In July 2020, the EU announced its hydrogen policy to achieve a carbon-neutral economy. Several countries, including Australia and Japan, have issued such policies in the past. The EU policy is different in that it is more comprehensive and takes an integrated approach to reducing carbon footprints. The policy, issued as part of the EU’s COVID-19 pandemic recovery efforts, is based on a philosophy of “rebuild better” to be better equipped to fight climate change.At the heart of the EU plan and other plans before it is the idea of using carbon-neutral hydrogen as essentially the currency of the new energy economy; hydrogen can be used to store carbon-free energy that, in turn, can be traded as a commodity between producers and consumers. Carbon-neutral hydrogen produced from various renewable energy sources and used in any application—residential, commercial, industrial, power generation, or transport—will reduce/eliminate the carbon footprint of that application. There are two key benefits to this approach... Complete the form below to read the full article, which further looks at whether this plan will work , what challenges the plan must deal with, where the biggest impact of the hydrogen economy will be felt and what impact it will have on lubricants industry.
In July 2020, the EU announced its hydrogen policy to achieve a carbon-neutral economy. Several countries, including Australia and Japan, have issued such policies in the past. The EU policy is different in that it is more comprehensive and takes an integrated approach to reducing carbon footprints. The policy, issued as part of the EU’s COVID-19 pandemic recovery efforts, is based on a philosophy of “rebuild better” to be better equipped to fight climate change.
At the heart of the EU plan and other plans before it is the idea of using carbon-neutral hydrogen as essentially the currency of the new energy economy; hydrogen can be used to store carbon-free energy that, in turn, can be traded as a commodity between producers and consumers. Carbon-neutral hydrogen produced from various renewable energy sources and used in any application—residential, commercial, industrial, power generation, or transport—will reduce/eliminate the carbon footprint of that application. There are two key benefits to this approach:
- Carbon neutral hydrogen will be used as an energy source (via fuel cells and synthetic fuels produced from this hydrogen) to decarbonize sectors of the economy which would be difficult to decarbonize by electrification.
- Carbon neutral hydrogen production allows storage of renewable energy, which is produced in an intermittent fashion. This will allow renewable energy to become a mainstream energy source.
A hydrogen strategy for a climate-neutral Europe
The plan is laid out in three phases: 2020 to 2024; 2025 to 2030; and beyond 2030, during which production capacity of renewable hydrogen is ramped up along with demand and, in the process, carbon intensive fuels are dislodged. Hydrogen can be produced via several routes and is classified on an unofficial color scale based on the carbon footprint associated with its production.
In an electrolyzer, electrolysis is used to split water into hydrogen and oxygen by passing electric current through the water—essentially, the reverse process of a hydrogen fuel cell. When this electrolysis process is powered by a renewable energy source like solar or wind, we get carbon- neutral hydrogen.
In the first phase (2020 to 2024), the plan envisages the installation of 6 GW of renewable hydrogen electrolyzers. Manufacturing of electrolyzers would be ramped up, including large size units up to 100 MW. These electrolyzers would be installed in existing demand centers in refineries, steel plants, and chemical complexes. During this phase, there would be production of 1 million tons of renewable hydrogen, and projects would be initiated to decarbonize existing hydrogen production and facilitate the increase of hydrogen in new end-use applications.
In the second phase (2025 to 2030), at least 40 GW of renewable hydrogen electrolyzers would be installed, allowing annual production of 10 million tons of renewable hydrogen. As the scale of renewable hydrogen is increased, costs are expected to come down. During this phase, policies will be set for demand creation in steel, trucking, rail, maritime, and other applications. Also during this phase, hydrogen clusters (so-called hydrogen valleys) are created. These clusters have local production based on renewable sources. Renewable hydrogen starts to play a role in balancing a renewable source-based electricity system by offering buffering and daily/seasonal storage. Because of all these actions, the need for EU-wide logistical infrastructure will emerge.
In the third phase (beyond 2030) renewable hydrogen matures and is deployed at scale. Renewable energy capacity (wind and solar) is expected to grow so that at least 25% is dedicated to renewable hydrogen production.
Will this plan work?
Only time will tell. The EU is in a better financial position compared to the United States. There also appears to be a genuine desire to “rebuild better”—in other words, to not build the old infrastructure but something new that helps mitigate climate change. As per the EU, the Commission’s economic recovery plan “Next Generation EU” highlights hydrogen as an investment priority to boost economic growth and resilience, create local jobs, and consolidate the EU’s global leadership. The plan calls for electrolyzer capacity increasing and its technology improving so that cost of renewable hydrogen produced from these electrolyzers falls and achieves cost parity with other hydrogen sources. This, of course, is not guaranteed but likely a reasonable assumption. All this works in favor of the plan, but there are two issues with which the plan must deal: water scarcity and hydrogen transportation.
The plan is silent on the impact it will have on the availability of fresh water supply. As per the “Water Scarcity Clock,” many parts of Europe have water scarcity that gets severe in the driest months. Of course, the situation is not as bad as in other parts of the world. For example, this plan cannot be replicated in developing markets like India or even an advanced economy like California. Both have severe water shortages for existing uses and cannot accommodate new demands. Electrolysis of seawater without producing chlorine is possible but still some distance from commercialization.
In the EU plan, the issue of hydrogen transportation is an issue left to be dealt with in the future. This is because, while the demand centers are known, the supply centers tied to renewable power generation and water resources will only emerge over time. Hydrogen will not be able to be transported by the existing pipeline infrastructure, which will increase its carbon load. A study conducted by DB Energie finds that it is feasible to transport hydrogen on rails but will require the development of hydrogen transport containers approved for use on railroads. This is the approach that will be used by Germany.
Several companies have signaled their intent to participate in the upcoming hydrogen economy. In its recently publicized strategy, BP said that it would be “seeking early positions in hydrogen.” Shell and its partners are working on an electrolyzer that will produce hydrogen using renewable energy. The REFHYNE project will install and operate the world’s largest hydrogen electrolyzer with a peak capacity of 10 MW and the ability to produce approximately 1,300 tons of hydrogen per year. Even outside the energy industry, companies as diverse as Microsoft and Asda are making forays into this area.
There is certainly a lot of enthusiasm behind this plan. It would be reasonable to assume that some subset of this plan, if not the whole plan, will be realized, provided the current zeal for this technology does not fade away.
Besides power generation, the biggest impact of the hydrogen economy will be felt in the transport sector: trucking, personal mobility, marine, railways, and aviation. The trucking and marine segment will be the most significantly impacted if the technology lives up to its promise. The impact on aviation and railroad will be limited as reasoned here:
Aviation: Carbon neutral hydrogen can be used to produce various synthetic fuels including synthetic kerosene, which can be used in aviation. Given the long approval processes for the aviation industry, this is very far into the future. The use of synthetic fuels may lead to a change in the formulation of lubricants used but will not eliminate their use.
