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Hydrochloric Acid Industry Trends & Outlook December 2011
Rx-360 Presents a Beroe Analysis
Table of Contents
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Glossary Research Methodology Research Roadmap Executive Summary Market Analysis Risk Analysis
Glossary (1/2)
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Acronym Expansion CaF2 Calcium Fluoride
CAGR Compounded Annual Growth Rate CFC Chlorofluorocarbons
CHCl3 Chloroform Cl2 Chlorine Gas H2 Hydrogen Gas
H2SO4 Sulfuric Acid HCFS High Fructose Corn Syrup HCl Hydrochloric Acid HF Hydrofluoric Acid
HFC Hydrofluorocarbons MDI Methylene Diphenyl Diisocyanate MMT Million Metric Tons
Glossary (2/2)
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Acronym Expansion M-o-M Month on Month
MT Metric Ton NaOH Sodium Hydroxide Q-o-Q Quarter on Quarter
ST Short Ton TDI Toluene Diisocyanate US United States
WMT Wet Metric Ton
Research Methodology
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Information from various reliable sources on the Internet, news articles, magazines, market research data, and supplier/distributor company websites was collected.
The data collected was corroborated by contacting suppliers and industry giants dealing with the pharmaceutical industry.
The gathered information was triangulated and analyzed.
Research Roadmap
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The clients specific need and interest with respect to the high purity HCl market was understood. Based on a robust discussion with the client, the deliverables to be covered in the report were identified.
The data available through secondary sources and interaction with experts and suppliers is put together to arrive at an analysis of the industry structure.
Prices for hydrochloric acid are analyzed for the US based on various market drivers and constraints. The market sentiments and the supply and demand situation are also estimated based on the movement of related industries.
The suppliers of technical grade HCl have been analyzed and signs of adulteration of product have been looked out for to prevent the creeping of risk with respect to quality norms.
Industry Analysis Pricing Analysis Supply Chain Risk Analysis Clients Needs
HCl supply in the current merchant market is 35-40% below average levels due to unbalanced supply-demand condition
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Demand
Factor Market Trend Impact on
HCL Market Demand Scenario
Production Scenario
Impact on HCL Market
Market Trend Factor
Supply
Oil-well Drilling TDI/MDI Industry
Steel Pickling Chlorine Burning
Food Processing Fluorocarbons
Pharmaceutical Operations Pipelines Disruption
Hydrochloric Acid is industrially produced in about 40 processes as co-product and consumed in about 110 chemical manufacturing processes. Only 20% of HCl produced industrially reaches the merchant market, 20-30% of which is consumed as high purity product.5-10% of the HCl market finds pharmaceutical applications as its end use. In the long term, the industries are trying to increase their recycling activities for HCl to increase their carbon rating
which could make the HCl market tighter.
A very unbalanced situation prevails in the HCl market where demand remains steady despite the reduction in the manufacturing activities in the isocyanates and fluorocarbon industry owing to the slowdown in the economic conditions in the U.S. and reduction in the exports. This has made the supply extremely tight. Currently the supply is below 35-40% of average levels.
Hydrochloric Acid Market
Overview
Hydrochloric Acid Supply
2011 E
Low Low
Medium Medium
High High
Increase Decrease Moderate Change
High Impact Medium Impact Low Impact
Note : Red indicates a price rise, whereas green indicates a decrease on prices
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Parallel Industry Movement
TDI/MDI Industry The manufacturing activity reduced in Q3, 2011 owing to economic
slowdown in the U.S. The industry is thus currently sustaining on inventories. The operating rates increase in Q2 and Q3 of every year and undergo
outages in Q4. However, they have been low since August in 2011 owing to weak economy. The recovery of the industry would be whenever the economic
condition becomes better which could be expected by the beginning of Q3, 2012.
Fluorocarbons Industry Most fluorocarbons are ozone-depleting substances. This industry has
been facing challenges owing to environmental concerns as a result of the Montreal and Kyoto Protocol. Its usage has been phasing out in a number of applications.
Chlorine Burners Increase in the supply in HCl market is solely dependent on increase
in capacity of chlorine burners. Canexus is bringing online a capacity of 280,000WMT in 2013. Currently, the burners are running in full capacity.
