south african surfactant market forecast

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

TypeApplication

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 detergentsand cleaning products

Personal care

Industrial &Institutional

Other (mining, paints,construction etc) 0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

2015 2016 2017 2018 2019

% g

row

th p

er

ye

ar

Year


Personal care


Other (mining, paints,construction etc)

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

ScopeProduct Scope

Application

ScopeDefinitions

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

Geographic

ScopeProduct Scope

Application

ScopeDefinitions

Scope & Definitions

Geographic

ScopeProduct Scope

Application

ScopeDefinitions

National Programme

Steering 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

Geographic

ScopeProduct Scope

Application

ScopeDefinitions

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 Growth

2014 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

Introduction &

Overview

Industry

ChallengesSupply &

Demand

Drivers &

Restraints

Market Analysis

Introduction &

Overview

Industry

Challenges

Supply &

Demand

Drivers &

Restraints

Market Analysis

Introduction &

Overview

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

ForecastMarket Forecast

Supply Chain

Analysis

Competitor

Activity

170

180

190

200

210

220

230

2015 2016 2017 2018 2019

Exp

ecte

d A

nn

ua

l R

eve

nu

e [

Mill

ion

Ra

nd

s]

Year

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

Revenue


Supply Chain

Analysis

Competitor

Activity

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

2015 2016 2017 2018 2019

% g

row

th p

er

year

Year


Personal care


Other (mining, paints,construction etc)

Projected Annual Surfactants Growth Rate

Financial Analysis

Raw

materials

acquisition

Revenue


Supply Chain

Analysis

Competitor

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

Revenue


Supply Chain

Analysis

Competitor

Activity

Threats of Substitutes

Low

Bargaining Power of

Suppliers

Low

Threat of New Entrants

Low

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

0

0.5

1

1.5

2

2.5

3

3.5

2015 2016 2017 2018 2019

Perc

ent G

row

th

Year

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

Household &

Cleaning Focus

End-User

ApplicationsEnvironmental

Concerns

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.

Household &

Cleaning Focus

End-User

Applications

Environmental

Concerns

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

Household &

Cleaning Focus

End-User

Applications

Environmental

Concerns

Why South

Africa

2014 2015 2016* 2017* 2018* 2019*

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

Conclusions

1. Consumer spending remains under pressure

2. 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 exists

5. South Africa remains a strategic gateway to the rest of

the continent

6. 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.