Railroad: A large portion of the rail network is already electrified. Incorporating carbon-neutral hydrogen in this segment will mean changing the source of electric power used, which will not have any downstream impact. For segments that have still not been electrified, the first option will be to electrify. Only for segments where electrification does not make sense due to size of demand and/or difficult terrain, will there be an opportunity to switch from diesel to hydrogen fuel cells. Thus, the impact on the lubricant consumption in this segment will be limited.
Marine: The marine industry encompasses vessels of all sizes, from small coastal and inland vessels to large container ships, bulk carriers, and oil tankers circling the globe. Deep-sea marine accounts for most of the carbon dioxide produced by this industry. The industry and the deep-sea marine segment, in particular, is difficult to decarbonize. It is a capital-intensive industry operating on very thin margins. Ships have a very long life, so penetration of new technology is slow. Except for the emissions it produces, HFO is the ideal fuel for the marine industry, being a low-cost byproduct of the refining process and having high-energy density. As a result, the industry needs a continuous regulatory push to achieve decarbonization. While many fuels are in contention, carbon-neutral hydrogen and ammonia seem to be viewed most favorably. However, the low-energy density of hydrogen in comparison to HFO is an issue. A great deal of development work will be required before fuel cells are used in the marine industry. There are a many pilot programs being run on hydrogen fuel cell technology focused on small coastal vessels both in North America and Europe.
Heavy-duty (HD) commercial vehicles: In the HD commercial vehicle segment, hydrogen fuel cells have a distinct advantage over electric batteries due to the higher energy density of the former. The battery pack size for the range needed by commercial vehicles will take away precious cargo space. Fuel cell electric vehicles (FCEVs) have longer range and shorter refueling time compared to battery electric vehicles (BEVs). In addition, fuel cells are said to have a longer life compared to batteries. On the other hand, FCEVs have a much higher price compared to ICE and BEV variants.
Fuel cell buses and other commercial vehicles that return to base (last-mile delivery vans, garbage collection, school buses, forklifts, and emergency service vehicles, among others) are ideal candidates for conversion to hydrogen fuel cells, as they do not require a widespread refilling infrastructure. In fact, hydrogen is well-established in the forklift segment and is being deployed at commercial scale, as shown by the Asda announcement.
There are several factors that suggest hydrogen fuel cells will not grow on their own in passenger cars. Battery electric technology has a lead of several years on hydrogen fuel cell technology, and the gap will be difficult to close and pointless if the aim is just reduction of carbon emissions. Secondly, the hydrogen tank and related hardware increase space and make it unsuitable for small vehicles. Thirdly, deploying hydrogen distribution infrastructure will be complicated and expensive in crowded city centers. In contrast, installing hydrogen refueling stations along highways is likely easier in comparison. There will be instances in which communities have hydrogen refilling networks to cater to commercial vehicles on which passenger cars ride piggyback. This segment is likely to be small.
In the commercial vehicle segment, many automotive OEMs see an opportunity. There have been several announcements of hydrogen fuel cell commercial vehicles in recent times:
- Hyundai recently announced that it had shipped its first batch of Hyundai Xcient hydrogen-powered trucks to Switzerland. The Xcient is powered by a 190kW hydrogen fuel cell system with dual 95kW fuel cell stacks, while seven large hydrogen tanks offer a combined storage capacity of approximately 32.09 kilograms worth of hydrogen, which gives it a range of 400 kilometers.
- In 2019, a trio of companies—Nel Hydrogen Electrolyser AS, renewable energy company Engie, and mining company Anglo American—announced a project to retrofit trucks used at Anglo American’s platinum mines with hydrogen fuel cells.
- In August 2020, Cummins announced that it had received two grants from the U.S. Department of Energy for hydrogen fuel cell powertrain development.
- Nikola, a company operating in fuel cell battery-powered trucks, went public, reaching a market capitalization of USD 26 billion
What does it mean to the lubricants industry?
The European plan may give birth to a new carbon-neutral hydrogen economy. The growth of the hydrogen economy will be a chicken and egg problem. At each stage the plan aims to make small increments in supply and demand so that hydrogen generation projects and end-use applications can grow in synch with each other and sustain themselves. Increasing the scale and technology improvements will allow cost reductions for carbon-neutral hydrogen, which can drive further growth.
Among the various transport sectors, marine (in the long term) and commercial vehicles (in the short- to mid-term) show the greatest potential to conversion to hydrogen fuel technology, provided favorable market conditions are obtained. The total heavy-duty motor oil (HDMO) market in the EU is about 1.3 million tons. Marine engine oils (MEO) account for another 0.3 million tons. It is difficult to state what portion of this demand is at risk of being lost due to conversion to hydrogen fuel technology, but the probability has increased significantly with the announcement of the European plan.
European lubricants demand was in a gentle decline before the COVID-19 crisis. Significant demand contraction has occurred in 2020, some of which will be recovered in 2021. In the mid- to long-term, however, HDMO and MEO demand contraction on account of the growing hydrogen economy should be assumed. Subject to the growth in hydrogen supply and supply infrastructure and continuous hydrogen fuel cell technology development, both product segments face the grave threat of obsolescence. If this seems highly unlikely, remember what the COVID-19 pandemic has taught us: Seemingly impossible change can happen in the blink of an eye.
At the initial surge of the COVID-19 pandemic in March-June 2020, Kline conducted interviews with market experts for the Global Lubricant Basestocks study published annually in Q3. While researching the European market, we asked some questions on the impact of COVID-19 to gauge the market sentiment. Learn what questions were asked and how market experts responded
When do you expect European basestocks demand to begin recovering?
Most respondents believe basestocks demand will start recovering within 6-12 months. Other responses were skewed . The survey reveals that market participants do not have a clear picture of European basestocks demand during the COVID-19 pandemic.
When do you expect European basestocks demand to recover to pre-pandemic levels?
Compared to the first question, the industry participants seemed to agree that demand should reach pre-pandemic levels in more than nine months; half believe it will take more than a year. However, it is important to note than within the “>1 year” category, few mentioned 2-5 years, and some answered 1-3 years.
Kline believes that many industry experts believe in a slow recovery and not a “V-shaped” one. It is interesting to note that at the time of the Great Lockdown, industry participants did not know when demand would start recovering, but they were more certain that a full recovery should come in more than one year.
Which API basestock group will suffer the most following the COVID-19 pandemic?
Most respondents believe API Group III basestocks will take a hit due to the COVID-19 pandemic, and some went as far as calling it a “sitting duck.” Only a few considered API Group I and API Group II. Almost all respondents see more declines coming for the PCMO product category. HDMO has received a positive outlook.
This survey aligns with Kline’s preliminary assessment of the Impact of COVID-19 Containment Effects on the European Finished Lubricants Market and the Impact of COVID-19 on the Global Lubricant Basestocks Market. A sharp decline in basestocks demand is expected due to COVID-19. The actual magnitude of this decline will depend on the length and severity of the lockdown. While the decline in demand will be first borne by Group III/III+, owing to its higher usage of PCMO products, Group I demand will suffer the most in the longer lockdown situation; it will be closely followed by Group II. This decline in demand will be accompanied by a decline in the availability of basestocks.
