May 2010

Overview of the Specialty Chemicals Industry
Acetaldehyde
Acrylic Surface Coatings
High-Intensity Sweeteners
Mono-, Di- and Triethylene Glycols
Potash
Tartaric Acid
ExxonMobil’s Ultra High Viscosity Index Poly alpha Olefin Lubricant Blend Stock
CEH Reports and Product Reviews in Preparation
PEP Reports Scheduled for 2010
SCUP Reports Scheduled for 2010

SCUP Report Abstract
OVERVIEW OF THE SPECIALTY CHEMICALS INDUSTRY
By Ralf Gubler with Yoshio Inoguchi, Akihiro Kishi, Hiroaki Mori, Stefan Müller, Ray K. Will, Wei Yang, Kazuteru Yokose and Masahiro Yoneyama

The global chemical industry underwent a dramatic downturn in the fourth quarter of 2008, after good first and second quarters, and a robust third quarter. The sharp decline in demand was made worse by inventory destocking (without restocking) across most supply chains during the fourth quarter of 2008. The destocking trend continued through June 2009 as manufacturing industries minimized inventory levels as a result of credit restrictions. During the recession, consumption from key consuming industries such as construction, automotive, electronics and textiles fell massively worldwide.

The following pie chart shows world consumption of major specialty chemicals:

In several specialty chemical markets, prices had been falling, especially when volumes had increased and production had shifted overseas to places like China/Southeast Asia. This is a natural tendency of shifting from specialty to commodity chemicals over time. In the last few years, energy and feedstock prices rose considerably; however, these cost increases have been very difficult and have not always been passed on to customers through price increases. In particular, in the first half of 2008, commodity and specialty chemicals manufacturers struggled with sharply rising oil-based feedstock, transportation and energy costs that were up more than 25–40% year over year. This combined with weak demand conditions from most of their end-use markets put tremendous strain on the entire value chain. To at least partially offset their climbing costs, all specialty chemicals manufacturers announced across-the-board price hikes starting in the second quarter of 2008, effective immediately or as contracts permitted, some in excess of 20% depending on exposure to the increased costs.

Faced with the sudden drop in demand for commodity and specialty chemicals, in particular after the fourth quarter of 2008, chemical manufacturers quickly closed dozens of plants permanently and slowed production or idled hundreds more in all major regions. Other cost-cutting actions included planning for the elimination of numerous employees, sometimes up to 5–10% of their total workforce, by the end of fiscal 2009 or 2010, releasing temporary workforce personnel, reducing overtime, instituting compulsory vacation and part-time work, and freezing wages and salaries in fiscal 2009, as well as bringing forward scheduled maintenance work to coincide with cutbacks. Because the financial crisis was making access to cash more difficult and more expensive, chemical companies reduced capital expenditure programs and focused on cash and credit management.

The weakened demand resulting from the economic crisis led to a severe overcapacity situation across the chemical industry. The industry is operating far below its optimal capacity utilization rates, which leads to lower production efficiency and reduced margins. Because of slow volume growth forecast for 2010, companies are expected to preserve cash by cutting capital spending further. Many industry participants, particularly in developed regions, have to rethink their business models, to adapt their cost structure to current demand. Therefore, it is expected that many specialty chemical players will be looking at supply chains and administrative costs, reviewing their product portfolio and production locations. Emerging from the crisis, specialty chemical companies have to be highly flexible to respond to different growth scenarios, as much stronger demand growth is forecast for the developing world like Asia and Latin America, while growth will be limited in North America and Western Europe.

Several specialty chemicals segments (e.g., construction chemicals, electronic chemicals [IC process], plastics additives, textile chemicals or specialty polymers [engineering thermoplastics used by the automobile and electrical/electronics industry]) followed the downturn of their respective end-use industries, which was heavy, especially for the electronic, automotive and construction industries. Relatively high future growth rates are expected from segments serving these end-use industries (such as electronic chemicals, specialty coatings and construction chemicals), albeit from much declined markets compared with a year ago.

Other segments such as emission control catalysts or lubricating oil additives suffered much less from the downturn in their end-use (automobile) industry because of additional influences. Ninety percent of lubricating oils used by the automobile industry are sold to the aftermarket while only 10% are purchased by automobile manufacturers for new cars. Autocatalyst consumption will grow faster than actual automobile production in both developed and developing regions during the next five years due to more-stringent emission control legislation toward zero-emissions vehicles and due to an increased number of catalyst bricks in the catalytic converter, needed to comply with new legislation.

