturers have also made advancements in their ability tocustomize materials to meet the exacting specifications of specific end uses. Thecost side of the equation has seen significant improvements as well. Plummetingoil prices over the past year have significantly reduced input costs for many specialtymaterials. Manufacturers of these materials are also achieving per unit costreductions due to increased volumes and improved efficiencies in their productionprocesses. In addition, these materials can often reduce the all in cost of endproducts due to reduced manufacturing and operating costs through “light-weighting,” reductions in waste, parts consolidation, faster manufacturing cycletimes, and/or extended shelf lives.



High Growth and Strong Margins Attract Broad Based Interest

Specialty materials companies typically can offer faster growth, greater productdifferentiation, superior pricing power, higher margins, and lower earnings volatility.As a result, the specialty materials sector is drawing increasing attention frominvestors and both strategic and financial acquirers. In particular, strategic acquirersare seeking to increase their existing exposure to specialty materials or fill holes intheir product portfolios. The mega trends of increased light-weighting, especiallyfor auto makers to achieve fuel efficiency standards, and demand for higherperformance materials also create compelling investment opportunities for financialsponsors. In addition to these mega trends, the specialty materials industry exhibitsseveral other characteristics that make the sector particularly attractive to financialbuyers. Specialty materials companies tend to have highly defensible businessesbecause of their unique materials, technologies, and/or processing capabilities.Relative to other industrial companies, specialty materials businesses tend to exhibithigher margins and stronger cash flows. This strong margin profile is especiallytrue for specialty materials suppliers to the aerospace and medical end markets. Asa result, specialty materials companies generated intense interest from both strategicand financial acquirers in 2015.

Cosmetic Ingredients Manufacturers Collaborate for Market Strengthening

The cosmetic industries account for a considerable amount of chemical outsourcing.They require performance chemicals that can adhere to strict healthcare protocolsand used in beautification products for hair and skin. The cosmetics market isbooming and the use of organic chemicals that do not cause harm to the appearanceof a person are gaining swift popularity. It is not uncommon to see manufacturersteaming up with chemical providers to strengthen their business relations andoutsource chemicals for use in products.

For instance, the Japanese chemical giant, Nikkol Group recently joined with Amyristo expand its customer base in the personal care ingredients segment. The jointventure between the two allows Nikkol to buy 50% of the Amyris business forUS$20 million. The companies expect to strengthen each other’s marketingstrategies, innovative technologies, and development synergies through the deal.

“Nikkol is an ideal partner for this joint venture and is the leading channel partnerfor our squalane business. This agreement aligns with our strategy of focusing ourbusiness on partnering with the world’s leading companies to accelerate our productsales growth while lowering our operating costs,” said John Melo, president andCEO, Amyris. The collaboration is aimed at giving the companies an edge overother competitors and help establish a market leadership position.



Extremely Lucrative Market in the Asia-Pacific Region

The specialty chemicals industry has established its presence in various economiesand regions. While the North American and European market are saturated withindustries that rely on performance chemicals, the Asia-Pacific region is expectedto exhibit a significant growth in the immediate future. This is mostly due to therising investments by governments in the setting up of various production units.Developing economies, such as India and China has governments who are activelycreating a conducive environment for manufacturing units in their nations. Evensuppliers of chemicals are cashing in on the encouraging initiatives and doublingtheir production volumes to cater to a wide range of applications.

The construction materials, water treatment, paint and coating additives, textiles,oil and gas refineries, and pharmaceuticals are the largest importers of chemicalsfor diversified purposes. With such an upsurge in the demand for formulationchemicals, the global companies engaged in specialty chemical production areeying the region for market expansion. By setting up new production units andfacilities in India and China, the companies are striving to expand their customerbase and earn greater revenues. The Asia-Pacific region is witnessing an industrialoverhaul, and the specialty chemicals market has much to gain from it.

Acquisitions: Part of Smart Market Moves

The competitive landscape for specialty chemical market players is appearing veryvibrant in the current scenario. With no dearth of verticals to cater to, themanufacturers and developers of chemicals have expanded the scope of theiroperations to meet the needs of various end-user industries. Apart from extensiveR&D projects taken to develop industry-specific requirements, the players are lookingfor better opportunities to reinforce their market leadership across various regions.Spending significant amount of resources on research, expanding their customer-base, and including innovative, eco-friendly products in their offerings are some ofthe major dynamics of this industry. Acquisitions and collaborations betweenchemical producers are smart moves that players indulge in to stay top-notch intheir game.

For example, German-based Evonik has recently decided to buy JM HuberCorporation’s silica unit for US$630 million for widening its specialty chemicalsbusiness. The deal is expected to widen the customer base of Evonik from just tiremanufacturing to toothpaste, animal feed and paints. This move will give the Germancompany more access to Asia-Pacific region. By buying the Huber unit, Evonikplans to improve its cost efficiency and add to sales benefits. This is expected toeventually enhance its core earning per year and establish its stability in the market.



“Huber’s business is especially oriented towards applications in the consumer goodsindustry, the dental sector for example. To date, Evonik’s silica business has beenfocused rather on industrial applications, for example in the tire and coatingsindustries,” Evonik said in a statement.

With several advancements in the chemical industry, the present and future ofspecialty chemicals are projecting promising growth and opportunity in the nearfuture.

Declining coated paper trend in North America and Europe may obstruct paperand textiles specialty chemicals growth in the next few years. Media digitalizationis impacting the industry growth for paper chemicals. Traditional marketing productssuch as catalogues and pamphlets are experiencing sluggish demand due todigitalization of promotional activities across the Internet through websites suchas Facebook, YouTube and Twitter. However, increasing construction spending inBRIC nations is positively influencing construction specialty chemicals market sizeand has created new business growth opportunities.

Product Trends

Construction specialty chemicals market size was valued at over 70 billion in 2015.These are used in buildings and other construction structures to increase theirshelf life. They also provide protection from environmental hazards. These chemicalsimpart several properties that help meet the aesthetic, functional and designrequirements of civil structures. These include a wide products range such as asphaltadditives, concrete admixtures, adhesives, sealants and protective coatings.

Electronic specialty chemicals market share shall witness gains exceeding 4.5%.These are utilized in electronic components in applications such as semiconductorsand integrated circuits. Furthermore, increasing smartphones demand will positivelyinfluenced the industry growth by 2024.

Food additives specialty chemicals market size is analyzed to witness inclininggrowth. They are used to enhance the foods nutrient content, keep the productfresh and make the food more appealing. Furthermore, it also provides consistentand smooth texture along with maintaining the wholesomeness of food. Increasingliving standards accompanied with rising consumer’s disposable income woulddrive growth for food additives in the next few years.

Regional Analysis

North America, led by the U.S specialty chemicals market size generated revenuemore than US$200 billion in 2015. The regional growth is primarily driven by



increasing lubricants and oilfield chemicals demand owing to increasing oilexploration in the U.S.

US Specialty Chemicals Market Size by Production – 2013-2024 (US$ billion)

45

40

35

30

25

20

15

10

5

02013 2014 2015 2024

AgrochemicalsElectronic ChemicalsLubricants & Oifeld ChemicalsFood Additives

Polymers & Plastic AdditivesCleaning ChemicalsSpecialty CoatingsAdhesives & Sealants

Construction ChemicalsSurfactantsPaper & Textile ChemicalsOthers

Emerging Markets

Growth in Asia Pacific constitutes a megatrend in itself. This region dominatesglobal markets, and with a billion new consumers buying an increasing amountand variety of products, this trend will only continue in the years ahead. Along withthe traditional BRIC markets — Brazil, Russia, India and China — new markets areemerging in Pakistan, Morocco, Indonesia, Saudi Arabia, Vietnam and the UnitedArab Emirates. These countries have a relatively young population, an expandingurban middle class and sophisticated habits, all of which support steady sales.Products in one market can quickly take off in another.

Asia Pacific was the dominant industry share contributor in 2015 and is forecast towitness highest growth more the 6.5% CAGR over the forecast timeframe. Highconstruction spending in China, India and Japan has driven construction chemicalsmarket share in the region. Furthermore, increasing automotive sector in the regionon account of high per capita disposable income along with improved lifestyle ofconsumer is the main factor propelling business growth.

Competitive Market Share

Global specialty chemicals market share is highly fragmented owing to numerousindustry players contributing to the global share. The top five producers operatingin the global specialty chemicals market include BASF SE, The Dow ChemicalCompany, Bayer AG, DuPont, and INEOS Group AG. Other industry share contributors



are Ashland Inc., Clariant AG, Huntsman Corporation, Arkema S.A., Evonik IndustriesAG, Chevron Philips Chemical Company, Syngenta AG, Albemarle Corporation,Chemtura Corporation, Eastman Chemical Company, Solvay, and Akzo Nobel N.V.

Product distribution channels comprises of wholesalers, sales offices, regionalresellers and online portals. However, most manufacturing companies operatingin the specialty chemicals market supply their products to clients through theirown distribution channels. For instance, Evonik Industries AG has distributionagreements with Univar Inc. and Glenn Corporation for selling cosmetic chemicals.Akzo Nobel N.V. has an agreement with Essential Ingredients Inc. for distribution ofcosmetic chemicals. Furthermore, Chevron Philips Chemical Company has partneredwith Quadra Chemicals to distribute its mining chemicals in Canada.

Industry Background

Global specialty chemicals market size is chiefly driven by increasing end userindustries including automotive and construction mainly due to upgrading enduser lifestyle in Asia Pacific and Latin America. However, increasing bio-basedchemicals demand owing to environmental hazards caused by synthetic chemicalsmay hamper industry growth over the forecast timeframe. Presence of stringentenvironmental regulations, especially in developed regions, is boosting the end-user industry’s shift toward preference for bio-based chemicals.

Dyes and Pigments

The market for these products is very big and demand is going at a fast pace. Thereis commoditisation of the products and the high competitive intensity. India is in abright spot According to industry reports, the global market size of dyes and pigmentsstands at about US$27.8 billion and is expected to grow at 4% over 2014-19, drivenby high growth in end user industries and rise in demand for high performancepigments. At the same time, Indian market size of around US$4.9 billion is expectedto grow at 11.4%. Higher growth in Indian market can be attributed to shift inproduction from China to India due to increasing environmental concerns in Chinaand higher growth in textile industry in domestic market.

Paper Treatment Chemicals

The pulp and paper chemicals are used by paper manufacturers to facilitateprocessing of pulp and enhance the quality of the final paper product. Pulp andpaper chemicals are primarily used for optimizing the paper production processesand increasing the productivity as well as improving the properties of the paperthat is produced. Pulp and paper chemicals are used in order to make cellulosefibres more functional and more complex. Chemicals used in the paper production



are classified as pulp chemicals, process chemicals and functional chemicals. Thereare different paper treatment chemicals market on the basis of applications basedon different paper grades like printing and writing, coated paper, tissue and towelling,packaging and board, newsprint and others. The increasing demand for paper andthe consequent rise in paper production have stimulated the pulp and paperchemicals market.

The global specialty pulp and paper chemicals market, which was valued at US$18.67billion in 2013, is expected to reach US$25.41 billion by 2020, expanding at a 4.5%CAGR between 2014 and 2020 and is set to exceed US$31 billion by 2024; as pera new research report by Global Market Insights, Inc.

The growing demand for tissues, graphic papers, and diazo papers is expected bethe reason behind the market’s growth. Further, rise in the demand of one-sidedspecialty (coated) papers will be the principal driver for the growth in global specialtypulp and paper chemicals market size in the next few years. The demand for one-sided specialty (coated) papers was accounted for over 4,000 kilo tons in 2015and will show significant growth.

Rising demand for labels and specialty flexible packaging materials, will play animportant role in industry evolution. With increasing electronic commerce industry,and ease of home delivery mechanisms, the flexible packaging industry will find agrowing demand in the upcoming years. They also find a huge application inenvelopes, gift wraps, posters, release liners, laminations, and thermal transfers.

Improvements in process efficiency with increasing use of specialty pulp and paperchemicals will also drive the market growth in coming years. Better cleaning ofwall fibres and increasing the surface quality of papers is a major influencing factorfor the market. The specialty chemicals help in reducing the biological oxygendemand of the waste water, hence improving its quality, and reducing theenvironmental damages caused by the heavy amount of waste water released bythe industry.