A contraction in the consumer lubricants market is having an immediate impact on demand for Group III/III+ basestocks, especially in markets with higher penetration of high-quality passenger car motor oils (PCMO). The lockdown has resulted in a severe reduction in the use of passenger vehicles and motorcycles for personal mobility. In France and Italy, motorists were not allowed to leave their places of residence. Consequently, fewer motorists are in need of changing or topping off the oil for their vehicles and face many logistical challenges if they choose to do so. Numerous workshops have chosen to close in the face of depressed demand. Others have elected to remain open only for emergency repairs, which may or may not include oil changes, or the servicing of vehicles used for emergency services (ambulances, fire brigade, police, etc.). Workshops are among the few businesses that were permitted to remain open, as they offer an essential service. However, some regional governments in Germany—for example, in Bavaria—have prohibited them from operating at full service during the lockdown.
It is worth noting that Kline has recently commissioned the Global Lubricants: Analysis of Impact of COVID-19 report to assess the impact on the finished lubricants market, along with emerging market opportunities and challenges in the post-COVID-19 market for a number of markets.
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The COVID-19 pandemic and low oil prices create new opportunities and challenges for polyethylene wax producers.
With the growth in supply in the last two decades, polyethylene (PE) waxes have carved out a unique market space in the global wax market. PE waxes, which were first introduced with the intention of making up for the shrinking supply of specialty petroleum waxes, such as microcrystalline and high-melt paraffin, soon became the preferred additives in several applications, due to their superior performance.
PE waxes in the spotlight
Figure 1: PE Wax Demand in Traditional, as Well as Newer Rheological and Surface Applications, 2019
PE waxes have low molecular weight, high melting points, a highly linear structure, chemical resistance, lubrication, and anti-blocking properties, which makes them top-of-the-line additives in applications that either require lubrication or physical modification in their formulation. Top application areas where PE waxes are used as additives include plastic processing, masterbatches, hot-melt adhesives, coatings, paints, inks, packaging, and tire/rubber.
Plastic processing aids, where PE waxes are used for improving the rheological properties during the processing of rigid polyvinyl chloride (PVC) and other polymers, account for almost one-third of the global PE wax demand. In masterbatches, PE waxes are preferred, as they are excellent dispersants and carriers for the masterbatch-plastic mixture. PE waxes are also desirable in applications demanding strong adhesion and compatibility, due to their high melting points and fast setting time. This is highly favorable in hot-melt adhesives that are used in a multitude of end uses such as corrugated-container or folding-carton sealants, as binding adhesives; in furniture and shoe manufacturing; and for other packaging, tapes, labels, textile products, and product-assembly applications.
Coatings, paints, and inks are some of the applications where PE waxes offer modification of surface properties such as improving the hardness, scuffability, gloss, waterproofing, and durability. PE waxes are also used in non-food flexible packaging and single-use food-based packaging applications, as they provide a strong moisture and grease barrier and also improve the appearance of packaging material.
All of the above-mentioned applications are well positioned for significant growth globally. Asia is the highest consumer of PE waxes, with most of the demand coming from China. Plastic processing (primarily PVC), masterbatches, hot-melt adhesives, as well as paints, coatings, and tire/rubber production account for a large share of Asian polymer wax consumption. Rapidly industrializing Asian economies, such as China and India, are fueling the demand for PVC, masterbatches, and hot-melt adhesives in the region. Developed Asian markets, such as South Korea and Japan, are major exporters of electronic devices and automotive parts that require plastic components and color concentrates and, thus, consume PE waxes.
Increased urbanization, a widening middle-class population, and employment growth in developing Asian countries are some factors that are propelling construction and commercial activities in the region. This, in turn, is driving up the demand for paints, inks, and coatings, which are used in residential, commercial, and industrial applications. The growing appetite of Asian households for home appliances and other consumer goods is contributing to the increase in demand for color masterbatch and packaging materials. A large portion of the wax demand by these applications is met by regional suppliers in China and India. These suppliers either process PE waxes that are produced as a by-product of plastic processing, or they produce low-grade PE wax via thermal degradation of used plastics. Marcus Oil, a large Indian producer, as well as Qingdao Bouni and Qingdao Sainuo, two producers in China, are top suppliers of PE waxes produced in this fashion.
While, the demand for PE waxes in North America and Europe is small in comparison to that in Asia, these regions are home to some of the most high-end PE wax-based applications. Currently, the demand for specialty PE waxes in high-end applications in these regions is driven by the developments in the automotive sector, new product innovations (for example, nonwoven fabrics), and a trend toward solvent-free chemistries due to regulatory concerns. These applications generate the demand for high-grade, better-performing plastic products, masterbatches, hot-melt adhesives, paints, coatings, and rubber/tires. Due to the specialty nature of these applications and higher levels of PE wax customization, the demand is met by higher-end, better-quality PE waxes. Such specialty waxes are produced “on purpose” which means that they are produced in a plant using processes designed to produce these waxes – they are not by-products. On-purpose waxes are produced via direct polymerization, which creates tailored waxes with narrow molecular weight distribution, with high uniformity at the molecular level – by manufacturers in the United States and Europe using ethylene feedstock. This includes suppliers such as Honeywell, Westlake, Clariant, BASF, and Baker Hughes.
On-purpose PE wax production from ethylene in the United States has historically been advantageous over other regions, due to plentiful supply of ethylene feedstock in the region. The availability of low-cost ethane derived from natural gas production in the region has driven an increase in new ethylene production capacities in the region. In contrast, in Europe, the ethylene feedstock for PE wax comes from crude oil-derived naphtha in refinery crackers, resulting in higher production costs. Thus, over the years, higher-cost European PE wax producers have operated at a disadvantage compared with their North American counterparts.
Figure 2: Specialty On-Purpose PE Wax Supply Chain
How have the rules of the game changed in 2020?
The market conditions in 2020 could change the rules of the game for PE wax suppliers. Factors such as reduced end-customer demand, strained United States-China trade relations, and low global crude oil and natural gas price spread will reduce the feedstock ethylene price differential between North America and Europe. In this environment, the long-time cost-competitiveness that the United States PE wax producers have enjoyed over the European producers will erode.
In 2019, the United States market had a surplus of ethylene supply due to existing production levels, as well as five new ethylene production capacities added during the year. A large share of ethylene produced in the United States is exported to China, either as feedstock or as polyethylene. However, trade tensions between the United States and China, which surfaced in the latter half of 2019 and continued into 2020, have negatively impacted trade between the two countries, leaving the United States stranded with large volumes of ethylene inventories. The situation has been further exacerbated by the slump in demand for consumer goods, due to COVID-19 lockdowns globally. COVID-triggered lockdowns have reduced Chinese industrial output, resulting in lower demand for feedstocks such as ethylene.
