Ten Factors Shaping the Solvents Industry in 2022

Ten Factors Shaping the Solvents Industry in 2022

Covid-19, the Russia-Ukraine war and soaring prices are global factors impacting the state of the solvents industry and driving change. We look at the leading influences evolving the EMEA region in 2022 and what it means for the future of solvents. 

By Rob Lawton, Business Director of Solvents for Univar Solutions EMEA

In recent years, the solvents industry has experienced seismic shocks. Here, we explore how these shocks have permeated the EMEA region, shifting and shaping the solvents landscape in 2022 and beyond.

1. Sudden Supply Demands 

Covid-19 has significantly impacted the solvents industry, particularly in terms of the demand for alcohols, isopropyl and ethanol products, which are the primary ingredients for hand sanitisers and many cleaning products. The industry was unprepared for the tens of thousands of tonnes needed, with every shop, restaurant and public area requiring hand sanitiser dispensers.

While we saw a suppression in demand for most solvent products because people were staying at home, we saw exponential growth in this product area. However, surging demand put strains on the system, particularly logistics, as moving products became a real challenge.

It is not feasible on a vast production unit to increase manufacturing output by 30% for some products. As a result, there were fundamental supply limitations. Those supply and demand balances took time to get back into shape and are still adjusting today.


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2. Stalled logistics drove a self-sufficient Europe to emerge

The pandemic caused a significant system shock to the logistics industry, particularly intercontinental product flows between China and Europe and China and the US. Historically, these three big blocks have had products flowing between them on a reasonably regular basis.

Many containers were in the wrong place and transporting solvents became a considerable challenge as moving products was no longer possible. Consequently, with the historic trade flows no longer there, the EMEA region had to become self-sufficient.

The industry’s difficulties had a very significant influence on the availability and pricing of products. Proximity to plant became more critical to ensure companies could secure the volumes needed. Regaining this balance, particularly in logistics, will take time, as we are still experiencing the knock-on effects of the pandemic.

3. Significant price inflation

The solvents industry has seen significant price inflation throughout the second half of 2021 and into 2022. Every product in the solvent portfolio has become 100% to 300% more expensive than in 2019, making it a challenging environment to obtain products.

The Russia-Ukraine war has become the most recent system shock, shaping the solvents industry. Most solvents are petrochemical-based, which means their primary feedstock is oil and oil derivatives. Therefore, a surge in the cost of oil affects the product's price.

Additionally, gas and energy has become a prominent factor, impacting inflation. Refineries and chemical plants are enormous consumers of energy, which has caused prices to surge. The most significant reduction in sites and capacity is in Germany, which has significantly impacted value. Gas values are approaching record highs, which presents further challenges as customers need relief from these high prices.

Manufacturers are looking to reduce costs, but production costs are increasing. The traditional flow of products from Asia and the US to Europe is not as healthy as it should be due to limitations on the amount of product that can flow from Asia or the US into Europe to relieve those costs and expenses. The industry is facing a delicate balance today between product flow and price.

4. Reducing production output

The impact on value then starts to impact production. Production rates are lower because the high gas prices are unaffordable. In recent months, units have been turned off or output has been significantly reduced because the production cost exceeds the product’s sales value.

In the coming months, assuming current gas values remain, suppliers and manufacturers will need to determine whether they continue production or significantly reduce their output. Current expectations suggest we will continue to face high gas prices for another 12 months at least. There is no simple and fast solution to switch products. Consequently, options are somewhat limited if you require solvents in reasonable quantities.

Ten Factors Shaping the Solvents Industry in 2022

5. Security of supply

With pricing concerns leading to production considerations, the further challenge hinges on the ability to ensure the security of supply. At Univar, we have a clear, long-standing strategy whereby we try to ensure we are not single-sourced on any of our products. Adopting this approach allows for a balanced supply and pricing model.

