INDIA BUSINESS SPECIAL .....Indian surfactants: Consolidation and innovation – the needs of the hour

Indian surfactants: Consolidation and innovation – the needs of the hour

A recently held conference on the Indian surfactants industry offered a perspective on this important segment of the chemical industry; highlighting opportunities and challenges facing the industry. While demand growth numbers look attractive, especially to outsiders, these are as yet from a small base, and serviced by a fragmented industrial base that is being challenged due competition from within and from overseas. The feedstock base for the industry has seen little development in the last few years and is unlikely to for some more time, exposing the industry to supply chain disruptions and volatilities. Diverse applications Surfactants serve several industries. The most important of these – in an Indian context – are home & personal care (HPC), textiles, agrochemicals, and paints & coatings. Their role in these industries can be broadly divided into two categories: cleaning – be it in a laundry detergent or a dishwashing liquid; and emulsifying incompatible ingredients (oil & water, for instance) – be it in a personal care formulation, in a can of paint or a spray of pesticides. By virtue of their broad use in laundry detergents, in particular, the HPC segment is the most important application of surfactants – both in India and abroad. The ubiquitous laundry detergent powders, bars and liquids contain one or more surfactants (along with other ingredients), as do personal care products such as shampoos, conditioners, and beautifying creams & lotions. Anionics dominate; but nonionics seeing faster growth Surfactants can also be categorised on the basis of their chemistry into three main categories: anionics, non-ionics and cationics (in descending order of the volume in use). The most important of the anionics are the linear alkylbenzene sulphonic acid (LABSA), derived from linear alkylbenzene (LAB), while fatty alcohol ethoxylates (FAE) (derived from fatty alcohols – either of petrochemical or oleochemical origin) are the most important of the nonionics. The use of anionics, far exceeds that of nonionics, but the latter are a faster growing category, due their gentler action, their compatibility with a broader range of formulating ingredients compared to anionics and a growing preference for ‘greener’ products that have natural origins. LABSA – the workhorse surfactant In India, as in several other parts of the world, LABSA is the workhorse surfactant, due several reasons: its low price (thanks to cheap crude oil); its effectiveness under a broad range of washing conditions (hard water, heavy soiling, hand washing etc.); and a long history of use. There are perceptions that this is a harsh surfactant, and this has led to falling growth rates in the developed world, but in India LABSA is here to stay for a long time. It can be easy formulated into detergent powders and bars that make the bulk of the Indian detergent market, and a vast processing network exists to turn LAB into LABSA. Alternatives to LAB, in particular methyl ester sulphonates (MES) – a by-product of the biodiesel industry – has been touted as an alternative surfactant, but despite being around for more than a decade it has failed to make much of a dent in the market. This has been attributed to several reasons including restricted availability from a few producers (in contrast to LABSA), difficulties in formulation and some issues of performance. The product did find some acceptance, including in India, when oil prices soared, making LABSA expensive, but the downward correction since has put paid to further gains in market share. Rising imports of LAB – a trend likely to stay A matter of concern is the domestic availability of LAB, the main feedstock for LABSA. This is of petrochemical origin and is produced from two raw materials: benzene and n-paraffins (NP) (in turn, derived from kerosene). India is currently severely deficient in LAB, and annual demand of about 620-kt is met through domestic production of nearly 440-kt and imports of nearly 180-kt, mainly from the Middle East, China, Thailand and Egypt. The last major LAB plant in India was set up more than a decade ago by Indian Oil Corporation, and none of the incumbents have any plans to raise capacity further to meet rising demand. The reasons for this are two-fold. While India is surplus in benzene (and exports significant quantities of this aromatic), availability of NP from the kerosene fraction of crude oil refineries is limited. A more important reason is the commercial attractiveness of LAB projects given the significant capacity build-up around: in Iran, China, Egypt and some countries of South East Asia – all with very good cost positions. It is therefore likely that the trend of rising LAB imports to meet domestic demand will continue for some more time to come. One factor that could change things is the sustained campaign to replace kerosene as a cooking fuel in rural and semi-rural parts of India, with