Textile Chemicals

According to Technavio’s market research analysis, the global textile chemicalsmarket will grow steadily, from US$21.02 billion in 2015, posting a CAGR of around4% during the forecast period. There has been a rising demand for eco-friendlyfabrics and apparel in the global textiles market. This has propelled several textilechemicals vendors to develop chemicals and technologies that enhance thesustainability of textile production. Bio-auxiliaries are eco-friendly, recyclablematerials that have the potential to bring in novel solutions for textile wet processing.The use of eco-friendly products helps in adding value to the manufacturers by



distinguishing their brand from opponents by eco-labelling. Moreover, the applicationof nanotechnology in textile manufacturing has led to the introduction of fabricswith excellent chemical resistance, mechanical strength, water repellence,antibacterial properties, and other properties. The emergence of new textiles withsmart functions will positively contribute to the demand for textile chemicals in thecoming years.

APAC is the largest revenue-generating region in the global textile chemicals marketand accounted for around 55% of the overall market revenue during 2015. Muchof the region’s growth can be attributed to the presence of established textilemanufacturers and growth in the production of cotton and synthetic fibres. Chinaand India are the largest consumers of textile chemicals due to the growing appareland textile production. The rise in domestic demand and increasing exports willdrive the textile chemicals market in APAC during the forecast period. Also, theavailability of cheap labour and low production costs in the APAC region has attractedmany European manufacturers to establish their production facilities in the region.

The home furnishing segment will dominate the textile chemicals market duringthe forecast period and is likely to occupy more than 40% of the total marketshare. The constant growth of the real estate and housing sectors in the developingcountries has augmented the demand for home furnishing applications. The highdemand for home furnishing fabrics and alternative materials in both developedand developing countries is expected to drive the demand for textile chemicalsduring the forecast period.

The coating and sizing chemicals will dominate the product segment of the marketand is anticipated to occupy more than 41% of the overall market share by 2020.Coating chemicals enhance the physical and mechanical performance characteristicsof a fabric while the sizing chemicals increase the strength and abrasion resistanceof the yarn. The growing requirements for elasticity, flexibility, durability and variousresistance properties in fabrics will augment the growth of this segment in thecoming years.

Agrochemicals

Agrochemicals occupied maximum share in the specialty chemicals market andwill continue its dominance over the forecast period. Factors like the rise in globalpopulation, declining arable land, and subsequent necessity to improve crop yieldare the major factors driving the agrochemicals market globally. Moreover, the useof agricultural products for industrial applications such as polymer production andfuel blending will also increase the demand for agricultural commodities, creatingnew opportunities for the application of agrochemicals, and driving the overallmarket’s growth.



The global agrochemicals market is projected to surpass US$260 billion by the endof 2021, growing with a CAGR of 3.3% from 2016 to 2021. Agrochemicals arespecialty chemical products used particularly in agriculture, horticulture andfloriculture. It includes broad range of pesticides, synthetic fertilizers, hormonesand other chemical growth agents. Growth in demand for food grains owing toincreasing global population coupled with reducing per capita farm land due tosurging urbanization and industrialization is one of most dominant driver of globalagrochemicals market. The increasing research and development (R&D) in the fieldsof bio-pesticides in order to compete with organic farming and integrated pestmanagement (IPM) is one of the most recent trends in global agrochemicals market.

Polymers and Plastic Additives

Plastic Additives Market by Type such as Plasticizers, Stabilizers, Flame Retardants,Impact Modifiers etc., the market size of plastic additives is projected to reachUS$50.86 billion by 2021, registering a CAGR of 4.9% between 2016 and 2021.The growth of the plastic additives market is triggered by the rising demand fromthe packaging industry. Plastic additives are widely used for industrial and householdpurposes. Change in lifestyle and globalization have triggered the growth of thepackaging industry which drives the plastic additives market.

Construction Chemicals

Construction chemicals are chemical compounds added in formulation of variousspecialty chemicals or in construction materials made of cement, mortar, andconcrete at construction sites to improve workability, performance, compatibilitywith construction structure and protect construction materials and finishedstructures.

Construction chemicals comprise a wide variety of materials such as cementations;admixtures like waterproofing admixtures, plasticizers, accelerating agents, retardingagents and others; adhesives and sealants like acrylic adhesives, polyurethanes,polyvinyl acetates, epoxy and others; and flame retardants like ATH, antimony oxides,brominated, and chlorinated. The use of these chemicals depends and varies onthe type of and scale of construction projects.

The global construction chemicals industry is witnessing a significant growth becauseof increasing awareness about construction quality and technological advancements,and growing number of new projects for housing, commercial spaces, and publicinfrastructure in the Asia-Pacific region and other developing countries such asBrazil, Colombia, UAE, and Saudi Arabia. Changing lifestyles, growing urbanizationtrend, and demand for enhanced aesthetics of residential and infrastructures arealso supporting the growth of the market, attributing to the design flexibility provided



by construction chemicals (such as concrete admixtures, flame retardants, andadhesives and sealants) to modify and enhance the physical as well as chemicalproperties of a structure. These properties include compressive strength, durability,surface finish, and resistance to adverse climatic and working conditions as perdesign specifications and requirements.

The global construction chemicals market (2015–2020) is estimated to reachUS$33.98 billion by 2020 growing at a rate of 7.62% between 2015 and 2020. Dueto a large domestic market size, there is a large potential to scale up manufacturingfor the global markets.

The drivers identified for the construction chemicals market are growinginfrastructure requirements in developing economies, improving economics ofconstruction, and increasing urbanization of population. Developing countries thatare major markets of construction chemicals include China, India, Brazil, Egypt,Saudi Arabia, and UAE, whereas developed countries that are major market includethe U.S., Germany, Japan, and Italy.

Asia-Pacific is the largest market, both in terms of volume and value. The keycompanies in this market are BASF SE (Germany), W.R. Grace (U.S.), RPMInternational Inc.(U.S.), Sika A.G. (Switzerland), Fosroc International (U.K.), The DowChemical Company (U.S.), Arkema S.A. (France), Ashland Inc. (U.S.), Mapei S.p.A(Italy), and Pidilite Industries (India).

Electronic Chemicals

Electronics. Specialty polymer compounds can be used to deliver higher functionality(electrostatic dissipation, EMI and RFI shielding, thermal conductivity, flameretardancy, or abrasion/wear resistance) that, in many cases, cannot be met bygeneral, commodity type materials.

Technavio’s market research analysts have predicted the global electronic chemicalsand materials market to grow steadily at a CAGR of more than 5% during theforecast period. Significant technological advancements in electronic devices acrossall segments are expected to spur the growth prospects of this market in the comingyears. Development of advanced materials helps in miniaturizing electronic devices,thereby contributing to the growth of ICT and electronics sectors. For instance, inIndia, the Electronic Materials Development Program lays emphases on sponsoringR&D programs in the field of material science and technology in some of the mostprestigious universities in the country. The objectives of these programs are todevelop technologies that will result in the expansion of components that are usedin the electronics industry. Additionally, electronic chemicals and materials are utilizedin the process of electromagnetic shielding, sensor materials, and green materials



electronics device packaging. The widespread applications of electronic chemicalsand materials and the advancements in material science technology will drive thegrowth of this market during the predicted period.

During 2015, the IC manufacturing segment dominated the market and accountedfor nearly 53% of the market share. The market for electronic chemicals and materialsused in IC manufacturing is concentrated in Asia, and these chemicals are used inthe manufacture of semiconductors. Their use is largely dependent on factors suchas device architecture, cleaning-process chemistry, etching-process chemistry, thefrequency of use, and the use of wet-etching machines.

During 2015, APAC dominated the market and is expected to account for morethan 67% of the market share by the end of the forecast period. Factors like themass production of electronic devices in China will aid in the growth of this marketin APAC in the coming years.

Cleaning Chemicals

The industrial chemical cleaning agents are Chelating Agents, Solvents, Surfactants,pH regulators etc. for various Applications such as Manufacturing, Healthcare, Retail,Hotels, and by Product General Cleaners, Metal Cleaners, Dishwashers – The marketsize of Industrial and Institutional (I&I) cleaning chemicals was US$39.24 billion in2014, and is projected to reach US$50.24 billion by 2020, at a CAGR of 4.2%between 2015 and 2020. Rising awareness on health and hygiene, safety liabilityon the part of the company or an institution and growing demand from theapplication industries are the major drivers for the market.

As of 2015, surfactants was the most widely used ingredient in Industrial cleaningmarket, and projected to experience high growth rate. Surfactants act as detergents,wetting agents, foaming agents, emulsifiers, and dispersants. Hence, with newresearch studies being carried out about the commercial use of surfactant properties,their application areas are expanding. Surfactants were mainly known for their usein detergent and soap industries. Broadened application in variety of industrycleaning segments has increased the overall demand for surfactants.

Growing demand from the Manufacturing and Commercial Offices application:

Manufacturing and commercial offices are the largest consumers for I&I cleaningchemicals and these chemicals are mainly used for machinery cleaning and generalcleaning in this application. Healthcare is the fastest growing application between2015 and 2020. The application is expected to grow due to heavy spending inhealthcare activities in developed economies in North America and Europe.Moreover, rising awareness and growth in healthcare investment are the majorfactors boosting the Industrial and Institutional cleaning chemicals market.



The market for Industrial cleaning market is broadly segmented into six regions,namely, Asia-Pacific, North America, Western Europe, Eastern and Central Europe,South America and Middle East and Africa. Asia-Pacific is the largest markets in theIndustrial cleaning, in terms of value. Asia-Pacific market is estimated to grow onaccount of rising awareness on cleanliness and hygiene, and growing demandfrom the application industries. Western Europe and North America, which aremature markets for Industrial cleaning market are expected to grow at a moderaterate on account of rising demand from the healthcare sector.

Currently, the global Industrial and Institutional cleaning chemicals market isdominated by various market players such as Sealed Air (U.S.), Evonik IndustriesAG (Germany), BASF SE (Germany), Stepan Company (U.S.), Solvay SA (Belgium),Air Products and Chemicals Inc. (U.S.), Croda International Plc (U.K.), Ecolab (U.S.),Pilot Chemical Corp. (U.S.), Spartan Chemical Company Inc., (U.S.), and The DowChemical Company (U.S.).

Personal Care

Chemical companies are working hard to satisfy the growing demand for ingredientsthat go into personal care products for the skin, hair, oral care, and other applications.As a large, rapidly expanding and increasingly diverse market, product ingredientsrepresent special challenges for chemical companies. Today’s consumers want more,they want quality and they want it now. But opportunities are evident as well,driven by a growing middle class in the East, an aging population in the West, andnew markets such as men’s grooming, halal beauty and bio-based skin care.

Clearly, personal care is an expanding, highly regionalized and increasingly diversemarket. Product categories include toothpaste, fragrances, mouthwashes, hair careand dyeing products, cosmetics and products for nail care, bathing and shaving.The chemical ingredients for these products include surfactants, emulsifiers,polymers, emollients, cosmetic active ingredients, pigments, UV filters and thickeners,and protein compounds.

The global market for personal care products is expected to increase between 3.5and 4.5% over the next five years, with a total market value of US$500 billion by2020. The market for product ingredients will likely grow even faster over most ofthe same forecast period. Valued at US$7.46 billion in 2014, the ingredients marketis expected to reach US$11.76 billion by 2023, representing a CAGR of 5.2%.

An increasingly important market segment in the Middle East and Asia is halalbeauty — cosmetics, skin and hair care products created for Islamic women. Halalcertification requires a strict adherence to the purity regulations according to Islam.These cover every part of the production process, including which raw materials



can be used, how they are handled, how the product is manufactured and evenhow it is packaged. For example, in the manufacturing process that produces glycerolfor soap, gas-based synthetic ethanol is allowed but not alcohol made fromfermentation. Halal certifiers are not universally recognized, so brands mustunderstand each target market. For example, Germany has five independent certifierswhile Indonesia, Turkey and Iran have state-based systems.

