Soaps andDetergents

Suppliers Take Stock of RecoveryConsumer trends forced formulators to cut back onsurfactants and switch to cheaper ingredients. As sup-piiers iook forward to economic recovery this year, someworry these cost-cutting measures are here to stay.

Fornmlators and suppliers to the soapand detergent sector expect an uptlckin demand as recovery progresses,

although some express concern that a deeprecession could have a lasting impact on con-sumer spending; habits. However, analystsare confident that demand in developingregions will pace growth, and consumerpressure for more sustainable products willovertake recession survival tactics as thestrategic priority.

The global market for surfactants isestimated to be $14 billion in 2009, and isforecast to reach $18 billion by 2015, saysmarket research firm BizAcamen (SanFrancisco). Anionic snrfactants constitutenearly half of the global market demand, but

consumer preference for milder productswill drive robust demand for amphotericsurfactants, it says.

Meanwhile, the recession has made con-sumers "focus on value for money, withsome contributions to tbe environment,"says Gary Dee, business manager/home andpersonal care at BASF. "There was somedrop off in sales in the North Americanmarket last year, but we are starting to seesigns of recovery," Dee says. "There's been asignificant interest in value products, whereperformance is very high for the price."

Inventories began to rebuild in thefourth-quarter of 2009, and this restock-ing is expected to carry over into 3010,says Sbafeek Razak, marketing manager

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at BASF. "This is another indication of themarket turning around." Razak says.

During the recession "there was a trendtoward cutting down costs in their formula-tions in two ways. First, by reducing activematter in the formulation, and second, byreplacing ingredients with cheaper alterna-tives," says Volker Radonjic, global productgroup manager for primary surfactants atCognis.

Rhodia has also seen a shift in demandto value brands as consnmers look to savemoney wherever possible. "Tbe premiumbrands have suffered," says Sébastien Méric,v.p./home and personal care at Rhodia. "Wealso saw an extension of the private labelsin 3009,"

Tbe shift has not resulted in lowerdemand at Rhodia. "We are a supplier to thepremium, mid-tier, and value brands." saysPascal Juery, president of Rhodia Novecai'e,a Rhodia division that includes home andpersonal care products. "So the shift is notreally affecting our busiuess, and tbe homeand personal care market remains as resil-ient as ever.

Sasol's Olefins & Surfactants division{Sasol O&S) posted a decline of 4%-5% insales to detergents and cleaners last year."Looking back at past recessions, we alwayssaid that the detergent and cleaner marketwas recession-proof in developed regions,"says Tom O'Brien, general manager/organ-ics at Sasol O&S. "We may have seen itflatten, but we never saw declines. Tliiseconomic crisis was different." Tbe biggestcontributor to the decline was the destock-ing, O'Brien says. However, formulatorslooking to save by reducing surfactant loadsand consumers down-tiering to private labelbrands that typically use less surfactantsin the ñrst place, also contributed to thedecline, he says.

Consumers are beginning to trade upagain, however, and sooner than antici-pated. "We started to notice this in the thirdcalendar quarter of last year and it contin-ued through the fourth quarter," O'Briensays. Given the severity of the financialcrisis, the company had thought consum-ers would stay with value brands for a muchlonger time. "I have to say it was a little bitto our surprise," he adds.

Other firms say consumer trends favoringcheaper soaps and detergents had a negli-gible effect on surfactant sales.

Evonik Goldschmidt says it did not seesignificant shifts in its sales from premiumto value products. "Sales were down prettymuch across the board, although we did

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COVER STORY

hear from our customers that the shift wasgoing on," says David Del Gnercio, seniorv.p. and general manager/consumer special-ties, household care at Evonik Goldschmidt.Volumes at Evoiiik's household care husi-ness declined approximately 4% in 2009over 2008 levels. Cost-cutting efforts did,however, change the dynamic of the indus-try. "Ten or fifteen years ago, innovationwas generally introduced hy manufacturingcompanies like Evonik, and the customerswould decide if and where such chemistriesfit. Now, after evaluating cost and successratios of new products, there's much moreemphasis on joint development projectshetween customers and huyers. Everyonehas limited resources and wants to increasedevelopment success," Del Guercio says.

Expectations for this year are conserva-tive. "Overall we're expecting a 3%-5%recovery for volumes in the household carehusiness, similar to the levels we saw for2008 as a whole," Del Guercio says.

Ciariant also says it did not notice a sig-nificant shift towards consumers huyingcheaper brands, hut did see cost-cutting hytheir customers as an opportuuity to offerthem with new ways to reduce formulationcosts, "The good thing about a crisis is thatyou need to be creative, that you need toenhance and tailor the properties of yourofferings to the prevailing market realities,at lower overall formulation costs for thecustomer," says Michael Willonie. head ofthe industrial & consumer specialties (ICS)husiness at Ciariant.

