Specialty chemicals are produced by a complex, interlinked industry. In the strictest sense, specialty chemicals are chemical products that are sold on the basis of their performance or function, rather than their composition. They can be single-chemical entities or formulations whose composition sharply influences the performance and processing of the customer’s product. Products and services in the specialty chemicals industry require intensive knowledge and ongoing innovation.
Commodity chemicals, on the other hand, are sold strictly on the basis of their chemical composition. They are single chemical entities. The commodity chemical product of one supplier is generally readily interchangeable with that of any other.
Specialty chemical segments are categorized either as market-oriented products (used by a specific industry or market, such as electronic chemicals or oil field chemicals) or functional products (groups of products that serve the same function, such as adhesives, antioxidants, or biocides).
Global consumption of specialty chemicals fell slightly from 2015 to 2016 as a result of the economic slowdown in China, the recession in several South American countries, and continued weakness in the oil and gas and mining industries, plus the spotty performance of the construction markets. Since the Great Recession, global consumption of specialty chemicals has tended to grow in fits and starts. After very anaemic growth of less than 1% in 2012, consumption rebounded during 2013–15. Overall annual growth in market value on a dollar basis averaged 3% during 2012–16. China and Other Asia were the fastest growing regions, at 8.5% and 7%, respectively. Central and South America, Central and Eastern Europe, the Middle East, and Africa registered significant increases, but from very low demand bases.
The largest specialty chemical segments in 2016 were electronic chemicals, industrial and institutional cleaners, specialty polymers, surfactants, and construction chemicals. These accounted for 35% of the industry’s global sales. Approximately 55% of world consumption of specialty chemicals went into only four end-use industries – soap, cleaning, and cosmetics; food and beverages; electrical and electronics; and construction. Other important end-use industries for specialty chemicals include motor vehicles, paper and pulp, plastic products, printing and publishing, and oil and gas mining.
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 process technology, the breakdown of numerous economic barriers, the rapid growth of the newly industrialized Asian economies, and rising standards of living in many developing countries, the center of gravity of the global chemical industry is shifting toward the Middle East, where cheap petrochemical feedstocks are available, and Asia, where labor costs remain relatively low and economic growth is high.
Increasingly, North American, European, and Japanese specialty chemical producers look to developing regions for growth. Many have established manufacturing facilities in Asia and elsewhere, and at the same time, Chinese and Indian manufacturers have become key players in several specialty chemical markets. However, the concept of China as a low-cost producer is gone, because the country is shifting from an export focus to meet growing domestic needs for higher-value downstream products. As competition increases and mature products become commoditized, innovation remains one of the few sources of competitive advantage.
In general, higher growth rates for the global market reflect the positive outlook for China, Other Asia, and other emerging markets, where manufacturing activities – notably automobile and electronic production – are expanding significantly. In many cases, these activities are contracting in the three major regions as operations shift to nations with lower labor costs, raw material abundance, or other advantages. In addition, emerging markets have higher growth rates than North America, Western Europe, and Japan because they are calculated from a lower base because their per capita consumption of specialty chemicals is still very low compared with that of the developed regions.
Several specialty chemicals segments are projected to grow faster than the average 3% annual growth forecast for all specialty chemicals during 2016-21. Growth prospects for some of these segments—notably nutraceutical ingredients and electronic chemicals – are favorable because of the positive outlook for the corresponding end-use industries. Segments such as nutraceuticals, cosmetic chemicals, and flavors and fragrances owe their auspicious prospects to rising levels of disposable income in the developing world and renewed (if less-than-robust) consumer spending in North America, Western Europe, and Japan.
During 2016-21, the volume consumption of specialty chemicals is expected to increase at 3.0-3.5% annually on a global basis. Consumption in North America, Western Europe, and Japan combined will grow more slowly, at about 2% per year. Growth in the developed nations is constrained by debt, adverse demographic factors, and tighter fiscal policies. Growth in emerging markets will be much higher. China will have the highest regional growth rate during the next five years, despite some near-term economic setbacks. Specialty chemicals consumption in China is expected to increase at 6-7% per year, lower than the historical 8–9% per year, but robust enough to power the global growth of specialty chemicals during the next five years. In general, the emerging markets offer more dynamic prospects for the specialty chemicals industry because of rising consumer-driven economies and industrialization.