Organic and Natural Ingredients

According to recent reports, the global organic personal care market is growing atan annual rate of almost 10%, with expectations of a market valued at US$15.98billion by 2020.26 Organic personal care products are made from plant-basedingredients such as almond, palm, jojoba, safflower and coconut oils; soy and oatderivatives; and cocoa and shea butters. In addition, products termed ‘organic’generally do not contain synthetic chemicals such as phthalates, parabens,aluminium salts, and petrochemicals. But what exactly does ‘organic’ mean?Certification is a complicated issue. In the US, for example, regulations distinguishbetween 100% Organic, Organic and Made from Organic Materials. In Europe,regulations can be even more detailed. There is also the question of whether naturalingredients automatically qualify as sustainable. BASF scores all of its products forsustainability and considers the entire product chain, including sourcing, wateruse, biodegradability and other areas, all of which need to be considered indetermining whether a product can be called sustainable. Nevertheless, certificationis helping to drive product sales as consumers become more familiar withcertification labels that quickly identify organic products and assure buyers of quality.

Specialty and Oilfield Chemicals

Specialty oilfield chemicals are chemicals which help to enhance the efficiency ofoil recovery. These speciality chemicals have its effect only when they are presentin the oilfield process but after removal their properties declines hence, has to beadded periodically or continuously as per the requirement across the oil production.

Specialty oilfield chemicals aids in achieving greater oilfield efficiency and itsproductivity. It has the capability to cost-effectively maximize recovery of Oil andGas reserves and aids in minimizing impact on the environment. These chemicalsare also a critical product facilitating well drilling, completion and interventionservices.

The global specialty oilfield chemicals market has been segmented on the basis ofproduct type, end-user applications and geography. The Specialty Oilfield Chemicalsmarket is classified into types such as corrosion and scale inhibitors, biocides,demulsifiers, pour-point depressants, surfactants, polymers. Specialty oilfield



chemicals market is attaining enormous growth owing to the rising demand ofoilfield applications such as drilling, production, fracturing, completion, stimulation,packer fluids and others. Others include cementing, transportation, remediation,blending.

In 2015, Specialty Oilfield chemicals market generated annual revenue of $xx m.This market is estimated to grow with CAGR of xx% throughout the forecast periodto generate annual revenue of $xx m by 2021. One of the major factors driving thismarket includes rising crude oil production. Although O&G industry is facing aslump leading to shut down of several oil rigs, the total production of oil has notbeen affected. Hence, increasing oil production is one of the major drivers for thismarket.

Adhesives and Sealants

Adhesives are substances that bind two items together and resists their separation.They include materials like glue, cement, mucilage, paste, and others. Sealants aremechanical seals that block the passage of fluids through the surface, joints oropenings, and are considered waterproof substances. Adhesives and sealants varyin functions by the kind of bonding involved, specifically their physical and chemicalmechanisms. Polyurethane- and silicone-based adhesives and sealants are the mostpreferred ones owing to their high performance. One of the recent developmentsin this market space is the growing demand for bio-adhesives as the manufacturersand end-users are focusing towards the use of eco-friendly products in construction,pharmaceutical packaging, and automotive applications. Bio-based adhesives andsealants offer trivial VOC emissions and superior biocompatibility, as they are madefrom soy or cellulose.

According to Technavio’s market research analysts, the global market for adhesivesand sealants will grow steadily at a CAGR of over 5% by 2020. A major factorspurring the growth prospects for this market is the high growth of reactivetechnology-based products. During the forecast period, dispersion and emulsionadhesives and sealants are anticipated to hold significant shares in the global marketas water-based reactive formulations are being encouraged over solvent-basedformulations to support and meet regulations imposed by various governmentagencies. As a result, the market for reactive adhesives and sealants is projected toexhibit the highest growth rate owing to the rising demand for construction, leather,automotive, and manufacturing applications.

In terms of geography, APAC was the largest market for adhesives and sealantsduring 2015 due to the high demand for adhesives and sealants from the growingconstruction industry and the automotive industry in many developing countries.In this region, it is estimated that the building and construction sector will experience



the highest demand for adhesives and sealants and will be closely followed by theautomotive sector. Furthermore, the market in this region will also experience hugegains because of the increased production from new players that are investing indeveloping new products and application areas for adhesives and sealants.

The global market for adhesives and sealants is less capital intensive in nature andis highly fragmented and competitive due to the presence of numerous multinationaland regional players. In this market, the industrial customers include automotiveassembly, packaging, transportation, labels, personal care, and electronics end-users. These markets account for more than two-third of the global demand. Theconstruction sector includes builders and contractors. Products for this marketinclude solutions for roofing, flooring, wall preparations, and solutions for othercomponents like windows and doors.

Leading vendors in this market are -3M, Arkema, Dow, H.B. Fuller, Henkel

Other prominent vendors in this market are Avery Dennison, ITW, FranklinInternational, Mapei, Royal Adhesives and Sealants, RPM International, and WackerChemie.

Application-based segmentation is Building and construction, Paper and packaging,Transportation, Leather and footwear and Furniture

During 2015, the building and construction segment dominated this market and isanticipated to retain its dominant market position until the end of 2020. Much ofthis growth can be attributed to the growth of the construction industry in emergingcountries such as India and China. Since the growth of this market segment isheavily dependent on the growth of the construction industry, factors such asincreased urbanization and growth in middle-class population are likely to boostthe growth of the market in the coming years.

According to this market analysis, the water-based technology segment will be thelargest market segment during the forecast period. Factors such as the extensiveuse of environment-friendly products and products that do not emit a lot of volatileorganic compounds (VOCs) are envisaged to have a positive impact on this market’sgrowth.

Food Additives

Food Additives Market size may reach US$55.8 billion by 2022; according to a newresearch report by Global Market Insights, Inc.

Positive indicators for packaged and frozen foods consumption owing to hecticlifestyle particularly in the U.S, Germany, France and UK, should promote global



food additives market size. These ingredients are used with the primary intentionto impart flavour, nutritional and colour characteristics. Primarily used packagedfoods include ready-to-eat meals, frozen meals, cake mixes, and snacks.

Europe food additives market size may observe 4.8% growth with Germany andFrance being the major contributors. Growing popularity of alcohol-free beer, savourysnacks and sugar free confectionaries should provide an impetus to Germany foodand beverage industry growth and also provide a scope for local manufacturers toincrease production capacity.

Flavours and fragrances was the largest revenue generating segment in 2014 andaccounted for over 30% of the total share. Majorly used flavours and enhancersinclude monosodium glutamate (MSG), calcium inosinate, glutamic acid and naturalextracts such as herbs and neem. Natural flavours market may witness above averageindustry gains at over 5% CAGR.

Enzymes based food additives market may witness over 5.5% growth up to 2022.Carboxylase, protease, lipase, polymerase and xylanase are major enzyme typesmajorly incorporated in formulation of baked products to improve organolepticproperties and crust appearance. Moreover, price advantage over its counterpartsis projected to favour product demand.

High fructose corn syrup (HFCS) market size was close to US$500 million in 2014.Rising preference over conventional sugar due to its comparatively less pricingshould favor HFCS demand. In addition, increasing availability of farmland meantfor corn production coupled with agriculture industry growth in China and Indiashould promote HFCS market size.

Phospholipids, glycerol, yeast, lactic acid, sorbitol soybeans and oil seed derivedchemicals are major raw materials used in manufacturing process. Raw materialsupply deficit should put pressure on supplier margins and affect food additivesmarket price trend.

Regulatory inclination towards promoting the consumption and production ofnaturally derived products have enhanced the importance of bio based chemicalsnamely sorbitol, oleo chemicals and lactic acid. Their availability is restricted withtight raw supply situation from soy and oilseed industry.

Strategic alliances and collaborations with raw material suppliers is an attractiveapproach to maintain feedstock supply. Mandatory food safety registrations mayresult in high manufacturing cost and act as entry barriers for small scale producers.



Aerospace and Automotive

With few exceptions, the global automotive industry has made a solid recoveryfrom the downturn in 2008. Led by China, Japan, the US and new growth markets,world production levels have increased, sales are growing and prospects are positivefor the industry as a whole. Specialty chemicals help support the automotive industrythrough a range of products designed to reduce vehicle weight for better mileage,enhance performance, increase energy efficiency and improve manufacturing quality.Especially exciting is the increased use of silicon-based microchips for displays,safety-critical functions and entertainment systems in tomorrow’s ‘connected cars’.

Composite materials help OEMs reduce weight and lower fuel consumption byreplacing heavier metals. Compared with steel and aluminium, fiber reinforcedcomposites can be 30% to 50% lighter.

The global automotive chemicals market is influenced mainly by passenger carproduction and the increasing utilization of plastics in vehicle designs. Plastics nowaccount for around 15% of materials in a mid size car17 and plastic-based productsand materials are found in car exteriors, bumpers, interiors, electronics, seats,runners, lights, dashboards and windshields. Automotive plastics consumptionworldwide is expected to grow from 7.1 million tons in 2012 to 11.3 million tonsby 2018 at an expected growth rate of 8% annually.18 The Asia Pacific region leadsconsumption with 50.5% of the market, followed by Europe (28%) North America(11.3%) and the rest of the world (10.1%).19 Along with plastics and plasticcomposites, automotive chemicals are used in fuel additives, films, coolants,insulation for noise abatement, airbags, batteries, tires and many other products.Chemicals are also a key ingredient in engine oils and transmission fluids, helpingtoday’s high-performance engines perform over a broad temperature range whilemaximizing performance and minimizing formulation costs. Chemicals are evenbeing used to enhance the automotive manufacturing process. For example, originalequipment manufacturers (OEMs) are converting many steel structural componentsthat are stamped and welded to lighter weight aluminium components that aredye cast.

Lubricants tailor-made for automotive dye casting help ensure high levels of qualityand structural integrity that are crucial for safety and performance. Major suppliersand producers of automotive chemicals include:

• Akzo Nobel (Netherlands) and PPG Industries (US), manufacturing automotivecoatings to preserve the appearance and durability of vehicles.

• Bayer Material Science (Germany), supplying raw materials for high performanceplastic polycarbonate, polyurethane foams, coatings and films.



• Dow Chemical Company (US), providing structural foams, brake fluids, adhesives,resins and glass bonding systems.

• Evonik Industries (Germany), supplying specialty chemicals for polymers,composites, oils, fluids, coatings and other solutions used in automotivemanufacturing.

• Momentive Performance Materials (US), providing adhesives, sealants, coatingsand resins. Recent chemical industry developments reflect the growingimportance of emerging economies and the necessity for automotive chemicalproducers to follow their customers.

Several countries in the Asia Pacific region are also focusing on investments inspecialty chemicals. For instance, Singapore has gained traction in automotive-related chemicals with a nearly US$2 billion investment in lubricants and syntheticrubber. Asia Pacific is also emerging as a key market for automotive lubricants. Thelonger operating life of vehicles, increased production of vehicles and a greaterawareness among customers have increased the demand for automotive coolantsamong consumers and by 2019, the Asia-Pacific region is expected to representmore than 40% of the global automotive coolants market.

Global Automotive Plastics Consumption by Type – 2012 (7.1 million tons total)

Source: Global automotive plastics market to grow at a CAGR of 13.4% to 2018, Plastemart.com

Polypropylene (PP)

Polyurethanes

Acrylonitrile butadiene styrene (ABS)

Composites

High density polyethylene (HDPE)

Polycarbonates (PC)

Polymethyl methacrylate (PMMA)

37%

12.3%

11.5%

10.8%

6.8%

4.4%

17.3%

What Do Manufacturers Demand from Specialty Chemical Suppliers

As manufacturers produce more products, introduce new products, and fine-tuneexisting ones to meet changing customer demands, they need suppliers that cankeep pace with these industry developments. Suppliers should be able to provide:A greater number of ingredients This includes the ability to provide a larger numberof basic ingredients and specialty chemicals as well as the ability to quickly expandand diversify their portfolio with new ingredients. Compliance and claimssubstantiation Chemical suppliers need to provide accurate documentation andsupporting evidence about the source of ingredients, their efficacy, and proof thatthey are not harmful to humans or the environment. First-tier suppliers shouldapply these same requirements to their own second-tier and third tier suppliers. In



addition, global suppliers should be well-versed in how regulations vary acrossregions and countries.