In the coming months, securing solvent supply will be increasingly crucial because there will be a severe strain on organisations. Some of them will be unable to manufacture products and profit from them. Ultimately, there is very little you can do, but to turn the units off and switch to alternatives. Many production units are backwardly integrated. Therefore, product options are available at each step of the chain, enabling producers to divert them into other areas where it makes better commercial sense.

6. The rise of single-sourcing

We are moving away from multi-sourcing solvents. Proximity to plant is still an important consideration because the strain on logistics is here to stay. Therefore, we need to get products into our facilities to send to customers. Instead of having ten suppliers, using up to three offers security, stability and certainty.

How this approach will play out is hard to tell because it is impossible to know how the Russia-Ukraine war will evolve in the next six months. We know today that Russia supplies Germany with approximately 40% of the gas it would typically have been providing. Germany is working hard to find alternate sources through liquefied natural gas (LNG) and infrastructure, yet there is no quick fix.

Consequently, if that situation worsens, those problems will be compounded and we will face more significant challenges regarding product availability. Before we consider price and value, product availability is likely to be the industry’s biggest challenge.

Ten Factors Shaping the Solvents Industry in 2022

7. Innovation centres on sustainability

Sustainability is the biggest opportunity for the solvents industry today. Reducing carbon footprint is a crucial area of concern and substantial interest. Clear ideas like highlighting the importance of proximity to plant plays a vital part. Manufacturers are also exploring sustainable feedstocks and product recycling to minimise environmental impact.

Producers would previously burn or sell any leftover solvent from the manufacturing process. Now there is the recognition that these molecules have value and can be reused, resulting in using fewer virgin products, less oil and potentially less gas.

It will be enormously beneficial if we can significantly increase the life cycle of those products. The industry is exploring how we can get more sustainable products at the front end of the manufacturing process, as these will then continue through the chain

8. Scaling sustainability investments

The industry is investing heavily in sustainability and is less reliant on fossil fuels. However, it is going to be a journey to achieve sustainability. Among solvent players, the approach is one of constant improvement.

While it feels counterintuitive to focus on innovation and investment at times of economic uncertainty, action in the sustainability field is growing in momentum. The solvents industry is exploring options for reaching a net zero target by 2050 and producers understand that if they want to reduce their reliance on oil and gas, looking at renewable, recycled feedstocks will make a big difference to oil-derived product consumption.

Previously, investment in sustainability initiatives was minimal, but this has increased significantly. The industry is no longer avoiding action on sustainability for fear of getting it wrong. There is a genuine willingness from leading solvent producers to invest heavily, which we anticipate will only accelerate further.

9. The cost-competitiveness of sustainable solvents 

Manufacturers will need to switch to more sustainable solutions in the next five to ten years. However, this will be challenging due to cost competitiveness. Alternatives to products from Russia are more expensive than their petrochemical counterparts, so the EMEA region has a real challenge over the next 20 years.

The industry can alleviate some of these disadvantages by looking at trade flows and bringing solvents in from Asia and the US. However, this does not solve the problem for manufacturers with a European production unit.

Therefore, sustainability is key to the medium-term security of supply and operational viability of several European units. We must find something that makes customers want to continue buying products produced in this region. Given the net-zero target of 2050, it makes that an agenda item for everyone in Europe. Finding sustainable solutions that help meet those targets will be reasonably critical throughout the industry.

10. Increased flexibility

The solvents supply chain has become far more reactive to changes in recent years due to barriers making it harder to get products into the UK from continental Europe. We have had to adjust how we stock and buy products and adapt to the delays this has caused in our supply chain to ensure we can still secure supply. We have been more flexible with our product sourcing and are willing to take on more risk with longer lead times.

We have learned that the industry landscape has changed significantly since 2020 and that the ability to react to these changes is crucial. Although there have been significant challenges, we have adapted well. The team has applied itself to what was needed and has executed that fantastically over the last couple of years, which is a credit to them.

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