Frost - Surfactants SA

Surfactants MarketA South African Perspective

Executive Summary• Analysis of the South African surfactants market• Key areas of household detergents and cleaning surfactants are analysed• Opportunities in the market exist• Research & development is moderate to low – mostly a case of companies

using tried and tested methods from external markets• Competition in the market it low – room for improvement exists• Key players in the market are addressed• End user usage analysis with environmental regulations and general

legislation addressed• Current surfactants market in SA growing slowly – Loadshedding has

affected manufacturing industry with a knock-on effect• Most surfactants are imported, with downstream products being

manufactured locally

Introduction Market Overview Market Structure Key Findings

Executive Summary• Slowdown in manufacturing sector across the board• Economic growth which is slowing as a result of frequent power outages is

affecting industry growth• Growth will remain steady in the medium term (2015-2019) until energy crisis

is effectively remediated• Specialty end user sector (mining) is decreasing as a result of lower global

commodity prices• Construction industry is experiencing moderate growth (~2% p.a)• Household detergent and cleaning market will experience highest growth as a

result of increasing urbanization and demand for improved hygiene (~4% p.a)


2015 2016* 2017* 2018* 2019*

4% 4.1% 4.1% 4.5% 4.8%

Executive Summary


Anionic

Cationic

Nonionic

Amphoteric

Market Segment and

Area of Application

Household Detergents

Industrial and Institutional

Personal Care

Specialty

Product Type

Application

Executive Summary• SA surfactants market generated revenues of $188.2 million in 2014• Anionic account for majority of the market share of which household detergents

and cleaning accounted for 60% of the total market• In 2014 personal care products and I&I accounted for 19 and 15%, respectively


66%18%

13%

3%

SA Surfactants Market Share (2014)

Household detergents and cleaning productsPersonal careIndustrial & Institu-tionalOther (mining, paints, construction etc)

2015 2016 2017 2018 20190

0.51

1.52

2.53

3.54

4.5

Household detergents and cleaning products

Personal care

Industrial & Institu-tional

Other (mining, paints, construction etc)

Year

% g

row

th p

er y

ear

Annual Surfactants Growth Rate (Predicted)

Aim & Objectives

The aims and objectives of this report are as follows:

• To provide a brief overview of the South African surfactants market with a focus on household detergents and cleaning (key trends, market segmentation, drivers and restraints)

• To estimate the market size (demand) in US dollars for 2014

• To project market growth (%) up to 2019• To provide a competitive overview (current participants,

structure, trends and other relevant information)

Scope & Definitions

• Real GDP growth rate in SA

• Rapid urbanization will lead to increased demand in FMCG sector

• Home and personal care manufacturing sectors expected to increase by 4% p.a

• Significant opportunity in Southern African region

Geographic Scope Product Scope Application

Scope Definitions

2015 2016* 2017* 2018* 2019*2% 2.1% 2.2% 2.5% 2.9%

Scope & Definitions

Anionic Surfactants• Commercially most significant• Household cleaning• Institutional cleaners• Cationic, amphoteric and non-ionic are less prevalent

in the market• SABS compliant• Mature FMCG industry able to absorb supply• Location of manufacturing facility


Scope Definitions

Scope & Definitions

Geographic Scope

Product Scope Application Scope Definitions

National ProgrammeSteering Committee

National Implementing Agency

Coordination Team

Implementing Partner – Frost & Sullivan

Surfactants Producer

Customers – FMCG Manufacturers

Credit Providers

Programme Advisory

Committee

Business Development

Research & Development

After Sales Service

Scope & Definitions

• BBBEE – Broad Based Black Economic Empowerment – An initiative by the South African government in response to criticism against Narrow Based Empowerment instituted in the country during 2003/2004 with the aim of uplifting ethnic groups marginalised by the apartheid regime

• LCA – Life Cycle Assessment – This is an environmental model to evaluate the effect a product has on the environment from cradle to crave (acquisition of raw materials to end of product life)

• SABS – South African Bureau of Standards - leading global provider of standards, management systems, business improvement and regulatory approval information and is responsible for regulating the quality of South African goods and services