Faster delivery: Suppliers need to ensure that ingredients are delivered tomanufacturers to support accelerated manufacturing times and shorter productlifecycles. In many cases, this involves faster delivery for a greater number ofingredients.

Increased ability to anticipate demand: Suppliers need to work closely withmanufacturers to better understand their pipeline of new products, collaboratewhere possible on research and development and track consumer markets todevelop a line of sight on future demand. In addition, suppliers can help supportmarket analysis and other essential services. Working together, chemical suppliersand product manufacturers can take full advantage of this vital and growing market.

Indian Specialty Chemicals Industry

The US$25 billion Indian specialty chemicals industry has delivered 13% growthover the past five years, led by domestic consumption, according to industry reports.Experts are betting on specialty chemicals as one of the next mega-trends, and theindustry is expected to reach US$70 billion by 2020. The industry has grown at a30% CAGR over FY13-15 to US$2.67 billion. Going forward, lower commodity priceswill provide the much needed support to margins, and rising demand will facilitatevolume growth.

Domestic demand of specialty chemicals is expected to follow an accelerated growthpath. This demand is mostly driven by the strong growth outlook for end useindustries. This along with increased adoption of specialty chemicals and newerapplications can propel the growth further.

Indian specialty chemical manufacturers have strong presence in export marketalso. APIs and colorants (including dyes and pigments) are the key productsexported. India exports specialty chemicals to nearby Asia-Pacific countries whichdon’t have competitive scale of production. India also exports to developed countriesof Europe and USA where it leverages its low cost of production and quality talentpool. Ability of companies to comply with global regulations and India’smanufacturing competitiveness has helped the export market to grow significantly.

The key specialty segments in India are agrochemicals, paints coating andconstruction chemicals, colorants, fine chemicals, personal care chemicals and aroma



chemicals. The critical success factors for most of the specialty chemical segmentsinclude understanding of customer needs and product/ application developmentto meet the same at a favourable price-performance ratio.

The Government’s ‘Make in India’ program has enhanced the competitiveness ofthe Chemicals sector in the country, by delicensing manufacturing for mostchemicals, and permitting 100% FDI. The upcoming Petroleum, Chemicals andPetrochemicals Investment Region (PCPIR) as well as the Plastic Park will furtherprovide state-of-the-art infrastructure.

The Government has been encouraging R&D in India. It has also reduced the list ofreserved chemical items for production in the small scale sector, thereby facilitatinginvestments in technology upgradation and modernization.

Global firms are gradually facing the heat of compliance, cost and capacity issuesin other markets, and are thus looking to outsource their manufacturing processesto India.

The structural shift towards Indian specialty chemical players is supported by thecountry being more compliant to environmental norms, with stronger IPR protectionand a rich pool of knowledge workers. This opens a window of opportunities forIndian firms over the next 5-10 years, impelling them towards capacity-building,which will help them grow further.

Specialty and knowledge chemicals are characterized by a high degree of research,intensity of intellectual capital, and deployment of skilled manpower.

Government support in the form of a robust patent framework, the presence ofappropriate regulations to protect intellectual capital, tax benefits and subsidies topromote investments in R&D, as well as green technologies, is crucial for growth.

Specialty chemical companies operate on high margins and high ROCE. Whilerevenues of these companies have not increased over the last 1-2 years, mainlydue to sharp decline in crude oil prices, absolute EBITDA of specialty chemicalcompanies have increased at a steady pace. Further, the margins for specialtychemical companies are higher over the long term compared to commodity chemicalcompanies, where margins highly fluctuate from negative margins to as high as40%.

China Factor

It is definitely a fact that China is the largest chemical market, controlling almost25% of global sales. However, China is strong in commodity chemicals, where theyplay the volume game by making big investments, having big plants and thus,



enjoying economies of scale. On the other hand, Specialty chemicals is a nichesegment and the requirement is for low volume and high value products, which isnot a preference for Chinese markets. Further, specialty chemicals are not muchabout economies of scale (like in case of commodity chemicals), but abouteconomies of scope as the same product (specialty chemical) can have variousapplications in different sectors. This is an advantage for India. In addition as far asavailability of raw materials are concerned, India is not as handicapped as comparedto commodity chemicals. This is because, major costs for the specialty chemicalscompanies are not feedstock or raw material, but product development andmarketing activities.

One of the most positive factors of all, is that companies all over the world areconsidering India to be a major chemical supplier in order to reduce theirdependency on China. Further, many global companies are also preferring Indiadue to their lack of trust on China mainly because of their failure to honour thedelivery of products in the past.

Hence now, Indian companies will be able to benefit from both, the robust growthin domestic specialty chemicals demand and increase in global market share. Inthe last decade, China provided many incentives to encourage more manufacturingunits. For example: manufacturers only have to invest in plants and governmentwill create common utilities for all the players. Further, low interest cost and cheapland cost led to start-up of many manufacturing units resulting in over-capacity.With recent environmental concerns and huge over-capacity situation, China is notproviding similar sort of incentives to start new facilities. Further, lot of chemicalunits are not getting approval for starting units, which used to be easily availableearlier.

Earlier in China, many companies taking loans from banks never considered thatto be borrowings and never estimated capital cost in total cost of goods sold.However, with change in regulations in their banking system and recognition ofNPAs, even these companies are being asked for payments, which has led to increasein their cost burden.

Opportunity Due to Chinese Shutdowns

Changes taking place in Chinese chemicals industry is presenting opportunities forIndian companies to increase exports. China´s emerging middle classes are healthconscious and forcing the government to fight pollution; as a consequence,regulation of the chemical industry in China has tightened in the recent past. China’sgovernment has made it mandatory for chemical plants to operate from chemicalparks. Since only ~45% of that country’s chemical industry is currently based out



of such parks, it implies major plant shutdowns or relocations over the next coupleof years.

Inference for the Indian industry: With the implementation of strict environmentpolicies in 2015, the Chinese chemical industry has already seen over 1,000 plantshutdowns and ~15% yoy decline in chemical exports in CY15. Such a scenario islikely to continue for a couple more years as a major part of the Chinese industryis likely shift to the green belt. Since Chinese export of specialty chemicals is ~10times larger than the Indian industry, a visible slowdown in China could multiplythe size of the Indian specialty industry over the next couple of years.

Two important themes from China’s new five year plan emerge – (1) innovation,and (2) implementation of environmental protection. Under innovation, the focusis on moving up in the value chain by reducing heavy industry (implying pressureto cut overcapacity in basic chemicals) and developing R&D capability in selectedspecialty chemicals. While the Chinese government has come down harshly thepolluting chemicals industry, it is keen to provide adequate facilities for complexchemistry R&D. Within this, its focus is towards segments that can achieve globalscale, but not on segments that require more customisation.

Although the Chinese government is keen to supplement innovation towardscomplex chemistry, its core focus remains on scalable segments. Conversely, theIndian industry has been focused on customised products.

European chemical companies in China also fear being affected by increasedregulation concerning (1) penalties imposed on pollutants, (2) excessive datarequirements for new intermediates, and (3) clarity about hazardous chemicalsand their handling. Salaries as well as operating costs in China are rising relative toneighbouring countries.

Inference for the Indian industry: China’s excessive restrictions on its chemicalsindustry has already made MNCs start thinking about India as an alternate source,resulting in rapid flow of foreign direct Investment (FDI) into India. We believe thiscould lead to consolidation and improve the operating efficiency of the fragmentedIndian industry.

Focus areas for China include – organosilicon, organic fluorine compounds (notrefrigerants), engineering plastics, thermoplastic elastomers, composite materials,polyurethane, synthetic rubber (isoprene rubber), high performance carbon fibre,membranes for water treatment, coal chemicals including downstream derivatives,water treatment chemicals and solutions, and electronic chemicals.



Inference for the Indian industry: In its focus areas (see paragraph above) Chinawould offer tough competition to Indian peers, as the Chinese government is likelyto facilitate business for these areas. On the other hand, the above mentionedsegments are the future area of growth as China –the global manufacturing hub ofchemical – believes so.

However, India’s industry is favourably placed in the following segments –agrochemicals, coatings (particularly solvent based), colours and dyes, intermediates,leather chemicals, refrigerants, rubber additives, and textile chemicals.

Some important sub-sectors where Indian domestic market is very large aredescribed below. Entrepreneurs should scale up production in this sectors to takeadvantage of internationally cost competitive production.

Agrochemicals

Agriculture accounts for about one fifth of India’s GDP and the agrochemicalsindustry is of significant importance for the Indian economy. The Indianagrochemicals market grew at around ~8% over the last five years to reach ~US$3.8billion in FY12 is projected to double to US$6.3 billion by 2020. With 125 technicalgrade manufacturers and 800 formulators, India is the fourth largest producer ofagrochemicals in the world after USA, Japan and China. Indian agrochemical exportshave shown an impressive growth in the past few years and it accounts for almost50% of the agrochemical industry revenues. Manufacturing cost competitivenessvis-à-vis developed economies is expected to drive exports growth at around 15%annually in the next decade. With several products going off-patent globally, Indianfirms can leverage opportunities for generics, contract manufacturing and research.

Government’s focus on achieving food grain self-sufficiency coupled with limitedfarmland availability and increase in usage penetration is expected to provide afurther impetus to the industry. With estimated 355 MMTPA (million metric tonneper annum) food grain requirement by 2030 from current 253 MMTPA, efficientusage of crop protection products and solutions for Indian agriculture are the needof the hour. This segment has huge unrealised potential, given the present verylow consumption levels as compared to the global averages. Industry friendlyregulatory regime and a focus to exports can make India the global manufacturinghub of quality agrochemicals at competitive rates.

Indian Active Pharmaceuticals Ingredients (API) Market

Active pharmaceutical ingredients are the active substances that are used in themanufacture of a drug and have a pharmacological effect. They provide healthbenefits and play a vital role in disease diagnosis, prevention, and treatment. Active



pharmaceutical ingredients may be synthesized either chemically or throughbiotechnological methods. They are used in a wide range of therapeutic areas suchas oncology, respiratory disorders, and rheumatoid arthritis. API market in India togrow at a CAGR of 10.76% over the period 2014-2019.

The Indian pharmaceutical industry size stood at nearly US$30 billion in 2012, 35%of which was accounted for by fine chemicals. The fine chemicals market is poisedfor rapid growth in the next decade driven by increased focus on contractmanufacturing (CRAMS) by global players to reduce costs and increasing exportsto innovators (as opposed to generics).The Pharmaceutical market is expected toexceed US$62 billion by 2018 and fine chemicals would account for US$22 billionby 2018. This sector is heavily dependent on imports from China. The issue ofoverdependence on imports at intermediate stage needs to be addressed fast.

Dyes and Pigments

The Indian colorants industry stood at nearly US$3.9 billion in 2012, and expectedto grow between 9% and 12% to US$8 to US$10 billion by 2020. The steep growthis expected to be driven by boom in infrastructure market and consumer productsin India and increasing scope for manufacturing for exports.

Other Sectors of Specialty Chemicals

Other specialty chemicals primarily consist of paints and coatings chemicals,construction chemicals, polymer additives, water treatment chemicals and aromachemicals. Paints and coatings is the largest segment, with a market size of ~US$4.7billion in 2012 and has recorded a growth of 45% in last five years. Other keysegments include water treatment chemicals valued at ~US$740 million is expectedto grow by 9%, textile chemicals will grow to US$1.45 billion by 2018.

Construction chemicals account for a 2%–5% increase in the total constructionexpenses; however, they enhance the strength of buildings by enhancing the overalllife of the structure and thus the maintenance costs. According to the recent FICCIreport, the Indian construction chemicals market is yet at a developing stage becausecustomers are not yet aware of the variety available or they are conscious of thecosts incurred.

Despite this, the construction chemical industry has demonstrated a significantmarket growth with intense competition among construction chemical companiesin the past 5 years with novel chemicals having properties that protect and enhancethe quality of a structure. Over the following 5 years, the predicted growth rate forthe Indian construction chemical industry is 15% p.a. chemicals valued US$800million in 2012.



Food Chemicals Market

Food additives are edible substances, which are directly or indirectly added to foodfor improving its taste, appearance, nutritional value, texture and safety. More than3,000 types of food additives are used to enhance texture, flavour, freshness, shelflife and visual appeal of food items. Some of the commonly used food additivesinclude flavours and essences, colouring agents, preservatives, emulsifiers andsweeteners.

