Chemical Week • July 3/10 • Specialties growth to continue

Sustainable solutions, green transition to drive expansion despite ongoing challenges

The specialty chemicals market will continue to grow, despite “bumps in the road,” with innovative technologies, specialty products and sustainable solutions that help advance the energy transition supporting growth, according to Mike Malveda, executive director/specialty chemicals at S&P Global Commodity Insights.

Malveda discussed the “state of the global specialty chemicals industry” during a presentation at S&P Global’s World Petrochemical Conference (WPC) 2023 that took place in Houston earlier this year.

The high inflation of 2022 is expected to persist throughout 2023, reducing consumers’ buying power and driving down demand, but market growth is expected to continue this year, Malveda said.

Specialty chemicals producers will see their cost structures change in 2023, due to the rising inflation rates and high energy prices, as well as increased labor costs and high raw material prices, while they try to pass on these higher costs to customers, he said.

They will also rethink their overall portfolio strategies, look for new value drivers and reassess their relationship with customers and suppliers, Malveda said. Companies with production constraints that have to deal with customer management issues and sourcing strategies will in particular be looking for more viable choices, viable alternatives or even looking at diversifying local supplies and expanding regional partnerships, Malveda added.

Energy security risks and geopolitical challenges will continue in 2023, but gas prices are expected to ease in part because of a milder winter in Europe in 2022–2023 as well as more ample storage, Malveda said. Natural gas prices are, however, still historically high, he said.

The automotive industry, one of the primary drivers of the specialty chemicals market, will record modest growth, with production expected to return to pre-pandemic levels in 2025, Malveda said. Electric vehicles will contribute to the growth because they are creating new opportunities for specialty chemicals, such as specialty polymers, battery materials and products for under-the-hood parts, he said.

Slower growth, at about 2% this year and slightly higher going forward, is forecast for the construction industry, another major consumer of specialty chemicals, Malveda added.

So many different types of specialty chemicals are used in industrial and consumer goods that economic recovery and real GDP growth are key indicators of the industry’s performance, he said. World GDP is predicted to grow by about 2.2% in 2023, he added.

Consumption of specialty chemicals will expand, with mainland China and other Asian countries growing at a relatively higher rate through 2027, according to Malveda. In mainland China, the government is supporting the construction of semiconductor fabrication facilities that consume large volumes of electronic chemicals. Meanwhile, other Asian markets such as Taiwan and South Korea will also continue producing and exporting electronic goods. Growth in North America, Western Europe and Japan will be more limited, he said.

Electronic chemicals will remain the largest and fastest growing market for specialty chemicals through 2027, according to Malveda. Electronic chemicals are used for printed circuit boards that are the backbone of electronic goods, phones and computers, as well as internet connectivity trends, and the build up of 5G or the internet of things (IoT), he said.

Specialty polymers, nutraceuticals, cosmetic chemicals, flavors and fragrances, surfactants, plastics additives and specialty coatings are the other segments forecast to grow at above-average rates through 2027, Malveda said.

Solutions that improve efficiencies through energy or emissions reduction, and the use of biomaterials and feedstocks, composting, recycling and reducing single-use plastics may open the door for new specialty materials such as biodegradable polymers, he said.

The specialty chemicals market’s growth in 2022 was predominantly driven by price increases, Malveda said. Demand became sluggish and challenged, especially toward the latter half of the year, he said.

The value of the specialty chemicals market in 2022 reached $670 billion, Malveda said. Key segments including electronic chemicals, specialty polymers and industrial and institutional cleaners together represented about 65% of the total value of the market last year, he said.

Mainland China was the largest specialty chemicals market, accounting for 27% of the total in 2022, Malveda said. This was not the case 10 years ago, when China was the third-largest market for specialties behind North America and Western Europe. China overtook North America in 2017 as the largest specialty chemicals market segment, he said.