Sales in 2009 sales were "rather resilientversus 2008 within industrial and consumerhard surface cleaning as well as in fah-ric care," says John Cate, global husinessdirector of fabric and cleaning applicationsat AkzoNohel Surface Chemistry. "Withinthose, the Industrial & Institutional segmentwas hit the hardest due to the strugglingautomotive sector and also the travel indus-try," Cate says.

Ciariant is expecting a "reasonable" rateof recovery this year that will bring thecompany's sales to the soap and detergentindustry slightly above 3009 levels, Willomesays. "For several months we have notedgood and increasing demand in Asia. LatinAmerica is expected to grow as well, whilethe situation in Europe and particularly inNorth America remains more difficult." Buteven in these mature markets, the companyhas seen some signs of improved demand, hesays.

Sasol O&S is expecting the market to havehigher demand growth rates this year, with

CATE: Products in de- KELLY: 'Green' productsveloping world ftecome have survived themore sophisticated. recession.

5%-l5% expected in developing regions,and l%-3% for developed countries.

Trends so far this year have been encour-aging, says Jack Perini, global husinessmanager/alcohol & ethoxylates at ShellChemical. "Customers are rehuilding inven-

ICLEANING UP(2015 Global Surfactant Sales: $18 billion)

20.000

2007 2009

SourM; BliAcumen (San Francisco).2015

tories and intrinsic demand appears to heimproving. Ethoxylates appear to he stron-ger for both non-ionic and anionic forms aswell," Perini says.

Consultants say a slight recovery in thelinear alkylhenzene (LAB) market waswitnessed during the second half of 3009after the economic downturn cut demandduring the three previous quarters, saysJoel Honston, president of consulting firmColin A. Houston & Associates (Brewster,NY). "Usage levels for 2009 are estimatedto he fiat with no overall growth above 2008levels," Houston says. "The rationaliza-tion of feedstocks seen in Western Europeand North America over the past two yearshas lowered production in the Westernhemisphere, while growth continues forLAB demand and production in the MiddleEastern, African and Asian regions. LatinAmerica is resilient, and with only slighteffects seen from the crisis while growth isexpected over the current year."

Several planned and announced methylester sulfonates (MES) projects in Asia areentering the commercialization phase, hut

not without delays, Houston says. The startup of new merchant plants in Malaysia,Thailand and India will provide a newresource for formulators looking to differen-tiate their products. "However, the customerbase has yet to be estahlished. Interestedparties are watching the marketplace forMES activity to judge the potential successof future projects."

Suppliers say the technology spread forsurfactant production between the devel-oped and developing world is closing. "Upuntil now, developing regions have stayedwith the older, more traditional and estab-lished product techuologies that developedregions have long since abandoned fornewer, more environmentally friendlyacceptable varieties," Del Guercio says. "Butnow we are beginning to see movement inthe developing regions toward more envi-ronmentally acceptable and sustainabletypes."

Consumers in developing regions are alsobeginning to shift from powder detergentsto more expensive liquid detergents. Merlesays. However, this trend did slow with theeconomic conditions of 2009, he adds.

Rhodia has been focused on emergingmarkets, where surfactant demand in soapsand detergents and other home and personalcare products has grown dramatically. Thecompany recently used its acquisition ofsurfactants maker Mclntyre Group in early2009 to extend its product range amd itspresence in fast-growing regions.

Meanwhile, formulation support for devel-oping regions is an "essential success factor,as opposed to developed regions such as theU.S. and Europe where innovation is key,"says Clariant's Willome.

Sasol O&S, which serves customers indeveloping markets from its plants in Chinaand South Africa, says cost sensitivity isstill a big driver in the developing world."In general, product performance is a sec-ond priority, and the paramount challengeis getting the lowest cost surfactant into theformulation," O'Brien says.

"We're seeing the sophistication of clean-ing products increase in the developingregions," Cate says. "We see the door open tous to sell some of our value-added products.As an example, in Asia, we're having successin some of our water-based degreasing tech-nology replacing solvents. In Asia, it's moreopen to us switching from solvent-based towater-based technology." Asia's humid con-ditions also means that products that sold inNorth America or Europe are not stable inthose conditions. Cate says. "Those products

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COVER STORY

must be redesigned or we have to providealternatives that are stable."

BASF says one area it is focnsing on inemerging markets is fragrance solubiliza-tion. "Developing regions use a lot morefragrances in their products, it's a major fac-tor for purchasing ñnished goods," Razaksays. BASF has developed Lntensol XL, aseries of surfactants for the solubilizationfor a variety of fragrance oils.

Market players must also contend withthe requirements of the European Union'sRegistration, Evalnation, and Authorisationof Chemicals (Reach) law, with the full reg-istration for the first tier of products duelate this year. The implications of possiblechanges in the U.S. to the Toxic SubstancesControl Act (TSCA) law is also increasinglyon industry's radar.

