New specialty plastic companies follow recent U.S. large resin commodities capacity expansion

After over a decade of investment in North America to take natural gas from shale deposits to build plastic resin plants able to churn out hundreds of thousands of tonnes of pellets, another significant development a bit further downstream the American oil and gas industry has been the designing, setting up and starting up of new specialty plastic companies to tweak some of that resin.

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“The real growth with much higher margins is created by usually smaller companies,”said Ashok Adur, who specializes in Chemistry of the Interface.

“Many of the big companies aren´t able to, or are unwilling to, get into those primarily because the incentive for many of the bigger companies is to keep growing bigger with what they have so they set up bigger plants and become more efficient each time,” Adur added in an interview.

For bigger companies that produce resin commodities, profit gains results “are generated by increasing efficiency, and also by increasing the total volume of products,” said Adur, polymer science engineering and with experience in developing specialty businesses.

Specialty plastics offer more room for expansion compared with commodities. While demand for basic commodity resins is just above GDP, the expected demand growth for specialty plastics is projected to be “somewhere around two and a half times GDP,” Adur said.

“Tweaking” polyethylene

“Some individual sectors or individuals who work in those companies branch out and then they say,OK,let me do this particular thing and then develop something that has a unique advantage and provides better service, or better performance-per-unit net cost,” he said.

“They take the basic resin and tweak it. For example you can take polyethylene and polypropylene which is like a huge commodity resin and then you tweak it by grafting something on it, or modify it in some way,” Adur added.

Instead of managing thousands of tonnes of plastic resins, entrepreneurs that go into specialty businesses must work mostly with thousands of kilograms, “but you are able to charge a profit margin of 40% to 70%,” he said.

Sizes, locations of specialty companies

“It could be for example a division of a bigger company that is doing this (…) and in that case is somewhere between even $5 million dollars to half a billion dollars.”

Specialty companies have a margin that allows them to choose a location that does not have to be necessarily near a cluster of petrochemical production like the U.S. Gulf Coast.

“If your margins are in the 40% to 70% range the additional cost of transportation is very minimal so location is not as critical,” Adur said.

The location of specialty plastic producers “could be just historical reasons, could be due to having the right kind of equipment, having the right kind of people.”

Can a recession hit specialties more?

“With specialty plastics you have the advantage because you have much higher margins," Adur said.

"You are not as susceptible to losing a small amount of your volume," he added.

If your margin is 40% or 70% of your sales price, if the volume goes down 5%, 10%, so what? it is not a big deal,” Adur said.

Chemical manufacturers society

Another difference between commodity and specialty resins lies in their manufacturing processes.

According to the website of the Society of Chemical Manufacturers and Affiliates (SOCMA), specialty chemicals “due to their complex chemistries and narrow range of applications (…) are typically manufactured using a batch process. This is not necessarily automated, and has a distinct beginning and end point for each batch. Commodity chemicals are generally produced using continuous processes,” it said.

The association, that supports the growth of the specialty chemical industry since 1921, lists about a hundred manufacturing companies, in addition to distributors and affiliates, as members.

Some of the affililated organizations under the umbrella of SOCMA are the Color Pigments Manufacturers Association, or the Institute for Polyacrylate Absorbents.

Individual market sectors that rely on specialty plastics include automotive, aerospace, agriculture, cosmetics and food, among others.

“Commodity chemicals comprise most of the production volume in the global marketplace, while specialty chemicals make up most of the diversity in commerce at any given time and are relatively high value, with greater market growth rates,” it said.

According to the ACC, “Specialties may only have one or two uses, whereas commodities may have multiple or different applications for each chemical,” it said.

Specialty plastics have very broad uses.  “Almost anywhere, believe it or not, is used in appliances, in automotive, aerospace and defense, furniture, housing and construction, packaging, health care and so many different end markets,” Adur said.

By Renzo Pipoli