Surplus ethylene availability in the United States has pulled prices down. In April 2020, United States ethylene contracts settled at an 18-year low of 1.25 cents/lb. (USD 28/tonne). Lower ethylene prices translate into a lower cost of PE wax production; ideally, reaping better margins for suppliers of PE waxes in the United States. However, the recent crash in crude oil prices has also provided a considerable cost advantage to naphtha-derived ethylene producers in Europe. This is anticipated to narrow the price spread between the cost of PE wax production in Europe and the United States, thus bringing suppliers in both regions to nearly equal footing.
Where are the opportunities and challenges in this market?
Despite severe demand cutbacks for most of the wax-based applications in 2020, and grim global and regional GDP forecasts, positive outcomes have surfaced in certain application areas. Nearly all mainstream applications for PE waxes, such as plastic processing aids, masterbatches, hot-melt adhesives, paints, coatings, inks, and rubber/tires, are forecast to experience significant declines in 2020. In contrast, PE wax demand in applications related to packaging, pharmaceutical, medical rubber, and personal care products are anticipated to remain strong, supported by their growth through the COVID-19 crisis period.
Figure 3: Comparison of Pre-COVID-19 and Post-COVID-19 Growth in Key PE-Wax-Consuming Applications
Packaging material for food-contact applications and for consumer-goods deliveries continued to grow in the first half of 2020. In most countries, the food industry continued to operate through the lockdown period, as the industry was categorized as “essential.” Hence, the food-packaging industry has seen only limited impact on its demand. The shut-down of in-restaurant dining resulted in a higher volume of packaged take-aways, as well as a stronger demand for groceries and packaged food items. This trend remains strong even in the post-lockdown phase in many countries, as consumers continue to observe precautionary social-distancing measures.
Corrugated and flexible packaging for consumer-goods deliveries played an important role during the lockdown period by providing packaging for essential goods like medical products, pharmaceuticals, essential household goods, and groceries. Even post-lockdown, many regional markets are seeing a spike in online sales of consumer goods, which, in turn, is driving the demand for packaging material.
Some pharmaceutical applications have performed better than expected in 2020. The medical industry is experiencing a surge in demand for rubber-based equipment such as hand gloves, catheters, balloons, veils, knobs syringes, breathing packs, and implantation/transfusion sets. PE waxes are typically used as additives in manufacturing these rubber products, for providing softness, waterproofing, and improved finishing. Additionally, there has been a continuous demand for such wax-based products as medical ointments and petroleum jelly. Although PE wax is not the mainstream wax used in these applications, small quantities of PE waxes may occasionally be used as additives in a blend with other waxes in these products.
The personal-care industry has witnessed particularly strong growth in hygiene-based products in 2020 due to the COVID-19 pandemic. In the first half of 2020, a significant jump in demand was recorded globally for hand cleaners and sanitizers, as preventive measures against COVID-19. In the face of incremental demand, many personal-care product suppliers even switched their manufacturing capacities to produce hand sanitizers and cleaning agents. Although synthetic waxes have limited demand in these applications, PE waxes can partially make up for the shortfall of paraffin and vegetable waxes in cases of disrupted supply chains and logistics.
It is not all good news for PE wax producers. The year has witnessed a sharp contraction in demand from mainstream PE wax rheology and surface-based applications, such as PVC, masterbatches, hot-melt adhesives, paints, inks, coatings, and tires. Most of these applications are closely linked with the economic well-being of nations, driven by their industrial growth, residential and commercial construction activities, and the automotive industry. These sectors have been severely affected in 2020 due to the lockdowns and social-distancing measures being observed in key global economies.
Reduced consumer demand, disrupted supply chains, and volatility in energy markets are likely to result in reduced industrial activity, thereby impacting the demand for plastics, masterbatches, adhesives, and other related products. Business losses and financial turmoil in 2020 are anticipated to leave the residential and commercial construction sectors weakened, which will impact the demand for PVC products, paints, and coatings. The automotive industry, which is a significant consumer of masterbatches, coatings, inks, and tires, is likely to underperform over the next few years. This is due to reduced mobility, high unemployment levels, and lower consumer purchasing power over the near-term future.
In conclusion, amidst the ongoing economic adversity, a handful of select applications are prospering, while others have taken a hit. Applications such as packaging, pharmaceuticals, medical rubber products, and personal care are performing better than what was anticipated during the pre-COVID months and will provide support to PE wax demand over the near-term future. Estimated post-2020 recovery in GDP offers optimism for recovery in mainstream PE wax applications, which will experience slower growth rates in the short term compared to what was anticipated before the COVID-19 crisis.
Gain more data and insights on leading petroleum waxes, synthetic waxes, vegetable and plant waxes, while evaluating their global supply-demand scenarios from our recently published study Global Wax Industry: Market Analysis and Opportunities. Request more information or demo of the report HERE.
The COVID-19 outbreak has resulted in the world trying to utilize as many technologies known and available to man in an effort to monitor and contain the disease.
As of now, most research labs and pharmaceutical companies are collaborating, with China being the hub of most of the ongoing research. Current ways to treat COVID-19 include:
1. Using already existing drugs and therapies that were developed to treat other diseases and testing their efficacy against coronavirus, either one at a time or making a combination of two or more drugs
2. Developing new drugs and carrying out clinical trials, both in the testing phase as well as directly with infected patients
As history shows, developing a new drug usually takes a significant amount of time, and time is of the essence considering the high rate at which coronavirus is spreading. However, one benefit that researchers have is the fact that the genome of COVID-19 is already mapped and available for further study. The complexity in developing drugs to counter the coronavirus is thus simplified, as drugs to counteract RNA-based viruses are much easier to develop.
Most of the drugs being tested for coronavirus are already existing chemical entities like Kaletra (used to treat HIV) and Tamiflu (used to treat influenza); some are biologics like vaccines, monoclonal antibodies, recombinant enzymes, and interferons. However, new drugs that are being developed specifically to target COVID-19 mostly consist of biologics. Some examples include a protein-based vaccine by GlaxoSmithKline, the IFX-1 (anti-C5a monoclonal antibody) drug from one of the China-based clinical trials, and an encapsulated mRNA vaccine by Moderna.
Moreover, research articles being published thus far indicate that antiviral drugs used to treat previously “very deadly” diseases like Ebola (Remdesivir), malaria (Chloroquine), HIV (Lopinavir/ritonavir), SARS (APN01), and MERS (Remdesivir) may very well be “repurposed” to treat COVID-19, either by themselves or in combination with other drugs. All these drugs are being tested in labs.
All drugs, whether chemical entities or biologics, require excipients or inactive ingredients in the final formulation process of drug development and are a part of the final drug that is administered to patients. Examples of excipients or inactive ingredients include stabilizers and bulking agents, solubility enhancers, surfactants, and vaccine adjuvants.
