Biocides- Making a killing

According to a new report by Kline & Company, Specialty Biocides 2004-2005, the West European market for speciality biocides is currently the second largest on a global basis behind that of the US. Valued at around €485 million for a volume of around 125,000 tonnes on a 100% active basis, the West European market will continue to exhibit only modest growth (averaging 2-3% overall) over the five years from 2004 to 2009. The US market, by contrast, is worth about €1,175 million, Japan's is worth €185 million and China's €92 million, though growing rapidly.
As Figure 1 shows, Western Europe's speciality biocides market is less driven by water treatment applications than the US market, and more by industrial preservation.

Figure 1 - Main global markets for speciality biocides

However, the latter is far more important in terms of relative market share in Japan and China than it is in either Western Europe or the US, where 'other' applications, notably wood preservation, leather tanning and household and industrial and institutional (HI&I) cleaning products, loom larger.The most significant driver for future biocide consumption in Western Europe is changes in legislation that is currently uncertain and difficult to predict. Such legislation includes the Biocidal Products Directive (BPD) and the potential reclassification of, and increased labelling burden for, selected biocidal actives.
Suppliers of speciality biocides have already invested significant time and resources into generating the data required for the BPD approval process. In many cases, this process has been slow and drawn-out because active ingredients for each application have been reviewed in a stepwise fashion.
Concurrently, companies from China and India have been flooding the market with generic products, driving prices down, further suppressing profitability and generally adding insult to injury for West European suppliers of biocidal actives. However, manufacturers with a smart BPD strategy and strong products could see a healthy long-term return on their investment.
The product and application mix in Western Europe differs in terms of volume and value. Organosulphur biocides, including isothiazolines, dithiocarbamates, pyrithiones and thiocyanates, lead on a value basis, with a 25% market share. Nitrogen-based products rank second with a 23% share; this category include quats, triazines, THPS, oxazolidines among many others (Figure 2).

Figure 2 - West European market for speciality biocides by product chemistry

Figure 3 - West European market for speciality biocides for industrial preservation by application

Looking at the market from an applications standpoint, industrial preservation ranks first, with a 35% share by value of the overall West European market for speciality biocides, excluding formulations. Figure 3 shows the market segmentation for industrial preservation by application
Three key drivers are impacting such industrial preservation applications as marine anti-foulants, paints and coatings, adhesives and sealants, synthetic latex polymers, metalworking fluids, plastics and resins and mineral slurries. These are:

* the BPD
* increased competition from generics suppliers in India and China
* the potential reclassification and/or increased labeling of formaldehyde-releasing biocides and carbendazim

To date, none of the industrial preservation applications has been reviewed under the BPD. However, small-volume biocidal actives that are unlikely to make it through the review process have already been dropped and huge uncertainty exists regarding the final outcome, because biocidal actives will be authorised by individual application. Manufacturers have evaluated the risks and rewards of supporting their actives.
Currently, actives that are not patent-protected, such as bronopol, CIT/MIT and BIT, continue to face increased pricing pressure from Asia On the completion of individual BPD application reviews, foreign generic competitors will not be able to import freely unless they register or cooperate with a current European supplier of the active. This means that traditional European suppliers of these actives will have a level of competitive protection.Overall, speciality biocide consumption in industrial preservation applications is forecast to grow at an average volume rate of 1.25%/year. Similar to other global regions, the bright spot in the Western European market is the plastics and resins end-use segment, particularly for silver-based biocides.

These biocides are more environmentally friendly, protect the integrity of plastics, and offer surface antimicrobial protection. European sales of biocidal actives to the plastics and resins market are expected to grow by 4.5%/year from 2004 to 2009, with silver-based actives growing by 10%/year.
By contrast, consumption of speciality biocides overall will grow by only 1.25%/year and annual growth rates in other market sectors over that period will be 3.0% in synthetic latex polymers, 2.3% in adhesives and sealants, 2% in minerals and slurries, 1.7% in marine anti-foulants and 1.2% in paints and coatings. In metalworking fluids, consumption is forecast to decline by 0.35%/year.

Overall, the growth of organosulphur biocides is relatively flat, at 0.7%/year on a volume basis through to 2009. However, within this category, isothiazolinines and pyrithiones will exhibit above average volume growth, driven by the displacement of older chemistries. Thiocyanates will decline, due to legislation concerns.
Biocide formulations are an important aspect of the West European paints and coatings, synthetic latex polymers, and adhesives and sealants markets. Kline estimates the market for formulated biocides at more than €200 million, with paints and coatings accounting for more than half the market.
The competitive landscape in formulations is relatively fragmented, with Thor (which pioneered the business model), Lanxess, Rohm and Haas and Troy among the leaders. Many suppliers of straight biocidal actives to industrial preservation applications have adopted the formulations business model in order to extract more value from clients.
In most cases, biocidal actives firms have acquired formulations expertise. For example, Clariant acquired Bactria, ISP acquired both Biochemica Schwaben and Progiven and Troy acquired the biocides activities of the former Riedel-de Ha‘n.Overall, the supplier base for speciality biocides for all applications is highly fragmented both from a product and from an application standpoint. More than 30 companies are active. Kline estimates that the top five suppliers of biocidal actives (Arch Chemicals, BASF, Lanxess, Lonza and Rohm and Haas) combined account for only 34% of the market value.
However, selected product and applications are much more consolidated. For example, the top five suppliers of organosulphur biocides in Western Europe (Arch Chemicals, Clariant, Lanxess, Rohm and Haas and Thor) account for 87% of the market. From an application standpoint, water treatment is relatively fragmented, with the top five suppliers accounting for around 40% of the market on a value basis. In contrast, for industrial preservation, the top five suppliers account for 65% of the market.