Most specialty chemicals are consumed in industries including oil and gas, adhesives and sealants, catalysts, coatings, electronics chemicals, institutional and industrial cleaners, plastic additives, water management chemicals, antioxidants, biocides, cosmetics, pharmaceuticals, agriculture, lubricants, and food. Historically, specialty chemicals were not considered commodities, however, with these chemicals accounting for a small percentage of an end product’s value, the sector has seen increasing commoditization in recent years and reduced price stability. The specialty chemical sector has also been impacted by supply chain disruptions, increased logistics costs, and reduced asset availability. In response, the industry has increased focus on quality and precision to differentiate compared to emerging market competitors, with customers focused more and more on high degrees of accuracies in composition and purity, increasing the need for quality control testing, trace, contamination, and formulation analysis. However, supply chain disruptions have highlighted the risks of long-distance supply chains, which should benefit domestic producers.
Customers increasingly expect producers to document and certify both product quality and procedural compliance, and supply chain audits are increasingly rigorous. However, whilst targeting these most demanding customers is a sound business strategy, specialty chemical producers are faced with dwindling time periods between introducing innovations and competitors copying them, driving down pricing. Demand trends can be difficult to forecast, with diverse product lines whose demand is driven by numerous different industries whose demand can swing wildly from month to month. Specialty chemical companies have tried to introduce services to their product portfolios with varying degrees of success, but successfully integrating a service offering (such as utilizing in-house experts to provide customers proprietary chemistry, quality assurance, analytics, and supply chain services) has proven difficult for many companies. However, these initiatives can be a double-edged sword, optimizing customers’ use of chemicals and supply chains can reduce overall volumes sold, so companies in the industry need to ensure they are compensated for the value they create for their clients. Many customers will continue to prefer independent providers of these services.
The specialty chemicals landscape is being rapidly transformed through ongoing product diversification, heavy merger and acquisition activity both within the industry, its suppliers, and among its customers. Providers of transportation, logistics, storage, and distribution services to the industry have seen steady growth due to increasingly complex supply chains but soaring prices and reduced asset availability will reduce customers’ willingness to source chemicals from emerging markets.
Despite the ongoing challenges facing the specialty chemical industry, companies that can meet their customers’ needs, focus on areas with less competition and commoditization, enhance service offerings, manage operations and focus on growing demand trends (such as the focus on sustainable green products) can continue to grow and thrive.