China Asserts Dominance in Specialty Chemicals Demand as Consumerization and Personal Electronics Drive Growth, IHS Markit Says
Specialty chemicals a $556 billion market; M&A activity continues as producers seek to capture high-value margins
HOUSTON (October 4, 2017) – The global market for specialty chemicals totaled $556 billion in 2016, driven by growing global demand for personal electronics and the increasing buying power of Chinese consumers, according to new analysis from IHS Markit (Nasdaq: INFO), a world leader in critical information.
Specialty chemicals are specially formulated chemicals that are sold on the basis of their performance or function, rather than their composition. They are the focus of the IHS Markit report entitled Specialty Chemicals Update Program: 2017 Overview of the Specialty Chemical Industry.
“The specialty chemicals market is very closely tied to economic growth, so the market was sluggish last year and declined slightly (minus 0.2 percent) compared to 2015," said Aida Jebens, associate director of specialty chemicals at IHS Markit, and the report’s lead author. “Since then, the market has been impacted by the economic slowdown in China, the recession in several South American countries, the weakness in the oil and gas industries, and the spotty performance of construction markets.”
Of the global market, electronic chemicals, industrial and institutional cleaners and specialty polymers, each accounted for 7 percent to 8 percent of the total, with a market value of $40 billion to $45 billion in 2016, IHS Markit said. Surfactants, construction chemicals, flavors and fragrances, catalysts, specialty coatings, and water-soluble polymers accounted for roughly $30 billion each in market value. The food-additives market was about $25 billion.
While consumer-driven categories such as electronics chemicals had robust demand growth, one casualty of the market has been oilfield chemicals, according to the IHS Markit report. The amount of specialty chemicals consumed by the oil and gas industry was about 4 percent in 2016, which was down from 6 percent during 2013 to 2015, due to the continued weakness in crude oil prices.
In terms of regional markets, Jebens said, North America, Western Europe, and Japan had a combined market value of almost $270 billion dollars, or half of the global specialty chemicals market, which means the established regions still consume the largest portion of specialty chemicals. However, China’s market share of 23 percent has grown considerably, and is now as big as that of North America, which holds 24 percent of the specialty chemicals market, IHS Markit said.
“This was not the case just a few years ago,” Jebens said. “In 2012, China’s market share of specialty chemicals was less than 20 percent compared to North America’s 25 percent market share. In addition, the market shares held by Western Europe and Japan have steadily declined. In 2012, Western Europe accounted for 21 percent of the global value in the specialties sector; but as of 2016, Western Europe’s share of the global specialty chemical market is down to 17 percent. Japan carried 12 percent of market share in 2012, compared to just 8 percent in 2016.
In terms of end-use industries, almost 55 percent of the global specialty chemicals market in 2016 went into only four end-use sectors—soap, cleaning, and cosmetics; food and beverages; electrical and electronics; and construction. Soap and cleaning was about 20 percent of the market, food and beverages was at 14 percent, electrical/electronics represented 12 percent of the specialty chemicals market, while construction accounted for 9 percent of the market. Other important end-use industries for specialty chemicals include motor vehicles, paper and pulp, plastic products, printing and publishing, and oil and gas extraction.
In the next five years, the global specialty chemicals market will grow 3 percent annually, the IHS Markit report said. Specialty chemicals consumption in North America, Western Europe and Japan will increase slower than the world average. In comparison, China's market will grow the fastest. Its economy is still accelerating at a steady pace of 5 percent to 6 percent, although not at the phenomenal rate it was a few years ago. IHS Markit report expects China’s share of the specialty chemicals market to surpass that of North America by 2021.
In terms of category growth, several specialty chemicals such as nutraceuticals, electronic chemicals, flavors and fragrances, and specialty coatings will grow faster than the world average due to the positive outlook for the corresponding end uses, IHS Markit said.
“Specialty chemicals require more formulation and customization than commodity chemicals such as ethylene or polyethylene, and as a result, they often provide a competitive market niche and better margins for producers, so they are an important part of the chemical producer‘s portfolio,” Jebens said. “As we have seen over time, companies are increasingly shifting their portfolio towards the specialized chemicals in order to hedge their position in the business.”
BASF is the largest specialty chemical company in the world, with an estimated $43 billion in revenues generated from specialties. It is present in all major market segments and is among the leaders in catalysts, construction chemicals and plastics additives. BASF further competes among the top three players in the biocides, food additives, nutraceuticals, and cosmetic chemicals market segments.
Dow Chemical and DuPont have occupied the second and third positions globally in specialty chemicals for many years, Jebens said. However, with the merger of those two companies now complete, the future rankings will change. DowDuPont will subsequently split into three independent, publicly traded companies within 18 to 24 months. One of these companies will specialize in specialty chemicals, the others in agriculture and in material science. Given the extent of both Dow’s and DuPont’s current participation in the industry, there is no doubt that the new specialty chemical company will remain in the top 10 list, IHS Markit said.
“The finalization of the DowDuPont merger is but one of a number of mergers and acquisitions in the specialty chemical industry at present, but it is not likely to be the last, since several companies are divesting of less productive assets and seeking to strengthen core assets where they have a competitive advantage,” Jebens said. “Acquisitions also give global companies a means to enter a regional market where they seek to grow.”
To speak with Aida Jebens, please contact Melissa Manning at email@example.com. For more information on the IHS Markit Specialty Chemicals Update Program: 2017 Overview of the Specialty Industry, please contact Jennifer.firstname.lastname@example.org.
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