The economic downturn has also had a negative impact on consumers, leading to a lower average disposable income growth for consumers, higher unemployment and lower consumer confidence. Consumers are therefore likely to generally reduce their expenses and as a result consume less. Secondly, consumers are likely to spend more efficiently and change the amount spent on certain product categories. This is likely to trigger changes in relative demand for specific product categories.

The principal drivers for the economies in China and India are their large domestic middle-class markets and large supplies of labor. The countries’ industry structure and capability are improved and supplemented by domestic and foreign investment. Many foreign companies have also made significant commitments and investment in China and India and plan to continue to invest over the long term. China and India have become key players in several specialty chemicals markets. The majority of investment in specialty chemicals manufacturing will occur in these two countries, not only because of the abundant availability of skilled and cheap labor but also because of the certainty of potentially huge markets.

(For the complete May 2010 report on OVERVIEW OF THE SPECIALTY CHEMICALS INDUSTRY, visit this report’s home page or see vol. 2 of Specialty Chemicals—Strategies for Success.)

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CEH Marketing Research Report Abstract
ACETALDEHYDE
By Michael Malveda with Chiyo Funada

Acetaldehyde is produced throughout the world primarily from ethylene, although some is still derived from ethanol and acetylene. Demand for acetaldehyde worldwide has continued to decrease primarily as a result of less consumption for acetic acid manufacture, as the industry continues to move toward the more efficient and lower-overall-cost carbonylation-of-methanol process. For example, all manufacture of acetic acid from acetaldehyde in North America has been discontinued and in Europe significant capacity for this process has been permanently shut down. Acetaldehyde use for acetic acid manufacture in Asia continues but is under pressure from the ongoing establishment of methanol carbonylation technology.

Demand has also significantly declined in the production of plasticizer alcohols, which has totally switched to oxo processes. As a result of these process replacements, acetaldehyde capacity has been shut down in Western Europe and in other areas, such as Mexico. In addition to the disappearance of use for acetic acid and plasticizer alcohols, acetaldehyde demand has also declined in the last few years because of mature end-use markets and the effects of the economic downturn on these acetaldehyde-derived products. There has also been continued substitution for acetaldehyde-based chemistries with other materials, which has further contributed to the drop in acetaldehyde use.

The following pie chart shows world consumption of acetaldehyde:

Consumption in China is expected to grow over 5% annually in the next five years. Acetaldehyde use for acetic acid production will increase, although this will be more of a recovery back to the pre-2009 level. Actual growth might be limited because of acetic acid production from the methanol carbonylation process. Strong growth of over 6% annually will actually occur in pyridine production and there will be moderate growth for use in pentaerythritol, as alkyd resin enamel and varnish production goes up. Other uses are generally mature, such as sorbic acid production.

Indian consumption is anticipated to have moderate growth of over 3% annually in the next several years. Acetaldehyde demand for acetic acid production will grow 3–4% per year, while consumption for pyridines is expected to return to the 2008 level. Other uses for acetaldehyde will also increase 3–4% annually.

Overall, the global market for acetaldehyde is expected to grow 2–3% annually during 2009–2014. However, some of this growth is actually a recovery from the significant decline experienced in 2009 (for example, China’s use in the acetic acid market). Major regions including Japan, Western Europe and the United States will have low growth because of no use or no growth for acetic acid production, minimal growth in other acetaldehyde-consuming products, or continued product replacement of materials that consume acetaldehyde.

(For the complete marketing research report on ACETALDEHYDE, visit this report’s home page or see p. 601.5000 A of the Chemical Economics Handbook.)

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CEH Marketing Research Report Abstract
ACRYLIC SURFACE COATINGS
By Eric Linak with Akihiro Kishi

Acrylic surface coatings are the leading finishes used in the paint and coatings industry, having surpassed alkyd finishes over the past few years. Based on acrylic and/or methacrylic polymers or copolymers, acrylic surface coatings are noted for their inertness and excellent color retention when exposed to outdoor conditions. Acrylics are one of the fastest-growing sectors in the coatings industry; it is estimated that global consumption of acrylic surface coatings grew at an 8% per year rate during 2003–2007, but was then affected by the global economic crisis of 2008–2009, resulting in a large drop in consumption in the industrialized regions of the world. Acrylic coatings now account for about 25% of all coatings. Worldwide sales of acrylic resins for coatings were estimated at about $5 billion in 2009.