Growth in India food additives market is dependent on the demand from the foodand beverage sector. Strong growth in beverage market is anticipated to drive salesof food additives such as sweeteners and preservatives valued at ~US$300 millionin 2012 over the next five years and polymer additives valued at ~ US$360 millionin 2012.

All these segments are expected to grow at rates above the chemical industryaverage, based on growth in their respective end use industries, evolving applicationsand changing regulatory environment. Going ahead innovation and sustainabilityinitiatives are expected to be major factors for competitiveness. Development ofprocesses/ products which eliminate or reduce the use of hazardous substancescould become the key priority of producers. Consumers would be expected to paypremium for green chemistry and environmental preservation initiatives andappreciate this globally. Moreover stringent regulatory norms could further pushthe need to innovate cost effective industrial green chemicals.

Currently the domestic specialty chemical producers also face challenges relatedto feedstock availability, higher operational costs, outdated technology/ process,limited investment in R&D and a negative perception amongst end consumers.Apart from depending on regulatory interventions, Indian players should cometogether and proactively work towards collaborative investment to avert globalcompetition.

Additionally, a separate section containing recent Thought Notes published by TATAStrategic Management Group has been included. This section provides key insightson contemporary trends and issues related to Indian businesses, especially pertinentto the chemical industry and small and medium scale industries (SMEs).

The National Chemical Policy is presently under formulation. It can trigger the growthof Speciality Chemicals industry in India, by addressing the genuine concerns ofthe sector.

The same include provision of quality infrastructure, availability of funds/qualitymanpower at globally competitive rates as also assured supply of requisite feedstock.



The PCPIR Policy can help, provided it gets implemented in the right spirit, withAnchor investors being real anchors supporting the downstream chemical industry.For a sustainable growth of the industry, it is very important to address the publicperception issue, by highlighting the enabler role of the industry.

Case Study – Vikas Eco Tech Limited

Vikas was incorporated in 1984. It is into manufacturing and distribution of specialtypolymer compounds and additives since 1998. It manufactures high end productsused in agriculture/infrastructure components, wires and cables, auto parts, textiles,electrical goods, medical goods, writing instruments, organic and inorganicchemicals, footwear, and packaging, among others.

There are many manufacturers who are teaming up with chemical companies andadopting a sustainable approach to their production process by cutting down ontoxic chemicals. One such example is Vikas Eco Tech Ltd (VEL) who has recentlysigned a tie-up deal with Prince Pipes and Fittings Ltd. The collaboration is meantat supplying the entire range of specialty chemicals offered by VEL. The focus of thedeal is on organotin heat stabilizers as a replacement for the plastic synthesizer.

Vikas Garg, managing director, VEL, said, “We are focused on developing indigenousand import replacement chemical solutions for our customers in an eco-friendlymanner. Such tie-ups with large B2B customers are part of our strategy to workclosely with industry leaders like Prince Pipes from product development to endmanufacturing. As a company, we are committed to launch premium lead-replacement products and solutions in specialty chemicals for our Indian and globalcustomers.” The alliance is expected to meet the rise in demands for lead-freealternative additives for PVC pipes. These dynamics eventually raise the demandfor specialty polymers that promise major potential for the global chemicals industry.

It faces global competition from two large companies – Galatin and PMC. Its productsare priced at 2 4% discount to the US manufacturers’ prices, and at a slight premiumto Chinese ones. It has developed R&D capability to meet international standardsof quality, resulting in several interests from the LatAm market. It has initiated trialorders for one of Mexico’s leading petrochemical giants for organotin stabilisers. Itis focused on acquiring new clients from PVC pipes, footwear, automobiles, andpackaging sectors in India (to supply specialty additives and plastic compounds).

Shree Pushkar Chemicals & Fertilisers

Diversification in the right direction About the company: Recently, SPCFL concludedan IPO worth `700 million for setting up of a plant for manufacturing reactive dyesalong with plants for manufacturing of h acid and vinyl sulphate ester on a new



plot of land near its existing works at MIDC Lute Parshuram, district Ratnagiri. Itscapacity expansion includes – 750tpa of h acid, 1,000tpa of vinyl sulphone, and10,000tpa of sulphate of potash (SOP) for fertiliser. Capex on these three projectswould be `480 million

SPCFL manufactures dye intermediates with a capacity of 7,836TPA. Its productline comprises of dye intermediates (gamma acid, k acid, vinyl sulphone, h acid),acids (sulphuric acid, oleums), cattle feed supplement (di-calcium phosphate DCP),and fertilisers (single super phosphate SSP, soil conditioner). Capacity – 3,000tpafor dyes, 750tpa for h acid, and 1,000tpa for vinyl sulphone.

Domestic clients include Vinati Organics, Atul, DCM Shriram, Meghmani Dyes, andAmul; Huntsman among international clients. It has an exclusive marketingarrangement with Shriram Chemical and Fertilizers for SSP in Maharashtra andKarnataka and has tied up with Shivam Chemicals for marketing of DCP in Karnataka.It has also launched its own soil conditioner brand named Dharti Ratna. It has 125dealers.

Dye intermediates have a 74% share, fertiliser 16%, and DCP/sulphuric acid 8% interms of both value and volumes. The dye business results in acid productionalong with significant waste, but the company created demand for its by productsand converted its waste into commercially viable products – which made it a zerowaste player, thereby improving its operating efficiency.

It began operations for new reactive dyes plant with a capacity of 3,000MTPA andadditional vinyl sulphone capacity of 1,000MTPA in Q1FY17. It also plans to expandits dyes capacity further to 6,000MTPA by the end of Q3FY17. To meet its captiverequirement, SPCFL will add two plants for dye intermediates and planned h acidcapacity of 750MTPA is likely to be commissioned in Q2FY17.

It has received a license for manufacturing mixed fertiliser NPK in Maharashtra. Ithas a marketing tie up with DCM Shriram, which it launched under the brand‘Shriram Urja Mix’ in Maharashtra. In August 2016, it commissioned Sulphate ofPotash (SOP) with a capacity of 10,000MTPA; commercial production will beginfrom September 2016. It is also setting up a calcium chloride plant with a capacityof 7000MTPA to utilize HCL (hydrochloric acid) generated in Sulphate of Potash.

SPCFL is looking at exploring a growth opportunity in the textile auxiliary chemicalsspace, for which it has created a capacity and expects to start commercialisation inFY18.



Gujarat Specialty Chemicals Industry

Gujarat is at the forefront in chemicals industry and today known as the ‘PetroCapital’ of India. It contributes production of 62% of petrochemicals, 51% ofchemicals and 35% of pharmaceuticals of the country’s total manufacturing. Itsbusiness friendly policies have made it the first choice for investors.

The success of this sector, however, will depend on how well it’s key challenges areaddressed such as import substitution, small installed capacities, low focus ontechnology upgradation and the poor availability of vocationally trained manpower.

The sector with linkage to knowledge based initiatives, in which India has a naturaladvantage, coupled with the fast surging domestic demand, has potential of makingthe country a global manufacturing hub of quality specialty chemicals. Alreadygeneric pharmaceutical industry has shown that India and especially Gujarat canbe a leader in knowledge based specialty chemicals sector.

Gujarat already accounts for 17% of the nation’s industrial production and 25% ofits exports. Gujarat possesses several advantages which have enabled it to chart apath of rapid growth and industrialization such as better infrastructure facilities,availability of skilled and semi-skilled manpower, good domestic and internationalconnectivity and rich natural resources. The key differentiating factor has beenGujarat’s investor-friendly policy towards industrial development. These have resultedin Gujarat evolving as the hub of India’s chemical and petrochemical industry. Thechemical industry is today the largest and fastest growing component of Gujarat’smanufacturing sector.

Specialty Chemical Industry

Adoption of cluster approach (with shared facilities bringing down the manufacturingcost) provision of quality infrastructure and assured supply of quality power/feedstock etc. It is also important to address the public perception issue, byhighlighting the enabler role of the industry. The National Chemical Policy presentlybeing framed by the Government of India, has the opportunity of addressing theseissues and triggering the growth of the sector.

Specialty chemicals is one of the thrust areas of Government of Gujarat’s IndustrialPolicy 2015.The State Government gives the following incentives for themanufacturing units of Specialty and Fine Chemicals:

• Graded interest subsidy for five years @ 7% for MSMEs and 2% for large industrieshaving an actual investment up to `100 crores with maximum cap of `25 lakhs(for MSMEs) and `50 lakhs (for large units)



• n Industrial Park coming up in private area/GIDC estate (with minimum 25industrial units) will be provided incentive of 50% of total expenditure limitedto `20 crores

• One time assistance up to 80% of the total expenditure limited to ̀ 10 crores forthe cost of plant and machinery testing equipment

• Assistance upto75% of total project cost i.e. building, plant and machinery, civilconstruction and other fixed assets needed for the project and as approved bySLAC (if GOI contribution is available). Assistance upto40%if GOI assistance isnot given

• One time assistance of 70%of the total expenditure limited to `30 crores (incase of international level Centre of Excellence)

• Mega project with an actual investment of at least `1000 crore providing directemployment to at least2000 persons will be incentivized on case to case basisas decided by the State Level Approval Committee (SLAC).

Supply Chain Management

Shifting patterns in supply and demand, cost pressures, market segmentation, third-party distribution and other factors mean that chemical supply chains need to beincreasingly agile, sustainable, cost-effective, efficient and responsive to customerdemands. New solutions are on the way that involve supply chain customization,improved people management, industrial parks for suppliers and manufacturersand disruptive technology such as ‘big data’ and predictive analytics that are turningrisks into opportunities for today’s chemical companies.

The global shift in supply and demand also means that a one-size-fits-all approachfor supply chains needs to be replaced with supply chains customized to fit differentregional markets that are rapidly changing in size and composition. This is especiallyimportant as traditional distinctions between developed and emerging marketscontinue to evolve in an increasingly globalized economy. Speaking broadly, wemight say that parts of Africa are where India was 20 years ago in terms of chemicalproduction and consumption. India is where China was 20 years ago. And otherareas, such as Latin America and the Association of Southeast Asian Nations (ASEAN)countries fall somewhere in the middle of this growth trajectory. Each regiondemands its own approach to the design and development of supply chains.

Changing customer base Chemical companies will continue to generate the majorityof their revenues from fewer key customers. As a result, outsourcing of smallercustomers to a third-party distributor will be an attractive option to enhanceprofitability and efficiency. In short, the shifting balance between supply and demandregions combined with the trend toward market segmentation and third-partydistribution is requiring new supply chain strategies that focus on low-cost, efficient



supply chains for commodity chemicals and a responsive, innovative and customer-centric approach for specialty chemicals.

Align togrowth markets

Optimizeportfolio

Operationalexcellence

Innovation todrive pricing

Financialstrength

Third-party Distribution MarketSignificant growth of third-party distribution channel

Source: Specialty Chemical Distribution Market Update, Strategic Imperatives for Suppliers and Distributors, The BostonConsulting Group, April 2014

The recent global downturn has showed us that a crisis can spur new ways ofthinking and innovations that result in improved performance and profitability. Inthe same way, chemical companies can turn supply chain risks into businessopportunities for sustainable growth. Big data, social media, predictive analyticsand cloud-based solutions are disruptive technologies that influence risk in termsof margins, customer retention, market growth, product development, operationalplanning and many other areas. Companies can leverage big data and social mediato realize customer intelligence across channels, enabling them to provide proactiveand personalized customer service. Data analytics can be used to identify waste,monitor overcapacity, prevent shortages, understand the true cost to serve aparticular market and gauge the impact of new customer channels.



Supply chain optimization requires a top-down, enterprise wide understanding ofprocesses and technology. But equally important is a bottom-up engagement withstakeholders who are directly affected by changes in the supply chain. Changesaffect both internal and external parties so companies need to consider the greateruniverse of stakeholders such as suppliers, customers, outside investors andshareholders. Business surveys suggest that change initiatives often fail to reachtheir goals – most often because of people-related issues involving leadership,communication and engagement.

Advantages of Third Party Distribution

Chemical suppliers have two primary rationales for using third-party distributors.