Oil-well Acidizing The oil well acidizing operations are expected to grow at a CAGR of
2.5%(2008-2013) owing to discovery of the new shale gas deposits. This sector accounts for about 29% of the demand for HCL.
Steel Pickling The steel pickling application is expected to grow at a CAGR of 1.6%
(2008-2013). Steel picking is also one of the major downstream sectors for HCL,
accounting for nearly 19% of its demand
Hydrochloric Acid Supply Market Drivers
Impact of Supply on High Purity HCl Market A supply crunch in the technical grade HCl market has crept into the
high purity grade HCl market owing to reduced production at various TDI/MDI and fluorocarbon industries. The supply of HCl is likely to improve by Q3 2012, with the recovery of industrial activities in the US.
Food Processing The major application of HCl in food processing involves the
processing of HFCS (High Fructose Corn Syrup), 70-75% of which goes into the beverage industry. The HFCS consumption is expected to grow at a CAGR of 1.9%
(2008-2013) in the U.S.
Impact of Demand on High Purity HCl Market Steady demand from the oil drilling segment has led to an unbalanced
market and reduction in technical grade HCl availability for high purity grade HCl manufacturing for the pharmaceutical sector.
Parallel Industry Movement Parallel Industry Dynamics
Weak dynamics in the HCl production market and the steady pace of demand segments has created a supply shortage which is expected to recover by Q3 2012
Prices are likely to remain on the higher end through H1 2012. However major distributers assure constant supply in the short to medium term owing to high inventory levels
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Source: CMAI-HCl (Grade-22Be) (Delivered-US Midwest)
U.S. Hydrochloric Acid Pricing
Analysis
The prices increased by 41% in October 2011 and by 24% in November 2011 M-o-M respectively due to low supply and reduced inventory levels. This has led to an almost doubling of prices Q-o-Q in Q4 2011 as compared to Q3 2011. U.S. HCl prices are likely to remain on the higher end especially through the first half of 2012 after which an
anticipated increase in supply by the beginning of Q3 2012 may result in price relief.
U.S. Hydrochloric Acid Supply
Shortage
Currently, the low manufacturing activity yet steady demand from the oil drilling sector is creating a supply shortage for technical grade HCl available to purify for pharmaceutical applications. In the HCl market, distributors usually maintain high inventory levels owing to the uncertainties in production levels.
The unbalance in supply-demand dynamics has resulted in the rising prices of HCl in the US market. Major suppliers in the U.S. are assured of their capacity to supply in the short term owing to high inventory levels.
Adulteration is also unlikely where large and established players are involved. Canexus capacity addition of HCl by 2013 targeting oil drilling demand and the commissioning of Hydrochlor (a JV
between Linde and Air Products) targeting the high purity HCl consumers could try to bring medium balance in the HCl market. The economic conditions would redeem slowly and gradually, the first signs of which could be seen from H2 2012.
However, it is not before 2013, that significant recovery in production could be visible. As most suppliers will be supplying from their existing inventory of HCl, high purity HCl supply could run in critical levels till then.
Forecast
HCl pricing would be extremely volatile in this time of supply crunch. Distributors may take advantage of their leverage with respect to high inventory levels.
Supply Chain Risk
Market Risk Factors Mitigation Strategy
Supply Crunch Supply Chain Mapping to assure a diverging network at the manufacturer level for all distributors.
Safety Inventory Estimate consumption volumes and strategizing on procurement efficiency.
Quality Issues Audits for quality check for mixing of cheaper acids.
Rigorous quality standards check by consumer. Certifications of manufacturers checked.
Price Hikes
The prices of HCl increased by 23.9% Q-o-Q in Q3 2011 owing to slowdown in economic activity which reduced supply in merchant market. Check for quality and resort to inventory usage, if the inventory levels are expected to cover the
demand, rather than procuring in such times of supply crunch.
Companies are ensuring supply assurance by optimization of procurement volumes and detailed supply chain mapping
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Hydrochloric Acid changes hands between technical grade manufacturers, high purity manufacturers and distributors in different strata of the supply chain. This makes supply chain management a critical task of significant importance.
