Changes in the solvents industry herald only limited growth

Citation

(1999), "Changes in the solvents industry herald only limited growth", Pigment & Resin Technology, Vol. 28 No. 3. https://doi.org/10.1108/prt.1999.12928caf.006

Changes in the solvents industry herald only limited growth

Changes in the solvents industry herald only limited growth

Keywords Europe, Market, Solvents

The structure of the European industrial solvents market is forecast to change in a number of ways between now and 2004. With a reduction in the volumes of solvents being traded, and prices under pressure in Europe owing to foreign competition, only limited growth in certain product markets is expected (see Figure 4).

Figure 4 The European market for industrial solvents (per cent of revenues by product type ­ forecast for the Year 2004)

A new study by Frost & Sullivan, the international marketing consulting company, reports that the repositioning of the solvents business, a lack of viable alternatives, the focusing of development efforts on high demand products, and an increase in acquisition, rationalisation and consolidation activity will be the key driving forces behind the changes expected in the European industrial solvents market.

Dr Angela Gunning, research manager at Frost & Sullivan, adds: "Change is stimulated by environmental pressure on both producers and end-users. The most important changes are the switch to more environmentally-compliant formulations, and the reduction in the crude commodities business."

The repositioning of the solvents business is a driver mainly affecting the chlorinated solvents business. However, it is also relevant to the hydrocarbon solvents industry, and to a lesser extent, to the oxygenated solvents business. There is a movement away from the traditional stance in commodity markets of simply providing products, to one which increasingly includes providing services. This trend is synonymous with end-users demanding higher grade products, and with the movement towards recovery and recycling systems.

As a result of users streamlining their own businesses, in-house expertise in solvent technology is often lost. End-users are therefore becoming increasingly reliant on manufacturers for technical advice and guidance, and for the provision of recycling services.

As the trend towards manufacturers providing more services, in a bid to protect revenues and market share, gathers momentum, more and more producers will have to begin forging closer alliances with customers.

Despite numerous claims throughout the 1990s that the European solvents industry is in severe decline, the solvents market continues to persist and indicates growth in a number of areas. One reason for this is the lack of alternatives to solvents that are able to offer the same degree of technical performance, at the same price.

Frost & Sullivan finds that while certain "alternative" technologies have met with some success in certain applications, many such alternatives do still contain solvents. As end-user industries have picked up, so too has the solvents market. It seems that many end-user sectors will remain faithful to organic solvents, unless forced to change by the implementation of new regulations. Growth is only apparent across specific product areas of the industrial solvents market.

The market for most types of oxygenated solvents generally looks more promising than the markets for hydrocarbon and chlorinated solvents. Frost & Sullivan predict that over the coming years, as both legislation regarding solvent use is tightened, and user-demand changes, the production of correct product lines will become crucial. Growth will be increasingly apparent in more and more specific product areas. Owing to the stagnant, or declining conditions in many areas of the organic solvents industry, manufacturers are being forced to analyze all their production processes, overheads and costs, and to cut down accordingly.

This will encourage further rationalization of production and research facilities, and a further reduction in the number of people employed in the industry. While the market only shows modest growth, manufacturers will only be able to achieve very limited organic growth in Western Europe. As a result there will be some further acquisition activity.

Some manufacturers will also attempt to get a foothold in faster-growing market sectors through acquisition, rather than trying to develop a new business area from scratch. Owing to the maturity of the well-established European solvents market, only insignificant change is expected in revenue proportions claimed by the European countries between 1997 and 2004. Further centralization of power in Europe from a national to EU level, will also further promote harmonization within the industry.

Traditionally, suppliers have competed with one another on price, availability, reliability, and product quality.

These are still the main competitive features apparent in the market. However, whereas in the past technical services has played a minor role in this commodity business, today it is of more significance. The trend towards more sophisticated formulations and tighter environmental controls are the main drivers behind this trend.

To summarize, Frost & Sullivan forecasts that the industrial solvents business will rise from US$2.63 billion in 1997 to US$2.70 billion by 2004, with volumes on the decrease. However, the increasing dominance of oxygenated solvents will, to an extent, help to maintain revenues.

For further details contact Frost & Sullivan. Tel: +44 (0) 171 915 7824 or Fax: +44 (0) 171 730 3343.