As soon as a successful treatment method is discovered, the production of that particular drug/vaccine or the combination of drugs will increase exponentially, raising the demand for excipients required in their formulation. In the event of a biologic drug entity becoming successful, demand for bioprocessing ingredients will grow exponentially. For a small molecule formulated as an oral solid, excipients such as copovidone to help increase solubility may gain popularity.
Kline’s reports on biologics and solubility enhancement can provide the reader with both the technical and qualitative insights related to drug development, as well as the global market perspective of various “inactive ingredients” that are being used to manufacture a variety of OSDFs and biopharmaceuticals.
COVID-19 in Brazil
According to official data from the federal government, on June 23, 2020, Brazil had more than 50,000 deaths and approximately 1.1 million people infected with COVID-19. However, due to a lack of testing for the virus, these numbers may be underestimated.
The Brazilian State had recognized the State of Public Calamity due to the pandemic back on March 20, allowing for budgetary flexibility and triggering a series of protective measures by regional and local governments. The most important measures were related to social distancing and shelter-in-place orders, with the suspension of face-to-face classes in public and private schools, suspension of religious and recreational services, and the closings of malls and stores. The exceptions were establishments that supply food and medicines, as well as gas stations.
The Brazilian government acted to provide resources to the health sector with an amount of approximately BRL 50 billion to fight the epidemic via purchases of test material, personal protective equipment (PPE), respirators, and more.
For citizens, the government provided emergency resources directed especially toward informal and low-income workers; this included the payment of BRL 600.00 per worker for a period of three months, BRL 1 billion in resources for the payment of electricity bills of low-income workers, advance payment of the 13th salary for retirees, and subsidized personal credit in public banks, among other benefits.
For the business sector, subsidized credit lines were available in state banks for working capital, in addition to the postponement of tax payments, resources for payment of wages to infected workers for 15 days, flexibility in labor legislation to allow a reduction in working hours, and partial reduction of wages to avoid layoffs. In return, companies are committed to not making layoffs to adjust costs.
Despite all these efforts, the impact of COVID-19 on the economy is expected to be significant, with a contraction of 6% to 9% in 2020 compared to 2019.
The economic impact will be more substantial in the urban states of the country, located in the southeast and south regions, which more heavily rely on the service and industrial sectors of the economy. The north, center-west, and northeastern regions will have their economies less affected, as they rely more on the agriculture, stocking, and extractive industry. However, the social impact of the pandemic is especially harmful to areas less urbanized and with a lack of infrastructure, including areas that do not have access to either hospital facilities or the recommended number of health professionals per 1,000 habitats recommend by OMS.
Even though the health crisis continues, the Brazilian government is adopting measures to reopen businesses in an effort to put physical commerce in place again. This includes reopening malls, street commerce, and sea sports.
The market already faces several difficulties in the short term, with the interruption of global supply chains as a way to contain the spread of the virus, leading to a shortage of raw materials. Another important impact refers to demand, as consumers and companies are looking to reduce their spending.
The impact on the industry came from the top, starting in physical stores; distribution, until it reached the industry; and, consequently, the market for raw materials, packaging, and actives.
At the end of this chain, where retail is located, however, some companies had an increase in revenue due to consumers rushing to supermarkets. The healthcare, cosmetics, and cleaning sectors industry suppliers benefit from the boost in consumer hygiene and cleaning habits.
On the other hand, small companies, even in the cosmetics segment, are among the most affected by COVID-19. This is due to the pause in industrial activity, combined with a severe interruption in the service sector due to the closure of perfumeries, specialized stores, and beauty salons, generating payment delays. This, in turn, leads more and more companies to exhaust their cash flow. As a result, it is expected that many of them will leave the Brazilian market.
Changes in Consumer Behavior
Social isolation has led consumers to adopt new habits, reevaluate priorities, and change their consumption.
As consumers adapt to social isolation and social distancing, the need to perform at-home beauty procedures, such as manicures, hair coloring, and facial treatments, arises. As the quarantine extends, more and more consumers have begun performing these services on their own. With the return of activities, it is possible that some consumers will continue to prefer getting these procedures done at home, thus permanently reducing the frequency of their visits to beauty salons, nail salons, and esthetic clinics.
Another important issue concerns the safety of products in terms of health. The consumer will seek more guarantees that products do not present risks and have the best quality, especially when it comes to cleaning products, antiseptics, and food items. In the short term, there may be a prioritization of quality when choosing a product, and sensitivity to price may become less relevant. Manufacturers and retailers will need to communicate why their products and supply chains are reliable. In times of crisis and low purchasing power, consumers tend to not risk it, opting for brands that they already know and trust, even if it involves paying a little extra for them.
In addition, consumers are valuing the purpose of the brand more than ever. Brands that have true positioning will be appreciated. Now, a consumer’s main interest is not what the brand has to sell but how it behaved during the COVID-19 pandemic.
The pandemic will affect each category of the personal care market in Brazil differently; personal care ingredients categories will be impacted according to the types of products in which they are present.
Surfactants: These are widely used in the cosmetics and personal hygiene industry, corresponding to the main category of the Brazilian market of ingredients for personal care, with more than 50% of market share in volume. Coronavirus prevention procedures involve frequent handwashing, and this stimulates the surfactant market, as surfactants are the ingredients used in soaps and cleansers. The drop in the consumption of shampoos during quarantine will be offset by the growth of surfactant consumption in the hygiene category. The Brazilian consumer associates the product's foaming with its cleaning potential, and this can affect the market by leading the consumer's preference to products that contain stronger surfactants and, hence, have greater foaming potential.
Preservatives: This category has been questioned in recent years due to concerns about the health impacts of some synthetic preservatives. The replacement of parabens in cosmetics formulations with milder options was then encouraged. With the new routine, the topic of microbiological contamination becomes even more sensitive, especially because packaging can be a vector of contamination for several types of microorganisms if care is not taken with its disinfection. In this way, the consumer will give priority to brands that guarantee the safety of their products, protecting against contaminants; this involves the use of more potent preservatives. Parabens are not expected to return to products, but formulations will continue to use synthetic options such as phenoxyethanol, since it has a greater spectrum of effectiveness compared to more natural, milder options. However, it is known that a high concentration of strong preservatives can generate adverse health reactions. In this way, the ideal ratio would be preservatives with less aggressiveness in the appropriate amount so that antimicrobial activity can be maintained. Therefore, blends between synthetic (more potent) and natural preservatives (less allergenic) will remain even stronger.
Emollients: Widely used in formulations to promote hydration, emollients will benefit from the increased demand for products that restore the skin barrier as the continued use of sanitizers causes dry hands. Pre-COVID, the market was facing a transition from synthetic products, such as mineral oil, to vegetable options. It is expected that this transition will continue, but at a slower pace, as companies seek to reduce their costs and, therefore, do not seek to bet on very innovative reformulations or launches in the short or medium term.
