Maturity Marks Trends in North American Water Treatment Chemicals Market

The North American water treatment chemicals market is mature with high entry barriers.

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by Shilpa Tiku

The North American water treatment chemicals market is mature with high entry barriers. This market consists of a large number of participants from various backgrounds and origins. Even though the market is highly mature, there are still some segments likely to exhibit growth in certain areas, among these for products such as coagulants and flocculants, and biocides.

Technological Definitions

The water treatment chemicals market is divided into six segments by chemical functionality:

  • Coagulants and flocculants: Chemicals used to clarify water by causing the coalescence of dissolved impurities. Upon coalescence into large agglomerates, the impurities can be removed mechanically.
  • Anti-foamants and defoamers: Chemical suppression of foam by prevention or destruction
  • Corrosion and scale inhibitors: Chemicals reducing and/or preventing corrosion and scale formation by softening, demineralization, precipitation, sequestration and/or de-aeration of the water.
  • Activated carbon
  • pH adjustors, water softeners, and other inorganic commodities
  • Biocides: Chemicals which eliminate and/or control micro-organism growth

Strategic Market Analysis

Constant deterioration of water resources has created growth potential for water treatment chemicals. Regions where potable water supply is scarcest are expected to experience the highest growth during the forecast period due to a widespread population shift. These include coastal regions such as Texas, which will be rebuilding from recent damage following Hurricane Ike.

Industry Challenges

General aversion to chemical treatment technologies – There's a trend in the water treatment industry to move away from chemical treatment, and toward physical treatment technology such as membranes and UV disinfection. This is due in part to the general aversion of chemicals in water treatment, and in part to regulatory pressures that try to reduce or even eliminate chemical use. Advanced technologies that allow industries to minimize chemical use are favored, which will inevitably enhance expansion of the advanced water treatment market.

Alternative technologies substituting chemicals – Non-chemical methods such as membrane filtration, UV treatment, and other biological treatment are slowly expanding in the North American market. These alternative technologies are likely to substitute chemical products, and processes are expected to shift from predominantly chemical to biological as larger and more technologically advanced water treatment plants are built. Increasing environmental awareness also pushes for a "greener", non-chemical way to treat wastewater.

Vulnerability to copying patent restricts product development – Once the chemical, especially the specialty chemical, loses its patent protection and goes public, it becomes extremely susceptible to being copied. From an international perspective, these generic products are copied by Asian manufacturers in a cost-effective way, constituting a major threat to basic chemical manufacturers.

Major market participants dominate through industry consolidation – Due to the trend of industry consolidation, several large conglomerates dominate the chemical water treatment market. These companies have strong financial advantage over smaller competitors in major business areas such as R&D and marketing. In the long run, smaller market players will be eliminated. The lack of competitive forces could reduce consumers' price elasticity, which could limit market growth due to higher prices set by dominant manufacturers.

Some of the major recent acquisitions include the following:

  • Dow Chemical's purchase of Rohm & Haas Co., Ashland's purchase of Hercules Inc. and Arch Chemicals purchase of Advantis Technologies Inc.'s water treatment chemicals business in 2008 – all announced in the past few months
  • Kemira's acquisition of Cytec Industries' water treatment chemicals in 2007
  • Sale of Degussa's Stockhausen Inc. brand business to Drew Ashland in 2006
  • GE Water & Process Technologies bought Ionics Inc. in 2005

An additional challenge includes a highly competitive market with numerous participants in each market segment.

Market Drivers

Chemical methods of treatment prove to be cost efficient – Though there are many advanced technologies available in the water treatment market, chemical methods of treatment still prove to be cost efficient. Advanced technologies like ion exchange, reverse osmosis, ultrafiltration, and UV technology require huge investment pertaining to equipment purchase and installation. There is also a vast difference between the operating costs involved in technologies and chemicals. Since the chemicals are inexpensive, the loss involved in chemical methods will be very low when compared to the physical method.

Increased demand for clean water drives water treatment chemicals market – With a continuous population increase, as well as industrial activities, demand for clean water invariably increases. Current supply is unlikely to sustain increasing demand. The general perception is that tap water is unhealthy for consumption.

Deadly outbreaks of cryptosporidium in American cities in the 1990s increased the awareness of the need for clean water.

This also prompted issues facing municipalities to meet the demand for cleaner water, pushing municipalities to increase the quality of water treatment.

Continual population growth increases the demand for more water – The U.S. population is steadily increasing. According to the Census Bureau, the total population in the U.S. is estimated to be 272.3 million in 1999 with an annual growth rate of 0.85%. In 2008, the population has increased to an estimated 303 million. Such an increase in population, although moderate, places an ever-increasing demand on municipal water supplies.

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Some other drivers include the following:

  • Price: The low cost in capital investment, as well as operating cost, makes it very attractive for municipalities to continue to use chlorine.
  • Ease of use: Chemical treatment is a very simple process, making it fairly easy to operate and use.

Skepticism for alternative and advanced technologies retrains their growth, and end users continue to apply traditional water treatment methods instead.

Competitive Structure

Figure 1 lists the competitive structure for the North American water treatment chemicals market.

There are more than 150 participants in the industrial water treatment chemicals market in North America that manufacture water treatment chemicals for various end-user applications.

Some of the main chemical manufacturers are SNF Floerger, Ciba Specialty Chemicals, Rohm & Haas, Dow Chemical, Calgon Carbon Corp., Norit Americas Inc., and Rhodia.

There are three main tiers of competition. The first tier of companies is the large industrial chemical manufacturers supplying commodity chemicals to a number of product markets in the water treatment field such as Dow Chemical. The second tier is composed of the specialized manufacturers supplying one or two complementary types of product into the water treatment field such as SNF Floerger (active in the organic coagulant and flocculant market) and Rohm & Hass (active in the ion exchange resin market). Many smaller companies operating on a national level, particularly for the low-value product markets, form the third level of competition (such as Hill Brothers Chemical Co., and National Chemical Laboratories).

Competitive factors in the North American water treatment chemicals market include price, product quality and customer service.

  • Cost: Companies in this market must be able to produce products at a reasonable price without compromising on quality.
  • Product quality: Although this is a price-sensitive market, the customer does not wish to compromise on quality of both the chemical and water produced.

Conclusion

Though there are many advanced technologies being developed to make water treatment processes more efficient and effective, the role of chemicals cannot be eliminated completely as there will always be a stable demand for water treatment chemicals in certain core applications.

About the Author: Shilpa Tiku is a research analyst with Palo Alto, CA-based global growth consulting company Frost & Sullivan's North American Environmental & Building Technologies practice. Joining the company in August 2003, she focuses on monitoring and analyzing emerging trends, technologies and market behavior in U.S. markets for water and wastewater treatment, waste management, and air pollution control. Contact: johanna.haynes@frost.com or www.frost.com

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