Chemical markets of the future

by WILLIAM BAUMGARTNER

WILLIAM BAUMGARTNER is an industry analyst with the Freedonia Group.

To survive, any industry must continually innovate, modernize, and adapt to changing conditions. This is especially clear in the pulp and paper industry, which has experienced massive consolidation during the last several decades, as well as increased foreign competition, environmentally-driven process changes, and a revolution in information technology that has forever changed the role of paper in society. These changes have led to major shifts in demand for the myriad of papermaking chemicals used in the industry—a trend that shows no signs of abating.

PULP CHEMICALS. Among the most profound process changes in the paper industry has been the phase-out of chlorine use in pulp bleaching that was mandated by the Cluster Rules. The U.S. industry is now operating on an elemental chlorine free (ECF) basis, using chlorine dioxide derived from sodium chlorate instead of chlorine as the primary bleaching chemical. Although the Environmental Protection Agency (EPA) did not adopt the more restrictive totally chlorine free (TCF) standards favored by some, demand for a wide range of alternative bleaching chemicals is expected to continue rising.

Sodium chlorate has benefited most from the shift from chlorine, and demand will continue to increase, although at a decelerating rate since the replacement of chlorine is now complete. Oxygen has a number of applications in the pulp mill, including delignification, ozone generation, and water treatment. Although demand for oxygen is inhibited by the substantial capital costs involved, the economics become more favorable as consumption increases due to lower unit production costs. The market for hydrogen peroxide bleaching has not developed as once predicted, primarily due to adoption of the ECF standard rather than the more stringent TCF standard, which would have essentially doubled demand for that product. Nevertheless, peroxide use has increased with the switch to ECF bleaching, and demand will continue to increase in both pulp bleaching and water treatment uses, as well as recycled paper deinking.

PIGMENT USE SHIFTS. Process changes have also had an impact on filler and coating pigment demand, particularly the change from acid-based to alkaline papermaking. This change has led to the growing use of calcium carbonate, especially precipitated carbonate.

Currently, carbonate use is roughly equal to clay fillers in volume terms, but, within the next few years, calcium carbonate will surpass clays to become the largest filler and pigment in use. High cost will continue to inhibit the use of titanium dioxide, although it is a very effective pigment. Talc, which is used widely as a filler/pigment in Europe, is primarily used in the U.S. to combat stickies contamination.

Changes in the way the industry handles water have also impacted chemical demand. Increasing quantities of defoamers, biocides, flocculants, coagulants, deposit control agents, and other water treatment chemicals are being consumed to meet the growing burden placed on water supplies. As the industry continues to close the loop on water use, demand for more effective (and higher value) water treatment chemicals will outpace overall gains in chemical demand.

Another significant process change is the rising use of recycled fiber. This trend will continue to spark demand for a wide range of deinking chemicals, as well as flocculants and coagulants, designed to remove adhesives, coating residues, and other debris. In particular, polyaluminum chloride (PAC) will benefit, as the amount of waste sludge generated is lower than with aluminum sulfate (alum). Nevertheless, alum will still be widely used, due to its significantly lower unit costs.

The revolution in information technology has also had a profound effect on the pulp and paper industry. Newsprint growth will be inhibited, while demand for uncoated free-sheet grades and coated papers will rise, although demand for coated paper is very sensitive to overall economic conditions and thus is more volatile. This demand shift will translate into growing demand for modified starches, for example, which are widely used in higher quality printing and writing papers. Although potato starches took some market share from corn starches in the early 1990s as a result of the switch from acid to alkaline papermaking, that trend is expected to reverse, as suppliers have now developed a number of modified corn starch grades that work well in alkaline systems. Consumption of starches will also benefit from the growing use of recycled fibers (since starch improves strength) and the greater use of metering size presses, which permit the use of starch at higher solids levels.

The sum of all of these changes is that the paper industry's demand for chemicals is projected to rise 2.4% annually during the 2001 to 2006 period. Demand will rise from a weak 2001 level of 18.2 million tons to 20.5 million tons in 2006. The value of these products is projected to rise even faster, at a 4.5% rate, reaching $7.6 billion by 2006.