The first is that such distributors reduce the complexity of going to market becausethey can serve customers more efficiently. This is particularly true for lower-volumecustomers because distributors are better set up to offer them value-added services.

These distributors can also bundle inventory and distribution for multiple customers,which is more efficient. And they usually have strong relationships with localcustomers.

The second rationale is that third-party distributors can drive growth in areas towhich suppliers have no direct access. For example, distributors may have a presencein a market or a line in which a supplier would like to do business, and contractingwith the distributor is far easier for the supplier than building up its own presenceinternally.

Both of these rationales are apparent in the North American market, which is thebiggest in the world. Chemical suppliers have realized that low-volume customershave a high cost to serve (after taking into account factors such as sales, stockingand transportation costs, and credit risks). Indeed, many North American suppliershave set sales and volume thresholds for orders, and some add a surcharge forsmall orders as well, despite third-party distribution.

In addition to shifting to third-party distribution, many suppliers have beenconsolidating the number of distributors they deal with, especially during the pastfive years. We believe that this consolidation will continue but at a slower pace.Among the industry experts we spoke with, many cited a 50% reduction in thenumber of distributors they are using. But just as directly servicing low-volumecustomers leads to greater complexity for suppliers, using a large number of smaller,local distributors is also difficult. Which ones make the cut? Most suppliers havefocused on distributors that can dedicate technical and sales resources to theirproducts. In addition, many suppliers favour distributors that can offer value added



functions such as mixing, blending, and formulating, or services such as filling andpackaging.

Some suppliers have gone a step further and established internal distribution centresthat coordinate and oversee distribution while also providing advice to businessunits. The centres set criteria for assessing distributors, help business units selectthem, and maintain a pool of potential distribution partners.

As a result of consolidation, suppliers are forging closer relationships with a handfulof strategic distributors. In such arrangements, a supplier’s sales force often worksdirectly with that of the distributor (one may even be based in the other’s offices),and the two companies hold joint sales and technical training sessions. They alsoshare warehouse facilities, along with customer and sales data when appropriate.

Moreover, suppliers that build the right relationships with strategic distributorshave gone beyond treating them as an extension of the sales force and insteadconsider them a platform from which to tap into new growth opportunities. Forexample, a distributor that has expertise in a particular territory or with a specificcustomer profile that is unfamiliar to the supplier could help the supplier takeadvantage of those opportunities.

Because sales growth is so critical, suppliers no longer use only basic metrics, suchas the number of sales reps that are covering a region, to assess the sales capabilitiesof their distribution partners. Instead, they are looking one level deeper, at salesforce productivity; using hard metrics, such as sales volume; and analyzing leadingindicators, such as contacts with customers, the size of the pipeline, and relateddata.

To determine which distributors they should prioritize, in terms of both assessingtheir current vendors and spurring improvements, some suppliers are also usingperformance management tools. For example, a clear set of soft and hard targetsgives distributors definitive objectives to hit. And financial incentives, such as rebatesand volume awards, can encourage distributors to help suppliers hit their financialand operational targets.

Because these relationships can be so mutually beneficial, they usually last for thelong term. Once the relationship between a supplier and a distributor is wellestablished, switching out is rather rare, because the cost of such a change—interms of both time and money—can be substantial. Among the experts we spokewith, only 5% said that they switch out at least one distributor annually. And thattypically occurred only because of repeated technical problems, product qualityissues, or when one of the partners changed ownership. Suppliers do indicatesome willingness to change distributors on the basis of price, but given the cost of



switching, the incentive must be significant—10% to 20% lower than the cost ofworking with the current distributor. However, the market is becoming more dynamicbecause of frequent acquisitions and a shift toward strategic distribution partners.

Types of Distributors

The specialty-chemical-distribution market in North America includes three maintypes of companies:

Global companies known as full-liner distributors—including Brenntag, Univar, andNexeo Solutions—typically offer both commodity and specialty product lines.Suppliers tend to rate these companies well in terms of product quality and reliable,flexible deliveries, largely because of their expanded distribution networks acrossNorth America.

Regional distributors have a footprint sufficient to cover one of the four maingeographic territories in the US—the Midwest, the Northeast, the South, or theWest. So-called super regionals, such as Harcros Chemicals, serve two or moreregions and may even have a national presence. Regional distributors tend to dowell in product expertise, supplier collaboration, and value-added services for

Note: Revenue includes the top 100 distributors only; companies with negligible revenue in 2011 were excluded. Growth ratesinclude both organic and M&M growth. Revenue data for regional, super-regional, and full-liner distributors reflects ourestimates of their specialty-chemical business alone. All growth rates include commodity and specialty chemicals.

1 Full-liner distributors include companies with a significant commodity-and specialty distribution business.

Source: ICIS Top 100 Chemical Distributors, 2011 and 2014; BCG analysis.

Regional and Super-Regional Distributors are Growing Faster thanFull-liner and Local Distributors

Revenues for the top 100 distributors ($ billion)15

10

5

0

+4.6%

CAGR2011-2014 (%)

Comparison withAverage (pp)

3.8

6.3

3.6

–0.8

–1.0

2011 2011

Full-liner distributors1 Local distributors with less thanUS$200 million in sales

Regional and super-regional distributors withmore than US$200 million in sales

+1.7



customers. Many customers find that regional distributors are able to be moreflexible and are more willing to offer technical support than their global counterparts.

Local distributors focus on a narrow niche in a small geographic area and usuallyoffer limited product lines. Of the three, regional players have been growing thefastest in the US. Super regionals have been growing particularly fast because theyhave been gaining market share as suppliers reduce the number of distributorsthey work with. Specifically, global full-liner companies posted a compound annualgrowth rate of 3.8% from 2011 through 2014, while local players grew at 3.6%.But regionals grew several percentage points faster during the same period—at6.3%.

In addition, M&A has reshaped the landscape for US distributors during the pastfour years. Distributors are seeking to expand in order to provide better coverageacross the country, fill in gaps in their portfolios, and become strategic partners. Insome cases, regional companies have acquired local distributors and small regionalplayers.

Suppliers’ Strategy

Given the changes under way in specialty chemical distribution, suppliers that servethe North American market should focus on three objectives.

Suppliers Have Three Objectives for the Strategic Management of Distributors

Define the Business Case • Estimate the system cost and total profit pool of a region or business line.• Compare distribution models (third-party versus self-distribution)• Determine how many distributors to work with, by region and business line.

Select Distributors • Select partners with attributes that support the business case, such as financialstrength, reputation, and business ethics.

• Build the relationship by setting pilot and volume targets, signing contracts,and training the distributor.

Govern the Relationship • Monitor the relationship by using tools such as KPIs and strategy sessions.• Manage performance by defining benefits and consequences and following

through on the basis of the distributor’s performance.• Reshape the portfolio of distributors over time according to goals

Source: BCG analysis.

Define the Business Case

Delineating a clear business case for working with distributors—one that is alignedwith the company’s go-to-market and sales strategies—is essential. Suppliers needto analyze their current cost to serve for customers, including factors such as logistics,freight, and warehousing. They also must ensure that their go-to-market and sales



strategies support an overall growth strategy, including market segments in whichthe use of distributors could lead to faster growth. It may be more efficient forsuppliers to reach some customers by using their own internal sales staff. Conversely,a third-party distributor may already have relationships with target customers thatthe supplier has not yet reached.

Select Distributors

Suppliers must assess and select distributors using clear objectives. They shoulddetermine KPIs based on their go-to-market strategy and growth objectives. Forexample, given the importance of technical expertise and sales efficiency, suppliersshould have a means in place to rank distributors along both dimensions—for thedistributors they currently work with as well as for potential new partners. On thebasis of that assessment, they can then thin their portfolios and select a smallernumber of strategic distributors with which to collaborate more directly.

Govern the Relationships with Distributors

Once the right distributors are in place, suppliers need a process for managingrelationships with them. This element includes configuring pricing and rebatestructures to steer distributor performance. It also requires setting up the rightinformation-sharing interfaces with distributors, supported by underlying technology.Suppliers should track and communicate the performance of distributors, usingthe KPIs they have identified, on a monthly and quarterly basis. And if a supplierchooses to establish an internal centre to manage distribution across the entireportfolio of channels, then the supplier should clarify the centre’s responsibilitiesand mandate within the organization, along with the method by which the centrewill interact with business units.

As the North American market for specialty chemicals continues to grow fasterthan the overall chemicals industry, clear opportunities for both suppliers anddistributors are emerging. Those players will need to understand the dynamics ofthe market and develop the right business model in order to capitalize on thoseopportunities. For suppliers, the objectives are to develop a clear business case foroutsourced distribution, evaluate and select distributors accordingly, and managethem as true strategic partners. For distributors, the objectives are to build upinstitutional expertise in both technical capabilities and sales force effectiveness,make strategic acquisitions to increase their size and scale, and manage brandseffectively.BCG, Specialty Chemical Distribution in North America, May 2016



Future Strategies for Gujarat Specialty Chemicals Exports

There is great scope for Gujarat entrepreneurs to take advantage of of India’sexpertise in chemistry and the gradual shifting of opportunities from China toIndia. Dyes and pigments are more of the commodity in nature due to less pricingpower of the supplier and huge volatility in end product prices. However China’ssustained exit from this segment provides growth opportunity for Indian players.Technocrats with strong chemistry focused product portfolio can better meetcustomers’ changing requirements. The companies must move up the value chainand since a large number of raw materials and intermediates are available in Gujaratitself or easily imported coupled with a strong base of chemical hubs make Gujarata front state in specialty chemical manufacturing. Companies present in these spacesinvest a large amount of their revenues towards R&D. As chemicals have endlessapplications, the scope is immense and the only restriction is viability of products.Many companies have invented 300-400 products, of which, they are activelysupplying 15-20 products on a regular basis. Thus, innovation and coming out witha unique viable product is the key to future growth. We give below some of thestrategies, manufacturers can adopt to move into high-tech, high value products.

Castor Oil Derivatives

Gujarat produces 85% of Castor oil in the world. It is a valuable raw material forpersonal care products, alkyd resin, paints and coatings, lubricants and specialitychemicals. Entrepreneurs should look into the various micro-markets in which thisraw material can be used and find opportunities. CASTOR oil waxes made from thepurest castor oils, used in personal care products, esp. for antiperspirant sticks, lipgloss, eye shadows etc. There is a large scope for improving India’s earning fromcastor by converting the castor oil to various derivatives.

Unfortunately, in spite of substantial advantage of raw material, Gujarat has shownlittle competitive advantage when creating derivatives from castor oil. Over 100derivatives are known till date and these natural products are replacing syntheticpetroleum based products in many industrial applications.

There are two main obstacles in making Gujarat a world leader in derivatives.

1. R&D – There is no specific R&D and product development centre in Gujaratdevoted to castor oil research and the first need is creation of a world scale R&DCentre with skills enhancement facilities upto PhD level.

2. The Indian industry, especially in Gujarat operate on a small scale. For example,In China the largest sebacic acid plant, an important derivative, is 40,000 tonnes



capacity and the smallest is 24000 tonnes capacity. In India, the largest plant is10,000 tonnes capacity. This makes Indian product less cost-competitive in worldmarket.

China imports castor oil from India, converts to derivatives and sells these as highvalue-added products.

More than 30 countries including China and Brazil are increasing castor oil productionand in current year, 25% less acreage has been devoted to castor oil productiondue to un-remunerative prices. If this trend continues, Gujarat will lose its advantagewithin 10 years.

The High Performance Plastics (HPPs)

This market includes producers and processors of high performance polymericresins/ materials, including nylons and other polyamides, polyimides, sulfonepolymers, liquid crystal polymers, and polyetheretherketone (PEEK). HPPs aretypically higher priced, low volume, highly specialized polymers used in applicationsrequiring a combination of engineered properties. HPPs can replace metal, ceramic,and thermoset parts with lighter weight parts with specifically engineered features.In addition to offering benefits such as lighter weight, ease of manufacture, assemble,or recyclability, HPPs also may offer improved appearance and can be designed tooffer a host of other specific advantages, including: Superior short and long term

Overview of Selected High-Performance Plastics

High-Performance Plastic Key Performance Attributes Typical ApplicationsFluoropolymers Chemical resistance, low coefficient of Electrical insulators, bearings,

friction,low surface energy, flame resistance, seals, non-stick coatings,resistance to UV sunlight surgical patches, and graftsexposure, and weathering.