The following pie chart shows world consumption of acrylic surface coatings:

Areas that should experience noticeable growth in architectural coatings are Brazil and China. In Brazil, consumption of architectural coatings had been growing by 5–8% annually until 2009, when the increase slowed to 2% because of the global economic crisis. The market is expected to grow again at healthy rates as the Brazilian economy remains strong. The construction boom continues in China, which will be further stimulated by the 2010 World Expo in Shanghai and the Asia Games in Guangzhou. Consumption of acrylic coatings increased by 18% per year during 2004–2009 in China. China has been gradually increasing the use of high-performance coating products (such as acrylics) and the amount of environmentally friendly coatings. Consumption of higher-quality paints will grow even more quickly as users move away from low- to medium-cost paints produced by local manufacturers. Consumption of waterborne acrylic basecoats for vehicles has been increasing as some Japanese automobile manufacturers, such as Toyota and Honda, started to use water-based systems in new product lines built in China beginning in 2007. Consumption of acrylic coatings in China is forecast to grow at 8–12% annually for the next five years.

There has been a shift toward waterborne acrylics used as automotive basecoats, for environmental reasons. Currently, waterbornes account for 50–60% of the global market for automotive basecoats, which is up considerably from 1997, when the penetration was about 20%. In 2005, BASF began to make waterborne basecoats in China. Toyota and Honda began using water-based systems for new product lines built in China after 2006. Toyota has converted a number of its assembly lines in Japan to waterborne basecoats and Honda will convert several of its lines in the near future. Some Japanese automobile manufacturers started using waterborne coating systems at new plants in Thailand and Indonesia supplied by Kansai Paint, Nippon Paint and others.

(For the complete marketing research report on ACRYLIC SURFACE COATINGS, visit this report’s home page or see p. 592.5500 A of the Chemical Economics Handbook.)

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CEH Marketing Research Report Abstract
HIGH-INTENSITY SWEETENERS
By Akihiro Kishi with Sebastian N. Bizzari and Hossein Janshekar

The main high-intensity sweeteners discussed in this report include saccharin, cyclamate, aspartame, acesulfame K, sucralose, stevioside, glycyrrhizin, alitame and neotame.

Beverages account for the majority of world high-intensity sweetener consumption, followed by food, tabletop sweeteners, personal care products and pharmaceuticals.

The following pie chart shows world consumption of high-intensity sweeteners:

Cyclamate is the largest high-intensity sweetener produced worldwide in terms of actual volume; due to its lower intensity, it only accounts for 10% in terms of sucrose sweetness equivalent volume. Saccharin is the second-highest-produced high-intensity sweetener in terms of actual volume; however, it accounts for nearly 36% of worldwide sucrose sweetness equivalent volume since it is 300 times as sweet as sucrose. Saccharin and cyclamate are the lowest-cost high-intensity sweeteners available, and therefore enjoy wide use in nearly all markets, especially developing regions such as Asia, Africa, and Central and South America. The notable exceptions for cyclamate are the United States and Japan, where its consumption is banned.

Asia accounts for most world consumption of both cyclamate and saccharin, largely because of their low cost. Although diet beverages and food are becoming more popular for health reasons, large volumes of cyclamate and saccharin are used to replace sucrose in many Asian countries and other developing regions. North America accounted for nearly 48% and 67%, respectively, of world aspartame and sucralose consumption in 2009; the United States is the largest market for aspartame, acesulfame K and sucralose.

Aspartame and acesulfame K are used for most low-calorie beverages as well as in various other applications in developed countries, such as the United States, Western Europe and Japan, and the growth rate to 2014 is estimated to be relatively lower in these countries. A higher growth rate is estimated for semideveloped countries such as Mexico, some countries in Central and South America, Asia, and Eastern Europe, as living standards improve in these regions. Cyclamate and saccharin continue to be the major high-intensity sweeteners in developing countries.

(For the complete marketing research report on HIGH-INTENSITY SWEETENERS, visit this report’s home page or see p. 543.6500 A of the Chemical Economics Handbook.)