Scope Definitions

Industry Best Practices

• Manufacturing processes are clearly defined and controlled• Manufacturing processes are controlled, and any changes to the process are

evaluated• Instructions and procedures are written in clear and unambiguous language• Training – Ongoing and targeted training on issues ranging from allergen control,

cleaning and sanitation procedures, incoming ingredient receipt protocol, and monitoring for employees, management, as well as suppliers

• Audits – Periodic audits and inspections of facility and raw material suppliers either in-house or by third-party firms

• Documentation – Documentation of training activities, raw material handling policies and activities, cleaning and sanitation, receiving records, and use of sign-off logs

• Validation/Evaluation – Evaluation of training effectiveness and establishment of accountability, validation of cleaning through testing

• Processes are compliant with the necessary environmental (LCAs) and labour legislation

Market Analysis

Manufacturing Production

Introduction & Overview

Industry Challenges Supply & Demand Drivers & Restraints

Strengths-moderate growth

rate-barriers to entry -high profitability and revenue

-existing distribution and sales networks

Weaknesses-high loan rates-investments in research and development

-small business units

-competitive market

Opportunities-growing demand

-income level is at a constant increase

-new markets-new products

-new acquisitions-growth rates and

profitability

Threats-government regulations

-increasing costs-increase in labour

costs-financial capacity

2014 2015 2016* 2017* 2018* 2019*

2.4% -2.4% -0.8% 2.1% 3.0% 3.2%

Manufacturing Sales Growth2014 2015 2016* 2017* 2018* 2019*

0.8% -3.1% -1.1% 0.5% 2.0% 2.9%

Producer Price Inflation (PPI)2014 2015 2016* 2017* 2018* 2019*

9.3% 3.4% 3.5% 3.9% 4.8% 4.8%

Market Analysis

• Perennial constraints regarding the security of electricity supply and increased costs incl. water

• Influx of incentivised and cheap imports

• Labour unrest• Fluctuating exchange rates and

weakening Rand• Slowdown in manufacturing sector• Disjointed trade policy and

administration


Industry Challenges Supply & Demand Drivers & Restraints

LabourElectricity

Imports Currency

Policy Frame-work

Growth

Market Analysis


Industry Challenges

Supply & Demand Drivers & Restraints

Competition is moderate with supplier differentiation

Raw materials and other surfactant types are imported. Future market share of anionic surfactants will be replaced by non-ionic surfactants

Two local manufacturers account for 97.5% of total surfactants production

Some consumers are willing to pay higher prices for higher quality products

Major driver for demand: growing consumer income

SA surfactants market generated revenues of $188.2 million in 2014

SupplyDemand

Market Analysis


Industry Challenges Supply & Demand Drivers &

Restraints

Driver/ Restraint

Micro Trends Short term (1-2 years)

Medium term (3-5 years)

Long term (6-10 years)

Driver Consumer market growth is being spurred on by:- Economic growth- Retail expansion- Middle class growth & income- Population growth

Driver Limited availability of ingredients (Raw materials are mostly imported)

Driver Mature end user product manufacturing industry

Restraint Increased contract manufacturing as a result of increasing manufacturing costs

Restraint Environmental and health concerns

Restraint Multifunctional product base (Large divide between rich and poor in society)

ModerateHigh Low

Financial Analysis

Revenue Forecast Market Forecast Supply Chain

AnalysisCompetitor

Activity

2015 2016 2017 2018 2019170

180

190

200

210

220

230

Year

Exp

ecte

d A

nnua

l Rev

enue

[Mill

ion

Ran

ds]

Financial Analysis

• Revenues for 2014 totaled $188.2 million in the household detergents and cleaning market

• Household detergents and cleaning revenues expected to grow at a steady 3-4% over the next 5 years (2015-2019)

• Revenues in the specialties sector surfactants market are expected to decline in 2016 as a result of a global slow down in mining output based on lower commodity prices


AnalysisCompetitor

Activity

2015 2016 2017 2018 20190

0.5

1

1.5

2

2.5

3

3.5

4

4.5

Household detergents and cleaning products

Personal care

Industrial & Institu-tional

Other (mining, paints, construction etc)

Year

% g

row

th p

er y

ear

Projected Annual Surfactants Growth Rate

Financial Analysis

Raw materials acquisition


AnalysisCompetitor

Activity

Supplier

Manufacturer

Distributor

Customer

Consumer

NoteThe inputs into detergents,

cosmetic and pharmaceutical products include a variety of

speciality raw materials, including chemicals,

fragrances, essential oils, thickeners, surfactants,

preservatives, colourants and active ingredients. Many of

these ingredients are imported, which puts South African

manufacturers at a disadvantage.