Sasol O&S says it has been working withthe Soaps and Detergents Association(SDA: Washington) on the TSCA debate.However, industry appears to be divided onwhat changes to TSCA are needed. "Thereare some people who feel we ought to justadopt Reach," O'Brien says. "They are in theminority. These are the companies that alsodo business in Europe, they've figured outReach, so they think it should just be done inthe U.S.-even though they would never haveagreed to Reach had they had a choice," hesays. The other camp is saying they haveto do everything they can to prevent Reachfrom being legislated in the U.S. "In myopinion, the worst case scenario is thatproducts end up banned or restricted with-out science-based debate," O'Brien says.

Evonik supports TSCA reform and isworking with the ACC and SDA to guide leg-islators toward changes that are practical."It's important that the risk assessments arescience-based, and we are not just regulat-ing the end products," says Reinhold Brand,president of Evonik Goldschmidt andEvonik's Stockhausen superabsorbent andoccupational skin care company. "And wewould like the federal government to enactthe regulations: it would be extremely diffi-cult for every state to have their own set ofrules." However, Evonik "would like to seea more pragmatic control put in place, andEPA and government have so far been opento it. The key here is to find a way to protectthe environment and the population withoutrequiring tons of bureaucracy and R&Dresources."

In some instances. Reach has been pro-hibitively expensive and curbed innovation."In the next phases of Reach, there will bediscussions within Evonik about whether

or not we can afford to register certainproducts. There will definitely be someoutsourcing of certain chemistries fromEurope," Del Guercio says. And with costs ofregistration so high, companies may cboosenot to pursue new innovative chemistriesaltogether based on registration cost versusthe potential business gain, he adds.

Suppliers also report that their customersremain committed to making their productsgreener, despite tighter cost restraints. "Therecession does not appear to have affected

customers' willingness to purchase greenerproduct," says Damián Kelly, business devel-opment manager/home care and functionalspecialties at Croda. "This was one positiveaspect of last year and increasing envi-ronmental regulations," Kelly says. "Therecession hasn't affected sustainability. Notjust (customers'] desire to buy green prod-ucts or green ingredients, but their abilityto reduce their carbon footprint as well."

-LINDSEY BEWLEYAND REBECCA COONS

Stocking Up on Innovation

Weak economic conditions have cutinto consumer spending on house-hold products, including laundry

detergents. Producers are responding withmore efficient production and by tappinginto new end-use sectors, to maintain andexpand market share.

Producers expect demand in the globalsoaps and detergents industry to beginpicking up this year as customer inven-tory destocking comes to an end. Soapers'efforts to maintain or expand market shareduring the economic downturn have alsofocused on investing in the developmentof new products and product lines, as wellas in more efficient manufacturing plants.That contrasts with the trend several yearsago when soapers favored acquisitions orjoint ventures,

The worldwide laundry detergent mar-ket will grow about 2.4%/year, to $56.7billion in 2013, according to estimates byconsulting firm Euromonitor International(Chicago). The market grew 8.1%/year in2003-08, Euromonitor says. The slowdownis a direct resuit of the weak economy, espe-cially in developed regions, producers say.

Consumer spending ondetergents and other house-hold products is down in theU.S. and Europe, in line withcontinued high unemploy-ment rates, Procter & Gamble(P&G) CFO Jon Moeller told attendees ata recently held Morgan Stanley confer-ence. Customer inventory drawdowns haveabated, however, and demand for house-hold products is growing modestly in thoseregions, but it is still well below historic lev-els, Moeller says. Developing markets thatwere hit hard by the economic downturn,including Central and Eastern Europe,have rebounded significantly, he says. TheChinese market has also improved, and

tbe Indian and Latin American marketsremain "relatively strong," Moeller says.

U.S. liquid laundry detergent consump-tion reached $3 billion in 2008, accordingto market research firm The Nielsen Co.(New York), up 1.6% from the prior-yearperiod. P&G continues to dominate thatsector, with a market share of about 58%,Nielsen says. P&G's laundry detergentbrands include Tide. Gain, Cheer, and Erain the U.S., and Ariel, Bold, and Fairy inEurope. P&G's U.S. market share erodedslightly last year, slipping 1.6 percentagepoints, Nielsen says. P&G does not breakout sales for its laundry products, hutNielsen data says the company's U.S. liquiddetergent revenues fell 1%.

P&G says the fall in market share reflectsselling price hikes it imposed on several ofits product lines, including liquid laundrydetergents in North America. The move cre-ated a "price gap" between its products andthose of its competitors, Moeller says. P&Graised selling prices to offset significantlyhigher commodity raw material costs andthe effects of a strengthening U.S. dollarcompared with most world currencies.

Global demand for soaps and detergents shouldpick up as destocking comes to an end.

P&G's price hikes were not followed by itsU.S. competitors, which forced P&G's pricesback down. Selling prices are not movingdown across the industry, and price adjust-ments "are behind us," Moeller says.

Soapers, meanwhile, are mostly investinginternally to expand market share, ratherthan through acquisitions as was tbe case afew years ago. Major deals during the pastdecade include Henkel's purchase of Dial in2004. and Churcb & Dwight's (C&D) acqui-

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