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CEH Marketing Research Report Abstract
MONO-, DI- AND TRIETHYLENE GLYCOLS
By Henry Chinn with Takashi Kumamoto

In 2009, almost 85% of the monoethylene glycol (MEG) consumed worldwide went into the production of polyethylene terephthalate (PET), which in turn was converted into fibers, film and bottles. Another 10% was consumed in antifreeze and 5.5% in other uses. In 2009, 69% of the MEG consumed worldwide was in Asia, followed by 13% in North America and 8% in Western Europe.

Diethylene glycol (DEG) and triethylene glycol (TEG) are obtained as coproducts in the manufacture of MEG from ethylene oxide. Not all MEG producers recover DEG and TEG; some recover and sell glycols above MEG as unspecified polyglycols. In addition, intentional production of TEG may be carried out by the reaction of ethylene oxide with DEG. U.S. and Japanese producers often supplement coproduct TEG supply with this method.

In the United States, 51% of the DEG consumed in 2009 went into the production of unsaturated polyester resins and polyurethanes. These same markets accounted for 53% of DEG consumption in Western Europe. In Japan, cement grinding was the largest DEG market, accounting for 28% of total DEG consumption in 2009; unsaturated polyester resins and polyurethanes amounted to 25%. The global DEG market is only about 10% that of the monoethylene glycol market; the TEG market is even less, at about 1%.

The following pie chart shows world consumption of monoethylene glycol:

The ethylene glycol market is at continued high risk for consolidation of producers as new plant capacity will be added in China, India and the Middle East (the Middle East has the feedstock advantage). The market is also at continued high risk for consolidation to increase the number of global players (rationalization of small, older producers/production lines will continue, as well as conversion of EO-EG plants to EO-only production plants).

(For the complete marketing research report on MONO-, DI- AND TRIETHYLENE GLYCOLS, visit this report’s home page or see p. 652.4000 A of the Chemical Economics Handbook.)

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CEH Marketing Research Report Abstract
POTASH
By Bala Suresh

The global potash market collapsed in 2009, as worldwide demand plummeted to its lowest level in the past three decades. Capacity utilization was at 50% levels as inventories were piling up. Sales of potash fertilizers fell more than consumption as existing inventories were being exhausted. As the economic situation improves along with clarity on market conditions, sales of potash fertilizers are also expected to keep pace and advance. Demand is seen to be rising in the Americas and also in China and India. The largest exporter in the world, Canpotex, which is owned by a consortium consisting of Agrium, Mosaic and Potash Corp., executed large contracts with China and India in February 2010.

Potash is the third most widely used fertilizer nutrient, following nitrogen and phosphorus. Fertilizer use accounts for approximately 95% of total potash consumption, the balance being consumed in a variety of industrial applications. World potash production is confined to only twelve countries and is dominated by Canada, the former USSR and Germany, which together accounted for about 63% of world production in 2009. The Middle East and Socialist Asia accounted for about 22% while the Americas accounted for an additional 7%.

The following pie chart shows world consumption of potash:

The need for food and the nutrients required to produce food will not go away. Though the prices of crops and the purchase timing may affect short-term demand, growth is definite in the medium to long term. The demand for food directly influences potash production. The global population is expected to grow at an average annual rate of slightly less than 3% during the forecast period to 2014. As developing nations improve their economies, there is a shift from traditional rice-based grain production to high protein–based grain production. The increase in meat consumption will drive livestock production, which consumes crops like corn, which in turn increases requirements for potash. The rate of growth of potash fertilizers is dependent on consumption patterns in China and India. According to some estimates, China could potentially be a 15 million metric ton market and India could be a 10 million metric ton market. Demand will also be emanating from the production of regulatory-driven biofuels, including ethanol and biodiesel. There will be an increasing requirement to cultivate more corn, sugarcane, and palm crops. These crops will increase the use of potash. The United States is the largest ethanol producer and uses corn as a primary crop to produce ethanol. Brazil produces ethanol mostly from sugarcane, and Asia, Malaysia and Indonesia grow palm for use in biofuel production.

During the 2009–2014 period, a significant improvement in the world potash supply/demand balance is expected, as demand improves from China, Brazil and India. The world economy is also showing signs of steady recovery and global GDP is expected to be above 4.2% in the near future. With a steady improvement anticipated for world consumption, particularly for developing countries, the average world industry operating rate should climb back to a satisfactory level toward the end of the forecast period.