Rheology Modifiers: These are widely used in the most varied types of products; therefore, the drop in demand in some categories will not impact the category as a whole, as it will be offset by the expressive growth in others. It is important to highlight the case of carbomers, thickening agents traditionally used in the manufacture of alcohol in gel. With the strong demand for this type of product, in addition to the reduction of industrial activities, the carbomers market started to show shortages in the first months of the pandemic. This led the market to test alternatives such as acrylates, HPMC, HEC, CMC, and guar, taram and xanthan gums to supply the demand, and these ingredients also started to gain strength.
Most vulnerable categories
Conditioning Polymers: Widely used in hair conditioners, these are suffering a decline in consumption due to reduced hair washing during social isolation.
Emulsifiers: Mainly used in facial care formulations, these will be affected by the drop in demand for premium products and their replacement by masstige and mass options.
Pigments: Several formulations use pigments to give a specific shade to the final product. However, the makeup market is the one that uses this type of ingredient often, and since the makeup market is expected to decline during and after the pandemic, the pigment market will be directly affected. This segment has been undergoing a slow transformation, with the substitution of conventional pigments for pigments with a treated surface, which brought additional benefits to the formulation such as greater stability and improvements in dispersion, in addition to greater quality, plus better durability and spreadability. Even before the pandemic, this substitution was still incipient in Brazil due to the price barrier; treated pigments are much more expensive than traditional options. With the current economic crisis due to social isolation, it is possible that this replacement will be reversed as brands try to reduce their costs and consumers will look for cheaper options.
Fragrances: The Brazilian consumer highly values fragrance in the formulations of any cosmetic, and that is the reason this ingredient is widely used throughout the personal care market. However, the largest volume of this market goes to perfumes and colognes, and therefore it will suffer the impacts of the decline in demand during social isolation and subsequent consumer preferences for masstige and more economical products. Thus, it is expected that this market will be largely impacted in value in the coming years.
UV absorbers: The sun protection market, which uses this type of ingredient the most, has been strongly impacted by social isolation; this is directly reflected in the UV absorber market.
Hair Fixing Polymers: This market will follow the decline of the hairstyling products segment. As it is a market that was already in decline due to consumer preferences for a more natural look, it is expected that this type of ingredient will be even more impacted by social isolation.
It is worth mentioning that, for all categories, a reduction in the added value of the ingredients is expected. Given the economic crisis, it is estimated for the post-COVID scenario and the consequent reduction in consumer purchasing power that there will be greater preference for masstige and mass products over premium products. With this, it is possible to design which cheaper ingredients will be used more in formulations in the short and medium term, while formulas that use more innovative ingredients will be on standby.
The actives market will also feel specific impacts. As actives have added value and are used more widely in premium products, it is expected that the market will be negatively affected by the economic crisis in the post-COVID scenario.
On the other hand, actives that are already well-known in the market and improve skin hydration and recovery, such as ceramides, lipids, and aloe vera, may be able to maintain demand. In addition, given the trend toward greater appreciation of local industries, it is possible that actives of local origin will gain more prominence in formulations.
In the categories of botanical actives and marine ingredients, there may be a greater preference for unsubstantiated actives (with no proven efficacy and lower prices) to be used “just for claim” and to maintain the lowest price of products. Categories that involve higher added value actives, such as biotechnology and peptides, will suffer more from price sensitivity, and demand for this type of actives may decrease in the short and medium term. The categories of enzymes, coenzymes, proteins, and synthetic actives are already relatively mature in Brazil and are likely to recover post-COVID.
As the world is entering a new phase of unprecedented economic, social, and political instability triggered by the COVID-19 (C-19) health crisis, the global community is busy digesting a plethora of views on the immediate impact of C-19 on every type of sector, while its far-reaching implications for the global economic fundamentals are analyzed less.
Given this context, it will be of great interest to analyze the repercussions of the pandemic on the development of disrupting technologies and, in particular, the diffusion of electric vehicles (EVs) and their implications for the entire automotive aftermarket segment, including lubricants.
Each crisis can act to as an accelerator to give momentum to change directions
Before the crisis, the EV market was booming—driven by sales in China, first and foremost—but also in other developed countries in Europe and North America. In the early stages of expansion, EVs have been heavily promoted by strong governmental intervention, leading to regulatory frameworks imposing stringent emission reduction levels, coupled with generous financial support and incentives. The aim of governmental efforts was to impart momentum to the market until a certain level of technological maturity is achieved. Currently, there are three key issues preventing the mass-scale consumer acceptance of EVs: the relatively high vehicle cost, long recharging time, and limited vehicle range. Prior to the outbreak, Kline reported that EVs might account for about a third of the global passenger vehicle fleet by 2040. But as the world is gradually entering a post-C-19 “new normal,” the question arising is whether the pace of deployment of EV technology will be slower or faster in the aftermath of C-19. How will governments prioritize the emerging challenges on various fronts? Will sustainability and EVs be given priority?
Passenger Vehicle Population in Select Countries, 2019 and 2040 ( under most likely scenario)
Source: Kline’s PCMO 2040 report
The market foundations for electric mobility remain intact; the global lockdown has delivered beneficial effects for the deteriorated environment
The confinement measures were imposed by governments to curb the spread of the pandemic in countries representing nearly half of the world’s population, including heavily polluted industrialized regions in Asia, Europe, and North America. The lockdown had a positive effect on the reduction of emissions from transport and industrial activities. Pictures of strikingly clean cities around the world became viral and enhanced environmental awareness among the population.
While the fundamentals of conservation efforts remain intact or even intensify, and as sustainability remains a priority for governments as well as for people, fundamentals of personal mobility may undergo some alterations. There might be an increase in the utilization of personal vehicles. More people will start using alternatives to public transport because of health concerns, including passenger vehicles and bikes, among other modes of transport. EVs pose a powerful value proposition that contributes to emission reduction in the context of a higher utilization of personal transportation, driven by health concerns. Therefore, there is a growing consensus that amid the crisis, there is a political will to intensify the transition to low zero-emission mobility.
For instance, the financial package recently announced by various governments in Europe, namely Germany’s incentives to reactivate the economy, reiterates the government’s determination to push the automotive industry toward a transition to electric vehicles.
- The package is comprised of several initiatives, including a value-added tax rate cut from 19% to 16% (including passenger vehicles)
- The package also offers a EUR 6,000 subsidy for the purchase of electric vehicles with a sticker price below EUR 40,000, while it rejects the highly expected scrappage scheme for gasoline/diesel-propelled internal combustion engines vehicles.
It is likely that other governments might be tempted to replicate similar schemes promoting sustainable and innovative technologies. Lastly, the pandemic revealed the pressing need to speed up the deployment of the digital economy and smart technologies. This renewed interest could also impart momentum to autonomous and electric vehicles.