LPG. This is curbing kerosene demand and could force refiners to curb its production or alternatively look to new markets for it. LAB could be one possibility. It should also be noted that India will continue to build new crude oil refining capacity and these will produce kerosene that will need to be gainfully utilised. Nonionics – partnerships in South East Asia? In the nonionics segment, the HPC industries are expected to be strong growth drivers, offering double-digit percentage growth rates for several years. FAE are the largest product category here and the raw material picture is comfortable. For one, the fatty alcohols needed (especially the C12-14 type) are abundantly available – both from domestic sources as well as imports, mainly from South East Asia. Indeed, India is a significant exporter of fatty alcohols – despite having little or no access to vegetable oils & fats that are its main source – and its exports have even been threatened with antidumping duties in Europe. One way to get around the limitation of no linkage to vegetable oils & fats is to have linkages with those businesses that do. The oleochemical business is centred around South East Asia, in particular Indonesia, Malaysia and to a limited extent Thailand and the Philippines. Companies in the business of palm (and to a lesser extent coconut) plantations are keen to venture downstream into value-added products from palm oil and coconut oil, and could be potential partners. There have been some rumours of Indian companies eyeing such linkages, but no deal has yet materialised. The benefits are obvious: for the Indian oleochemical company it is an opportunity to tie-in raw materials; for the plantation companies it opens up a fast-growing market. Market distortions The nonionics surfactants industry here is concerned with the trend amongst fatty alcohol producers here to seek protection in the form of safeguard and anti-dumping duties levied on imports from South East Asia. These duties have distorted markets and even forced imports of downstream products including finished surfactants, and unless corrected could impact the viability of several businesses – mostly SMEs. Ethylene oxide availability There have always been murmurs with respect to availability of the other raw material for making nonionics – ethylene oxide (EO). The grouse of the surfactants industry is that there is just one producer serving the merchant markets – Reliance Industries Ltd. (the other producer, India Glycols Ltd., consumes all of its EO captively for derivatives) – but close examination reveals there is presently adequate capacity with the petrochemical giant to serve local needs. But it is hard to predict what Reliance’s plans are for the EO business, given that it makes EO mainly for conversion to monoethylene glycol (MEG) – the polyester intermediate for which it has an insatiable appetite. It would hence be prudent for one or more of the petrochemical projects now in the drawing board to set aside some of the EO produced for supply to the surfactants industry. Remember, EO cannot be imported or even transported long distances due its hazardous and explosive nature. Focus on innovations In the industrial use of surfactants there is abundant scope for innovation. Take paints & coatings, for a start. There is a clear trend in this industry to move towards high-solids coatings and water-based systems and these require effective surfactants. Leading companies in this space are now even touting the ‘green’ credential of their paint systems (no odour, no solvent, etc.) and are eyeing ‘greener’ surfactants that go with this image. Surfactant producers are challenged to meet these needs – often without getting an extra buck for their effort. In the agrochemicals industry, to cite another example, there is today a great need to reduce sprayings and to use the minimum dosage of highly effective actives. This requires that what gets sprayed is most effectively utilised to tackle the pest at hand – needing innovations in surfactants and adjuvants. A few Indian companies and several overseas players are making efforts in this direction. Transitioning from a commodity to speciality chemicals industry The Indian surfactants industry is still heavily dominated by commodity products that have little or no differentiation from one supplier to another. Sales hinge around being the cheapest and this is a slippery slope. Escalations in cost of raw materials are often difficult to pass onto customers, leaving surfactant producers with shrinking margins and depleted profits. Only a handful of producers here have a scale that can be described as competitive and even fewer have the credentials to serve markets beyond India. Both of this will need to change if the industry is to be on a sustainable growth path and not be driven to extinction by suppliers from overseas who have forward and backward linkages that make for an overall healthy business. Consolidation is needed in this fragmented space and needs to be complimented with continuous innovation!

- Ravi Raghavan

CHWKLY 10-10-2017