Polyimides (PI) Thermal stability, chemical resistance, Flexible cables, high-temperaturehigh tensile strength, flex resistance, adhesives, insulating films,and flame resistance and medical tubing

Polyamides, including High mechanical strength, rigidity, good Gears, fittings, bearings, andnylons stability under heat, and chemical resistance tool coversPolyphenylene Sulfide Heat and electrical insulation with Electrical insulation, specialty(PPS) strong chemical, and thermal resistance membranes, gaskets, and

packing/insulation/sealingLiquid Crystal Polymers Stiffness, high-temperature resistance, Miniaturization in electronics(LCP) and high flowAromatic polyketones, Excellent mechanical and chemical Bearings, piston parts, pumps,including polytherether- resistance properties that are retained valves, and cable insulationketone (PEEK) in high temperature

Source: William Blair Research



thermal stability · Chemical and radiation resistance · Pressure resistance · Resistanceto flame and burning · Improved mechanical properties, including stiffness, strength,toughness, creep, wear, and fatigue.

Applications for High Performance Plastics

Offering a combination of attributes generally not found in more commodity orgeneral purpose resins, HPPs are used in specialized applications across a widerange of applications and end markets, including tank linings, pumps, flanges, andfittings used in oil and gas applications, as well as in many automotive and electronicapplications. Strong demand, particularly in the electronics, aerospace, andautomotive sectors, has driven accelerated growth in recent years. Sulfone polymersoffer hydrolytic stability and transparency (along with FDA approval), making themsuitable for food or medical applications. Liquid crystal polymers provide addedstiffness, high temperature resistance, and high flow, making them ideal forminiaturization in electronics. PEEK (an aromatic polyketone) is an HPP used onlyin extreme environments. PEEK combines several attractive properties in onematerial, offering improved temperature resistance, mechanical strength, chemicalresistance, and aging properties relative to more traditional resins. Aromaticpolyketones, one of the most expensive high performance thermoplastics, offeroutstanding thermal stability, mechanical properties, and chemical resistance.Because of this unique combination of performance characteristics, aromaticpolyketones are increasingly being used as a replacement for metals, particularlyin instances where lightweighting is important. One important driver of future growthfor HPPs will be the evolution of 3 D printing. HPPs, such as ULTEM (a polyetherimidethat is less expensive than PEEK but with similar performance features), arebecoming increasingly popular feedstocks for 3 D printers. As 3 D printing evolvesfrom prototyping to commercial parts manufacturing volumes, demand for HPPfeedstock will continue to accelerate. Additionally, and perhaps most importantly,as the price of major polymer inputs (crude oil and natural gas) has plummeted,the cost of HPPs has also declined on average, making them even more competitivealternatives to traditional materials.

Market Size and Growth

HPPs are a relatively small market compared with commodity or general purposeplastics, representing approximately 3% of the global plastics market based ondollar volume of shipments, but are an even lower proportion of pounds shippeddue to their relatively high prices per pound. Demand for HPPs, however, is growingat rates significantly in excess of the broader market. While the benefits of HPPsare undisputed, their relatively high (but declining) purchase and process costscontinue to make them susceptible to competition from less costly, lower



performance materials. According to Global Industry Analysts, Inc., the HPP marketis projected to be approximately US$18.2 billion globally by 2020, representing acompound annual growth rate of 5.5% from 2015. This projected growth rate ishigher than historical growth rates. Growth in the HPP market has accelerated inrecent years due to increased demand for higher performance materials and theongoing substitution of traditional materials. In recent years, HPPs continue toreplace wood, glass, and metals in many applications. HPPs can be customengineered to yield unique combinations of the advantages they provide.

Barriers to Entry and Margin Profile

Technical, regulatory, and commercial entry barriers in the HPP market are high.These materials typically offer mechanical and chemical advantages that makethem difficult to replicate. As a result, prices of these materials are often relativelyrecession proof and not subject to the same level of volatility as commodity gradematerials.

End Market Applications

The principal markets for HPPs are aerospace, medical, electrical/electronics, generalindustrial, and automotive. Technological advances in the development andprocessing costs of HPPs will continue to enhance the appeal of these materials. Inaddition, most HPPs travel extremely well due to their low weight and relativelyhigh value, making them a prime candidate for export into emerging markets.

HPP Usage by End-Market Segment

Source: Global Industry Analysts, Inc.

Automobile18%

Electrical/Electronics

32%Chemical/Industrial

19%

Aerospace14%

Medical5%

Others12%



Transportation

Polyketones, polyphyenylene sulfide (PPS), sulfone polymers, and polyetherimideare popular chemistries in the aerospace and automotive markets. They provideexcellent flame retardant capabilities and increase stability in corrosive environments.In addition, to comply with fuel efficiency standards, automakers are improvingengine efficiency and drastically cutting vehicle weight. HPPs are being used ineverything from heat resistant engine covers to bumpers and other moulded parts,such as intake manifolds, radiator tanks, and door mirror stays. Asian automotivemanufacturers, in particular, are increasingly using HPPs to help lower vehicle weightsand reduce costs. According to Plastics News, over the last decade Chineseengineering plastics production value has grown more than 20% annually. Due tothe increased use of these materials in electronics, growth in the Asia Pacific region(where many electronics manufacturers are concentrated) is expected to beparticularly strong for HPPs. As a result of this trend, China is becoming a largerplayer in some markets, such as PPS, where it accounts for about 30% of globalproduction capacity.

Medical

Another example is the increased use of HPPs in medical applications. Solvay’s Ixefbrand polyacrylamide (PARA) has been substituted for ABS and polyetherimide(PEI) in several medical applications because of its unique combination ofmechanical properties. Solvay’s medical grade Ixef resins are produced in a broadrange of gamma stabilized colors, making them well suited for single use medicaldevice applications that must maintain excellent aesthetics despite repeatsterilization by gamma radiation or other methods. These resins are also lighterweight than traditional alternatives. OEMs of large medical equipment and handheld medical devices continue to switch from less robust materials, such as PC orABS, to more specialized materials, which can handle repeated sterilization.

Metabolic Engineering and Synthetic Biology Feedstock

Efficient and sustainable microbial production through cell factory synthetic biologyis a promising enabling technology in the transition from an economy based onfossil fuels towards an economy based on renewable biomass resources. Thesynthetic biology of fine and speciality chemicals is a bio-manufacturing technologythat, by 2020, is envisioned as providing cheaper economical, predictable andsustainable routes to an enlarged portfolio of novel, diverse, and previously expensiveproducts in many sectors including cosmetics, flavours, polymers, andpharmaceuticals.

A roadmap to commercialization of such products will need to both integrate andnavigate the scientific and technological knowledge accumulated in patents into



the biodesign process, so as to reduce transaction costs and lower the risk offailure as well as to maximize the innovation capabilities of the synthetic biologypipeline. One reported estimate suggests that by 2025 bio-production will representup to 28% of the global chemical market (US$614Bm).

Industrial bio-production is nevertheless a complex process whose analysis requiresmulti-scale approaches integrating cell, bioprocess, and ecosystem models witheconomic, innovation and policy considerations. Recent advances in metabolicengineering and synthetic biology have led to an increase in the portfolio of bothkey building block chemicals and fine chemicals that can be microbially producedfrom biomass feedstock.

Gujarat State already has started building an ecosystem for development ofbiotechnology under Gujarat State Biotechnology Mission. It should help developa research institute for development of sustainable substitute and new chemicalentities for specialty chemicals. The venture fund should be active in fundingentrepreneurs who show promise in both technology and marketing.

Case Study – Fairchem Specialty Limited

Fairchem Specialty is a merged entity of Adi Finechem (AFC) and Privi Organics(PO). AFC is an India based company manufacturing oleo chemicals andintermediate neutraceuticals. It manufactures products such as linoleic acid, dimerand monomer acid, and nutraceutical intermediates such as natural mixedtocopherol concentrate. It has a manufacturing unit at Sanand in Ahmedabad,Gujarat. Privi Organics is one of the leading manufacturers of aroma chemicalssuch as Amber Fleur, dihydromyrcenol (citrus character), and citral derivatives. Thecombined entity will be renamed Fairchem Specialty. Privi enjoys a dominant positionand economies of scale in all its product categories. Moreover, its new productionsite (Unit 3 at Mahad) began commercial production and would provide long termstability to the business.

Utilizing Waste Products of Edible Oil Industry

Soya, Sunflower, Corn, Cotton (SSCC) Refining Process, extraction of waste productsand subsequent manufacturing of sustainable, renewable specialty chemicals

The two companies Adi and Privi produce 60+ types of high performance nichechemicals with end use in varied industries such as paints, adhesive, inks, FMCG,and perfumes. • The merged company will develop processes to add value tovarious by products formed in the manufacturing process, leading to furtherexpansion of operating margins.



With a strong 60 member R&D team, Fairchem will develop alternate and morecompetitive manufacturing routes and then scale up its process – from grams tokilograms, to metric tonnes. Fairchem is working towards scale up of a greenenzymatic fat splitting technology that will provide cost advantage over the traditionalprocess. Privi is setting up a unique modern pilot plant at Navi Mumbai incollaboration with the Institute of Chemical Technology – the first of its kind inIndia to undertake various researches under one roof.

Robust Infrastructure for Gujarat Specialty Chemicals Exports

Product Development and Marketing Assistance

The major costs for the specialty chemicals companies are not feedstock or rawmaterial, but product development and marketing activities. In the past, we sawwell-funded, heavily marketed products with a lifecycle that lasted years, if notdecades. Consumers grew up with these ‘familiar faces’ and became loyal customers.Today, products are replaced by new market introductions at a much faster rate.We also see what might be called ‘tangential’ products where, for example, asuccessful hand lotion is followed by several spinoff products that offer variationsin functionality and fragrances.



Consumers stay better informed about ingredients that may potentially harm themor the environment. Because they know more, they are often more skepticalregarding claims made by product manufacturers, whether in advertising, packaging,websites or point-of-sale materials. Consumers are also demanding full transparencyfrom manufacturers about their sourcing methods, product, ingredients andsustainability practices.

This requires one or more Product Development Centres which can seize thechanging trends and move fast to bring such products or ingredients to the market.There is also a need to include biotech into product development innovation centre.Synthetic biology has a big role to play in the future development of fine andspecialty chemicals production.

Example: Manchester Synthetic Biology Research Centre for Fine and Speciality Chemicals(Manchester Institute of Biotechnology)

Synthetic Biology is an emerging science that has the capacity to transform theglobal industrial landscape in sustainable manufacturing process across all industrialsectors, including healthcare, sustainable energy, green chemistry, pharmaceuticals,novel materials and bioremediation and to address major societal grand challenges.It has the potential to provide new sustainable manufacturing processes that reduceour dependency on carbon fuels (oil and gas). Synthetic Biology requires cutting-edge research at the interface of biology, engineering, chemistry and computingscience.

Breakthrough products from this emerging technology can transform the value-added exports from Gujarat. Some of the areas for high-performance materialscould be aramid fibres, multi-functional nanofibres, bioprocessing of agriculturalwaste and enzyme engineering for new materials.

The Centre also accepts industry funded PhD students to work with the Centre onprojects for the development of: next generation bio-fuels; high throughputscreening and assembly platforms for SynBio; business models and strategies forthe commercialisation of disruptive technologies.

Vocational Training

The following example provides a solution to skilled worker training:

“PI-DDU-AI Certified Vocational Training Course on Chemical Plant Operators”

PI Industries is conducting regularly a 3 months certificate course for B.Sc. andM.Sc. pass outs titled “Chemical Plant Operator” jointly with DDU-Anchor Institute.PI Industries Ltd. has taken up this as part of their CSR activity and is providing



financial and placement support whereas Anchor DDU has supported by providingtechnical, faculty, training infrastructure and other related support to materializethis course. PI is pursuing this training programme along with DDU faculty forempowering and skilling more and more under privileged students and to makechemical industry more safe and environment friendly.

Programme Objective

To help Science Graduates/ Post Graduates (B.Sc./M.Sc.) from economically weakersections of society to undergo a specially designed training course to enhancetheir employability.