All in all, some companies emerge as the winners in this revived interest for EVs. Nikola, a company operating in fuel cell battery-powered trucks, went public, reaching a market capitalization of USD 26 billion. Tesla is also doing relatively well, pushing to increase its production volumes and getting an immediate positive response from the market, with Tesla shares increasing stock values. This growth is also supported by Tesla’s strong sales, notably in China.
As per Kline’s report, the increasing penetration of EVs will certainly have a negative impact on passenger car motor oils (PCMO). However, beyond the negative impact on market demand in terms of volume, the ongoing transition to new mobility systems is triggering fundamental shifts in PCMO market dynamics, involving alternative trade channels and novel business models.
Quality-wise, there will be also a major shift in other automotive lubricants and fluids. Although conventional ICE lubricants are currently used for most electric vehicles, there will soon come a point when they will struggle to meet the performance requirements of the most modern EV powertrain technologies.
It is unlikely that mainstream lubricants will be able to deliver the enhanced cooling and electrical properties that EVs of the future will require, in addition to traditional tribology. New generation EV fluids will become instrumental in overcoming the three key barriers currently deterring EV uptake: cost, distance range, and charging infrastructure.
Kline's Electric Vehicles Fluids: Market Analysis and Opportunities helps to understand the evolving EV fluids market in the context of emerging EV technologies, their penetration in the overall market, and their fluid requirements.
Another Kline's report The PCMO Market in 2040: A Long-term Outlook assists lubricant marketers in identifying opportunities and challenges within the PCMO industry.
Wind energy has emerged as one of the major alternate energy sources to address global warming and concerns about resource conservation. With government support, wind energy installations have grown exponentially in the last decade, creating a strong demand for lubricants used in wind turbines. Although a small fraction of the global lubricants market, wind turbine lubricants is an important market segment due to its severe performance requirements, rapid growth, and high penetration of synthetic lubricants.
Wind energy: a fast-maturing industry
Electricity produced by wind energy does not use any non-renewable resource and does not produce carbon emissions. Governments around the world have supported the wind energy industry through tax holidays, mandatory usage requirements, pricing support, and subsidies. Driven by this support, wind energy has grown rapidly since 2000. As the industry matures, governments are phasing out monetary incentives and emphasizing supporting legislation like renewable energy targets, grid priority, and land allocations. In the aftermath of the COVID-19 pandemic, government policies to jumpstart economies will put more pressure on finances; this may accelerate the phasing out of monetary incentives. The industry will have to learn to stand on its own.
Currently, OEMs are experiencing tough market conditions due to the phase-out of subsidies. Senvion, a German wind turbine manufacturer, filed for bankruptcy in April 2019. The company sold its European onshore wind services and operations and maintenance fleet for EUR 200 million (USD 222 million) to larger turbine company, OEM Siemens Gamesa Renewable Energy. This sale represents around 9,000 MW of operating capacity. In 2017, Siemens concluded the merger of its wind power business with Gamesa. This is part of a larger spin-off done by Siemens for its struggling energy division. Nordex recently announced a merger with the Spanish renewable energy company, Acciona Windpower. It is said that Enercon is facing similar market pressures, and further consolidation might occur. In emerging markets, Suzlon—the largest OEM in terms of cumulative capacity installed in India— was in financial distress but has recently concluded debt restructuring in alignment with all lenders. The capital expenditure of wind power projects has also dropped by 10% to 15% after the transition from feed-in tariffs to reverse auctions.
Despite the reduction in government support, the wind energy sector continues to receive some help. Germany is likely to support local OEMs—Siemens Gamesa, Enercon and Nordex—which have a strong global footprint. Governments are unlikely to withdraw complete support for the wind energy industry, as this will be difficult politically. However, they may reduce their support by decreasing the quantum of subsidies that they currently provide. Subsidies will be replaced with favorable legislation (like in Germany), such as renewable energy targets, grid priority, and land allocations.
Fading support in the form of subsidies may harm the market in the short run, but it would lead to better-managed wind farms in the long run. Operators are seeking improved solutions with lower maintenance costs. Growth in this industry also spurs innovation and manufacturing activities and generates employment, all of which are stated goals for several governments. In the pursuit of most of these goals, lubricants and lubricant suppliers have a role to play.
Lubricants for wind turbines
Lubricant needs in wind turbines are extremely different from other industrial applications. Wind turbines are subject to extreme climatic conditions, with ambient conditions that can vary from sandy deserts to offshore marine installations. Based on wind conditions, the main gear box can face sudden changes in rotational speed and torque. All of this presents significant challenges for the stability of the lubricants. In a typical wind turbine, three types of lubricants are mainly used. These include gear oils for the main gear box and yaw and pitch gears, grease for lubricating various bearings, and hydraulic fluids for hydraulic actuation and control systems.
A single gearbox failure has been shown to result in a 52% loss in annual energy production and a 55% increase in unscheduled wind turbine downtime associated with that turbine. Up to 40% of the unplanned downtime on windfarms is caused by gearbox failure. Bearing failures are the most important issue in wind turbine gearbox maintenance, accounting for 70% of gearbox failures, which can lead to losses of up to USD 200,000 per event and drastic increases to the average cost of energy. The resulting emergency repairs and emergency maintenance also require personnel to climb over 100 meters (300 feet) up the wind turbine tower, which poses a significant safety risk. As a result, the performance of lubricants used is crucial for the financial performance of a wind turbine. This has contributed to the increased usage of synthetic lubricants.
Gear oils used, especially in offshore installations, are almost entirely synthetic products. Synthetic gear oils are required due to the long drain interval. The lubricant service intervals for wind turbines using synthetic gear oils range between a low of three years to a high of 10 years. This depends on the condition of the gear box and wind profile of the geography where the wind turbine is located. Very high drain intervals are made possible by condition monitoring. Among onshore installations, Europe and North America have very high usage of synthetic lubricants, typically 95% to 97% of the total. Even markets in Asia and other parts of the world have a high penetration of synthetics, generally above 90% of the total. The penetration of new machines has led to a substantial increase in the use of synthetics.
The use of synthetic grease depends on the criticality of the application. The bearings on the main rotor shaft are lubricated with synthetic greases. On the other hand, in pitch and yaw bearings, mineral greases may be used. Since grease is constantly applied by means of automatic grease applicators, there is less need for synthetics. Penetration of synthetic greases shows similar trends as gear oils: highest penetration in offshore installations, followed by decreasing penetration in Europe, North America, Asia, and the rest of the world.
Key lubricant suppliers
The supplier base for lubricants used in wind turbines is largely consolidated in the hands of a few key companies. Suppliers like global majors BP (Castrol), ExxonMobil, and Shell are present in almost all markets. While BP and ExxonMobil have a strong position in Europe, North America, and India, Shell has a strong position in China. In Spain, Gamesa is dominant, and BP is trying to build commercial tie-ups with it after its merger with Siemens. Other suppliers to this market include Fuchs, Chevron, Total, Amsoil and specialist grease suppliers such as Kluber, Dow, SKF, and FAG.