Financial Analysis

RevenueForecast Market Forecast Supply Chain

AnalysisCompetitor

Activity

Threats of SubstitutesLow

Bargaining Power of Suppliers

Low

Threat of New EntrantsLow

Bargaining Power of Customers

Medium-High

Competition Intensity

MediumIn South Africa, demand meets supply, therefore bargaining power would be low.

Unlikely to occur in the forecasted period. Anionic surfactants are the backbone of many home and personal care products. They are essential to formulations.

Customers are very cost-oriented and negotiate with suppliers for lower prices. In some cases, losing one big FMCG customer could deal a severe blow for a supplier’s livelihood

As South Africa is mostly selfsufficient, the threat would be low

Industry Players

Areas of Concern

• Home care in South Africa is expected to achieve slow but steady value growth during the forecast period (2015-2019)

• Constrained consumer spending impacts consumer spending patterns

• Rising popularity of increasing range of private label products

• Highly competitive retailing industry influences sales of home care

• Supermarkets remain the most popular retail distribution channel for home care

• Steady growth expected to continue in home care over the forecast period

Household & Cleaning Focus

End-User Applications

Environmental Concerns

Why South Africa

2015 2016 2017 2018 20190

0.5

1

1.5

2

2.5

3

3.5

Year

Per

cent

Gro

wth

Areas of Concern

• The inputs into fragrance, cosmetic and pharmaceutical products include a variety of speciality raw materials, including chemicals, fragrances, essential oils, thickeners, surfactants, preservatives, colourants and active ingredients. Many of these ingredients are imported, which puts South African manufacturers at a disadvantage

• A concern expressed by industry participants is the fact that imported ingredients are still subject to an ad valorem ‘luxury’ tax of between 5% and 7% in addition to excise duties

• The South African government spent heavily to improve residents' health care system which has boost demand for surfactants, with hospital infrastructure and health care facilities comprising 20% of the surfactant market share

• End user is not very sensitive to the price of the product, demand will remain stable despite price fluctuations as users are loyal to brands, formulas or surfactant type

• There is growing awareness and interest in renewable-based products by consumers and industrial end users for “Green Products”

• The largest end use market for surfactants is household cleaning detergents




Why South Africa

Areas of Concern

• Detergent companies are seeking bio-based surfactant feedstock• P&G's sustainability goal of using renewable-based surfactant materials for

its detergent products as soon as possible• One-hundred percent bio-based chemicals are not cheap• VOC legislation is in place in many parts of the world in order to get

industries to change from solvent-based formulations to water-based formulations

• Chemical Oxygen Demand (COD) levels are governed by legislation• The surfactant industry is facing challenging environmental, regulatory and

consumer pressure on the production, exposure, packaging, handling, transporting, use and disposal of its products.




Why South Africa

Areas of Concern• Africa’s most developed economy with significant manufacturing

capacity able to absorb required demand of surfactants in end-user products

• Strategic point of entry for further expansion on the continent• Three significant port cities as well as sufficient transportation

infrastructure (air, rail and road network), however the rail infrastructure is lacking somewhat

• Steady economic growth

• Need to be aware of the energy crisis SA is currently facing




Why South Africa

2014 2015 2016* 2017* 2018* 2019*

2.7% 1.3% 2.5% 3.1% 3.6% 4.0%

Conclusions1. Consumer spending remains under pressure2. South African consumers increasingly open to private

label products as they become less brand loyal in general

3. Intense competition between major players remains a hallmark of the competitive landscape in home care as South Africans look for value

4. A steady growth market in South Africa exists5. South Africa remains a strategic gateway to the rest of

the continent6. Most successful companies in South Africa have

developed their business models to compete and be successful in the tough African market

7. Given local constraints and despite the considerable challenges, there is a mood of cautious optimism as companies continue to seek growth opportunities in new areas, both in South Africa and across Africa.

Documents

Frost - Surfactants SA