This is an Accredited Certified Programme.

Higher Education

India will need over 14,000 highly skilled, chemical engineers within the next decadeto join the specialty chemical industry alone. A potential short fall of 8,000 to10,000 chemical engineers is indicated driven by limited talent from Tier 1universities and lack of attractiveness of the chemical sector for employment. Toresolve this shortfall, the industry must improve the value proposition for chemicalengineers while the Government should work in collaboration with industries toupgrade the current chemical departments in Tier 2 universities to become state-of-the-art departments (in terms of infrastructure, faculty qualifications, industryinteraction, and administration) in Gujarat.

Gujarat, with its vast and diversified chemical industry is poorly placed in tertiaryeducation and R&D in this knowledge driven industry. Many of specialty chemicalcompanies are small and cannot undertake product development and customisationon their own. The industry for the future needs both a high institute of chemicalengineering and technology as well as a R&D Centre for developing specialtyproducts in different areas.

Product Development and Green Technology

Worldwide, this industry spends approximately US$50 billion a year in R&Ddeveloping new products, and US$60 billion in capital.

Specialty chemicals differ from commodity in that they are generally custom designedfor the user and the application environment, and cannot be bought likecommodities such as petrol, solely on a price basis. Key end markets includepesticides, specialty polymers, electronic chemicals, surfactants, constructionchemicals, industrial cleaners, flavours and fragrances, specialty coatings, printinginks, water soluble polymers, food additives, paper chemicals, oil field chemicals,



plastic adhesives, adhesives and sealants, cosmetic chemicals, water managementchemicals, catalysts and textile chemicals.

This consumer driven sector is all about meeting specific customer needs as opposedto large scale products and economies of scale. As a result, rapid product designand time to market based on a robust stream of information is critical. Productsare typically batch designed and require flexible production because of changingraw materials, processes, operating conditions equipment and the product needsof customers.

As a result, the customer and supplier have to work together in a very close mannerto react to this constantly changing environment.

Unique issues for product development in the Specialty Chemical Industry

Product development must meet a significant number of technical requirementson top of addressing each individual customer’s application environment. Forexample, in coatings, products have technical requirements (hardness, salt spraytesting, gel time, gloss, etc.) and each customer has different manufacturing layoutsin terms of ovens, conveyer lines, ambient temperature, humidity, line speed, etc.Even in large markets like home appliances, manufacturing customers have multipleapplication environments with separate product requirements that employ differenttechnologies to coat an appliance.

Product diffusion and SKU management are critical to success. Even small chemicalcompanies may offer hundreds or thousands of products, and the accompanyinginventory, selling, process and handling requirements are challenging. A systematicapproach is critical to success and avoiding financial difficulties.

Safety and compliance requirements are large and ever changing. The productionand application of chemicals presents inherent safety and environmental risks,and the chemical industry is regulated at the local, state, national and internationallevels (EPA, REACH, CLP, etc). The documentation and compliance requirementsare similar to health care, and product development, customer management, anddocumentation are essential.

No detailed benchmarking of product development metrics is available. There areno accurate publicly available metrics that allow industry players to benchmarkand compare lab and sales personnel new product development.

Raw material costs and processes are changing continuously. Rapidly changinginput costs and processes can quickly obsolete or make certain products ortechnologies more or less expensive on an almost daily basis.



Important external trends shaping the industry that impact product development:

Globalization: The overall chemical industry is completely global, with new markets,suppliers, and customers emerging at breathtaking speed. The ability to matchcustomer needs and accompanying documentation and support requirements area significant challenge.

Commoditization: As new technologies are introduced, they are oftencommoditized and appropriate product development and the concentration onthe right markets are key to ensuring profitability and return on capital.

Consolidation: The chemical industry averages over 300 major deals globally peryear. The result is increasingly large and complex corporations that have disparateproduct lines. Connecting the right sales person and right product to a customer ismore difficult.

These factors combine to make product development a complex, exciting andchallenging undertaking in the space. Specialty Chemical companies will increasinglyneed new technology tools to manage the product development process. Gujaratshould start now to make itself ready for this challenge.

India constitutes about 3% of the global speciality chemicals market, this sectorhas great potential and is to grow to 6-7% in 2023 with market size in the range ofUS$80-100 billion.

The critical success factor for the industry is its capability to provide product/application development at a favourable price-performance ratio. The cost centrein this sector is in the areas of product development and marketing activities, hencethe focus on improving products and usage intensity of speciality chemicals, todevelop new products to give them a competitive edge in the marketplace, withunique features and benefits.

One of the main challenges will be to focus on taking the industry to the Greenzone – eco-friendly products and processes, address the pollution issues and ensurezero discharge in water and air. This would also mean that industry has to look atdeveloping proper technology that helps in moving towards green zone.

NCN Chemistry – An Example of Building Expertise

Established in 1908 and for many years known under the name SKW Trostberg,AlzChem has long been producing advanced intermediates based on its core NCN-chemistry chain (Figure 1). From four basic raw materials – coal, limestone, air(nitrogen) and electric power – it builds in consecutive reaction steps complexmolecules, all of which have a typical N-C-N bond sequence in common.



Although the initial steps of this chain in particular are labour-intensive, AlzChem isone of the very few survivors which resisted the transition of this chemistry toChina. The company seeks to balance the disadvantage of producing in the highcost environment of Germany through a focus on quality, service and customerfocus.

The basic process for production of calcium carbide has remained unchanged sinceits inception. This is made in a furnace heated by electric power to a temperatureof >2,000°C and removed as melt. As the yield of the synthesis drives the economicsof the downstream products and the composition of the carbide is crucial for theirquality, AlzChem recently installed a scaled-down model of the furnace.

By applying modern methods like Six Sigma and Design of Experiments, the reactionmechanism is now much better understood. Consequently, power consumptionhas been significantly reduced, while at the same time increasing the variety ofcoal tolerated by the process, including new sources of carbon-containing residue.The carbide quality can now be fine-tuned to optimise the quality of the downstreamchain products.

CalciumCarbide

CalciumCyanamide Cyanamide Dicyan

DiamideGuanidinium

SaltsNitro

Guanidine

CAD Perlka Dormex Dyhard Bioselect Propellant

Desulfurizingagent forpig iron

First artificalnitrogenfertilizer

Plant growthregulator forbud breaking,

e.g. grapes

Hardener forhot melt epoxy

curing

Chaotropicagent for

processing ofrecombinant

proteins

For air bags

AlzChem produces downstream products from hydrogen cyanamide anddicyandiamide in multi-purpose plants that were initially established to derivatiseN-C-N intermediates further into captive products like creatine.

Although for many it is only known from chemical textbooks, the chemistry andreaction technology involved in the production of calcium carbide and calciumcyanamide serves as solid basis to branch out into various end markets, whichstart with basic steel refining and fertilising, include areas like powder coating andculminate, after numerous reaction steps, in products for life science and foodapplications manufactured in plants managed according to GMP standards.

Typical products like cyanamide, DCDA and guanidine contain at least one N-C-Nunit and can be used as multifunctional reagents to create highly diverse heterocyclic



five- or six-membered rings. Guanidine derivatives play a vital role in the energycycle of life, which opens up several avenues for their applications.

Cold Supply Chain

Due to distance from India to developed markets in US, EU and Japan, coly chainis a bore viable option for transportation. The development of cold chain systemsis a force multiplier that can generate exports and open new markets over multiplesectors over an extended period, rather than a one-off export transaction that canbe quantified simply as an export success. Export promotion and trade policyagencies should focus on the development of international cold chains by workingto develop an effective international regulatory environment, increase skill level ofworkforce, and encourage infrastructure investment, thereby promoting the benefitsof Indian services

Specialty Chemicals Technologies and Innovation Trends

Natural Substitutes in Food Chemicals Market

Majority of specialty chemicals are synthetic which may have adverse effects onthe environment, thus affecting flora and fauna. Therefore, environmental protectionagencies have imposed various environmental regulations on the synthetic chemicalsusage due to their toxic nature, which may hinder specialty chemicals market sizeover the forecast timeframe. For instance, the European Union has banned atrazineand acetochlor herbicides. Also, in June 2015, France and Denmark bannedglyphosate for usage in lawns and gardens.

In order to consolidate their market share in India food additives market, foodadditive manufacturers are recommended to focus on production of food additivesfrom natural resources in order to garner the attention of health-conscious Indianpopulation. Currently, these naturally- derived additives account for a minority sharein almost all the product segments including preservatives, emulsifiers andcolourants.

However, demand for these natural food additives is projected to grow at a fasterpace when compared to artificial food additives. Rising demand for naturalsweeteners in India can be attributed to increasing awareness levels amongconsumers. The effects of excess artificial additives on human health has becomea major concern as government and regulatory bodies are focussing on ensuringthat only best quality foods reach consumers.



Increasing consumer and media focus on food safety is one of the major drivingforces driving technological improvements in the food additives industry. Increasingmedia coverage on incidents related to food adulteration by food companies wouldinhibit the penetration of harmful additives.

Food additives manufacturers are focussing on upgrading their product portfolio inaccordance to the growing requirements of product manufacturers. It has alsobeen observed that a growing number of food additive companies are wideningtheir product portfolios with launch of healthier substitutes. Also, product positioningby the way of product differentiation or price differentiation is the need of thehour.

Increasing awareness about health benefits of natural additives, marketing initiativesby leading additive manufacturers, implementation of strict regulatory norms,coupled with increasing per capita income and changing lifestyles are anticipatedto bolster growth in India food additives market through 2021.

“Shift from harmful artificial sweeteners to plant-based sweeteners can be attributedto rising health-consciousness among consumers. This is expected to continueboosting the country’s natural sweeteners market in the coming years. Stevia, anaturally obtained zero-calorie sweetener, is gaining popularity in the country, andthis trend of growing consumer adoption of natural products with natural additivesis expected to gain strength over the next five years.

Specialty Chemicals from Carbohydrates

The cost factor, as well as the finite nature of oil-based raw materials, has led toconcentrated research on finding ways to convert renewable biomass into finechemicals. Sustainability and protection of the environment are also importantfactors – hence the global move towards a bio-based economy. New technologiesthat can produce bio-based chemicals and renewable energy through theintroduction of biochemical synthesis alternatives are keenly sought.

Carbohydrates are extremely abundant in nature, representing about 75% of theannually renewable biomass. As a result, this raw material seems to be an obviouschoice to consider when investigating technologies that can generate chain products,such as chemical intermediates and derivatives for the fine chemicals industry.

Compared to coal, oil and natural gas, terrestrial biomass is considerably morecomplex, constituting a multi-faceted array of low and high molecular weightproducts: sugars, hydroxy and amino acids, lipids and biopolymers, such as cellulose,hemicelluloses, chitin, starch lignin, and proteins.”



In principle, there is enormous potential to derive fine chemicals from renewalresources, including carbohydrates, lignocellulosics, and waste. Research is requiredto convert carbohydrates into various specialty chemicals.

Metabolic Engineering

To provide sustainable and renewable chemicals for the world, metabolicengineering has been widely used in the past two decades to produce a widerange of compounds, including biofuels, biopharmaceuticals, and polymers. Ingeneral, metabolic engineering aims to use cells as factories for chemical production.

To achieve this goal, strategies from both synthetic biology and systems biologyneed to be adopted. In brief, synthetic biology contributes to metabolic engineeringby creating diverse biomolecular devices for precise and controllable regulation ofbiosynthetic pathways while systems biology uses in-depth analysis of cellmetabolism to achieve the rational design of biosynthetic pathways.

Harvard scientists have developed a method for creating custom-designedbiosensors that can dramatically accelerate the metabolic engineering of organismsfor high-yield speciality chemical production. Metabolic engineering has led to thedevelopment of many different high-producing yeast and bacteria strains that areor will be applied to the commercial production of speciality chemicals. Withtraditional approaches, however, that process takes years to determine the necessarymutations that provide the desired performance. Researchers at Harvard’s WyssInstitute for Biologically Inspired Engineering and Harvard Medical School (HMS)have tackled this problem with the development of new biosensor technology thatcan be used to screen millions of strains rapidly for target compounds to identifythe most productive variants.


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