The leading suppliers, and in particular the global majors, have a strong relationship with wind turbine OEMs that enables them to cater to their initial fill and warranty business. BP has a strong presence in Europe due to tie-ups with Vestas and Siemens Gamesa. In 2019, GE approved ExxonMobil’s Mobil SHC Gear 320 WT turbine gear oil for use in all of its wind turbines worldwide. Fuchs has a worldwide partnership in place with Nordex for the supply of wind turbine lubricants.
New suppliers face several entry barriers, including a rigorous approval process, a good track record as a supplier, and a performance history of new product development. The industry is risk-averse, and this results in an extension of warranties and the use of the same products outside the warranty period.
Global Lubricant Market In Wind Energy By Key Suppliers, 2019
As per the GWEC Outlook for Spring 2020, new installations should grow at a CAGR of 4.1%, from 60.4 GW in 2019 to 73.4 GW in 2024. As a result, total installed wind energy capacity is estimated to grow at a CAGR of 9.1% over the forecast period to reach 1,005.0 GW by 2024 from 650.1 GW in 2019. While as not as strong as in previous years, the growth in new installations will continue to drive growth in the lubricant market. Besides the growth, other factors attract lubricant suppliers. They include:
Green image: The purpose of wind energy is its environmentally friendly nature. Wind turbines do not use any non-renewable natural resource and provide carbon-free energy, at least in their operations. With increased awareness and acceptance of global warming, governments around the world are promoting wind energy in their energy mix. Both China and India have seen rapid growth in wind energy in the last 15 years. Over the next five years, China will account for nearly 40% of all new wind turbine capacity. Certain countries such as Germany plan to phase out nuclear power following the accident at the Fukushima Daiichi nuclear power plant in Japan. Wind energy will have a significant role to play as the replacement energy source.
High margin business for lubricant marketers: The wind energy business is a high-margin business for lubricant marketers. The share of synthetics in overall demand exceeds 80%, surpassing any other industry. The cost of lubricants is not significant in the overall maintenance cost, and sales are driven more by product performance guarantees and track records. Thus, there is minimal downward pressure on product prices.
On the other hand, the COVID-19 epidemic is expected to stall much of the activity and perhaps postpone some of the scheduled projects. In terms of a potential economic stimulus, the wind energy sector might not be on most governments’ agendas since the sector employs rather few people. In the future, it may have to fend for itself.
To learn more about this progressive market join our upcoming webinar Outlook for Wind Turbine Lubricant Demand in the Current Economic Environment. REGISTER
The information is sourced from our just published study Lubricants for Wind Turbines: Global Market Analysis and Opportunities. Request more info.
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This article aims to address the impact of COVID-19 on surfactants market focusing on industrial applications.
Due to the unprecedented coronavirus health crisis, many countries around the world have employed nationwide lockdowns, and as they are reopening, safety measures such as social distancing continue to apply. A side effect of these measures will likely be a significant economic downturn. And while many companies were preparing for it long before coronavirus stagnated the global economy, few expected a pandemic could be among its key triggers.
With billions of people in lockdown, consumer consumption patterns have changed significantly. Some of these changes could potentially be part of the “new normal” we see coming. On top of this, the economic downturn will bring an increased unemployment rate and lower disposable income for many consumers. Obviously, this will affect many areas of our economies and industries. Analysts’ thoughts on the depth and the length of the coming crisis differ, but they all agree the entire global economy will be affected, and a contraction of the global GDP is to be expected.
Real GDP growth, % change
Source: IMF, April 2020
Specialty chemicals, in general, and surfactants, in particular, are used in a variety of applications, ranging from detergents to beauty products through to industrial applications such as crop protection, oil & gas, and paints. This variety in applications can act as a damper for the industry when a large-scale crisis is approaching.
Preliminary findings of our research on HI&I ingredients are showing an unprecedented growth of ingredients consumption in household cleaning products. Clearly, hard-surface cleaners and disinfectants flourish during a pandemic’s phase of extreme sanitization. Laundry detergents and dishwashing products are also benefiting from the increased willingness of global consumers to keep their household clean and reduce the risk of infection. While this can’t come as a surprise, the real question in this market segment will be what part of this consumption is going to stay after the health crisis is over. Plus, will the positive effect reflected in the household segment be enough to make up for the negative impact on the industrial & institutional segment? Indeed, the I&I sector has been hit hard by the health situation. The hospitality sector has been shut down in many countries, and questions remain on the recovery pace. In addition, many factories, offices, or schools have been closed for weeks in various countries in the world, mechanically reducing cleaning needs.
Long-term implications of the current situation on the HI&I sector will be key for surfactants producers to understand, as nearly half of the global consumption of surfactants is coming from HI&I applications.
Another key application for surfactants is personal care applications, which have traditionally been less cyclical than other applications and have weathered recession better. This is one of the reasons this segment is attractive for specialty chemical suppliers. A decade ago, during the 2009 crisis, we observed the resilience of the personal care industry market, and the situation is not expected to be different today.
Behind those two downstream applications, surfactants are significantly consumed in a variety of more upstream industrial applications. Each of these applications is expected to follow specific patterns in the next months, and the impact of COVID-19 is expected to be different from one application to another. For instance, crop protection and food & beverages are among basic needs and are essential applications. As consumers’ expenditures focus on essential needs, these segments could be positively impacted. Other applications such as lubricants, metalworking fluids, construction, and paints & coatings—very cyclic and GDP-related by nature—are likely to be most affected both in the short and long term. Oilfield & mining could also be one of the applications to see its demand shrink the most, as oil demand decreases together with price (a key factor for unconventional production, which is the largest surfactants consumer).
Expected Impact of COVID-19 on the Demand for Surfactants in Industrial Applications
This behavior will be different from one country market to another, and supply chain disruptions could also be an influencing factor. Nevertheless, the consumption of surfactants in industrial applications is expected to decrease significantly across countries covered in Kline’s latest analysis (United States, Europe, China, Middle East, Southeast Asia, and Brazil). The contraction in demand for surfactants in industrial applications in these countries is expected to be between 0.7% and 2.6 % in 2020 compared to 2019. In the longer term, based on different recovery scenarios, the 2019-2024 CAGR is expected to range from 0.8% to 1.7%. In none of these scenarios the consumption in 2024 is projected to reach the level it would have been without the pandemic, proving that COVID-19’s consequences are expected to last for a lengthy amount of time. The current situation and related uncertainty are, of course, a threat to surfactants suppliers, and being able to navigate those threats will be key in the years to come.
Surfactants Volume Consumption in Industrial Applications, 2019-2024
Kline's Industrial Surfactants: Global Market Analysis and Opportunities report focuses on surfactants in industrial applications, which often offer strong growth opportunities. They are driven by complex, application-related drivers, the identification of which is key for building a successful, targeted business strategy. This month the report was updated with and add-on analysis on impact of COVID-19 on this complex market. Request more information about this study HERE.
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