(For the complete marketing research report on POTASH, visit this report’s home page or see p. 764.1000 A of the Chemical Economics Handbook.)

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CEH Marketing Research Report Abstract
TARTARIC ACID
By Sebastian N. Bizzari and Milen Blagoev

Wine, food and beverages accounted for approximately 68% of world consumption of tartaric acid in 2009; global consumption in these applications is forecast to grow at an average annual rate of 3.4% during 2009–2014. Other applications for tartaric acid include cement and gypsum (as a set-retardant and antisolidifying agent in the production of plaster and cement, as well as an anticaking agent in gypsum processing), effervescent antacids and as a synthetic intermediate for pharmaceuticals.

The following pie chart shows world consumption of tartaric acid:

World consumption growth for tartaric acid in wine, food and beverages is significant. The main factors behind this growth are:

• Growing demand for wine in all regions, particularly in Asia.
• Desire for convenience (increased popularity of processed foods and ready-to-drink beverages).
• New beverage and food introductions, mainly fruit-flavored beverages and foods, including ethnic and exotic fruit flavors and flavor blends. Tartaric acid is typically used with other acidulants to provide the right balance of flavor and cost. Nutritional and fortified beverages and foods are also expected to increase demand for tartaric acid.
• Food safety (preservation); longer shelf lives are anticipated as more food and beverages are consumed days or weeks after production.

Wine accounts for most of the consumption in North and South America, Australia, the Middle East and Africa (mainly South Africa). Pharmaceuticals account for the most consumption of tartaric acid in Asia, largely in China. Demand growth in wine, food and beverages is the main factor for growth in most world regions except Asia; pharmaceuticals, food and beverages account for most of the growth in Asia at present simply because of the minor presence of wine production.

For the complete marketing research report on TARTARIC ACID, visit this report’s home page or see p. 695.2000 A of the Chemical Economics Handbook.)

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PEP Review Abstract
EXXONMOBIL’S ULTRA HIGH VISCOSITY INDEX POLY ALPHA OLEFIN LUBRICANT BLEND STOCK
By Anthony Pavone

In 2004, ExxonMobil Chemical Company (Houston, Texas) began introducing a family of ultra-high-viscosity-index poly alpha-olefin (UHVI PAO) grades, designed to be used as fully synthetic blend stocks for high-severity lubricating oil applications. Industry terminology segments PAO grades by kinematic viscosity (at 100°C) as follows:

ExxonMobil and INEOS are the dominant PAO producers across all grades, with approximately a 35% market share each on nearly 500 thousand metric tons per year of global PAO capacity. ExxonMobil owns the dominant PAO trademark with its Mobil-1™ formulated brand of fully synthetic automotive and industrial lubricants based on PAO. The only other producer of competing material is Mitsui, whose product is a co-oligomer of LAO and ethylene (Lucant™) at viscosities ranging between 600 and 1,000 cSt. Global UHVI PAO plus Mitsui Lucant™ production capacity is on the order of 4 thousand metric tons per year, 75% of which belongs to ExxonMobil. Other producers of conventional and high-viscosity-index PAO are Chemtura, Neste, Idemitsu, Chevron-Phillips, Shenyang, Nizhnekamskneftekhim and INEOS.

SRIC believes that UHVI PAO is produced commercially in a batch reaction scheme, using reduced chromium oxide catalyst on silica at long (2 hour) residence time, at modest temperature (50–160°C) and pressure (50–140 psia) reactor conditions. The primary feedstock is decene-1 linear alpha-olefin, although a range of LAO between C₈ and C₁₄ carbon numbers can be blended to customize UHVI PAO physical and performance properties.

Our analysis shows that (as of 2010 market pricing conditions) a grassroots, stand-alone UHVI PAO plant with a nameplate design capacity of 5 thousand metric tons per year can be built on the U.S. Gulf Coast with a total fixed capital cost of approximately $10 million. When operating at full capacity, the estimated total manufacturing cost is approximately $2,500 per metric ton, providing an acceptable rate of return at prevailing bulk sales prices.

(For the complete April 2010 Review 2010-2 on EXXONMOBIL’S ULTRA HIGH VISCOSITY INDEX POLY ALPHA OLEFIN LUBRICANT BLEND STOCK, visit this report’s home page.)

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