Hydrochloric Acid Supply Chain Analysis
Identify Supply Chain Risks
Mitigate Risks
Remedy Risks
Adopt Alternate Strategies
Map Complete Supply Chain
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Hydrochloric Acid Industry Structure US Hydrochloric Acid Supply -
Demand Scenario US Hydrochloric Acid Supply Outlook US Hydrochloric Acid Demand
Analysis
Market Analysis
Industry Structure
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Demand Supply-Demand Balance Supply
80% of the HCl produced in the US is consumed onsite by producers as a part of captive processes. Approximately 30% of the total HCl
produced in the US is by chlorine-burning process while the rest 70% is obtained as by-product in various industrial chemical reactions. The market conditions for
isocyanates (TDI, MDI) and fluorocarbons have an implication on the supply of technical grade hydrochloric acid in the merchant market.
HCl finds use in a lot of applications based on its level of purity. Technical grade HCl is used for
steel pickling, oil well acidizing, chemicals production, sewage treatment, swimming pool cleaning, etc. High purity HCl is used in
pharmaceutical operations, food processing operations, water treatment, semiconductor production, etc.
Transportation costs for hydrochloric acid is almost 50% of its price. In addition, storage expense for the acid is also substantial. This makes a third party distributor essential in the supply chain. The distributor has the following
roles: Maintain supply-demand
balance. Providing technical expertise
and regulatory assistance. Maintain huge and sufficient
storage/inventory levels to guarantee supply to clients. The highly volatile supply of
hydrochloric acid used as a raw material for manufacturing grades of the acid suitable to the consumer is made to balance demand by effective networking, storage capability and supply chain risk mitigation sustainability of distributors.
Sources: ICIS, CMAI, News Articles
Source: CMAI Source: CMAI
U.S. Hydrochloric Acid Supply - Demand Scenario
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Impact of Downstream Applications on HCl Demand
Gro
wth
Rat
es
Low
High
High HCl Demand Share for Downstream Applications
Pharmaceutical Applications
Food Processing
Oil-well Acidizing
Steel Pickling
Low
Hydrochloric acid is derived as a by-product of industrial chlorination reactions. There are about 40 processes which produce hydrochloric acid as a co-product and about a 110 manufacturing processes which consume hydrochloric acid as a raw material. Since output from a given factory fluctuates wildly, it is nearly impossible for individual HCl producers to assume a commitment directly with end users.
This is where distributors find importance in the supply chain as they have significant logistical capability to store and deliver HCl. HCl traded volumes are very less owing to the high logistical and storage costs involved. The HCl market in U.S. is more-or less a balanced market with the excess demand levels met by the net imports into the country. Around 80% of the HCl supply is used for captive processes while the remaining 20% goes into the merchant market. The U.S. HCl demand in the
merchant market is expected to grow at a CAGR of 2.5% (2009-2013). In, U.S. the biggest market for technical grade HCl is oil well acidizing. Oil well drilling is expected to register a CAGR of 2.5% (2009-2013). The next
important market is steel pickling which is growing at a CAGR of 1.6% (2009-2013). However sulfuric acid can also be used as a substitute for it. In the pharmaceutical industry hydrochloric acid is consumed as a catalyst in synthesis, for pH control, for deionization of water and as a reduction
agent (e.g., in the production of ascorbic acid and para-aminobenzoic acid).Although the demand share of pharmaceutical applications is low, this is one of the fastest growing demand segment for HCL. 5-10% of the merchant market supply goes into pharmaceutical applications
Source: U.S. Census Bureau
Sources: ICIS, CMAI, US Census Bureau, News Articles
Hydrochloric Acid Industry Outlook - Supply
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CaF2 ore
H2SO4
HF
Methane
Cl2
CHCl3
HCl
CFCs. HFCs,
etc.
Captive: Insignificant quantities Non-captive: Merchant market
Industry Update: The operating rates are running low and the exports have been low as well. The demand has been losing ground in some applications. Industry Outlook: The industry has been facing challenges owing to environmental protocols. Announcements have been made by Honeywell to set up a new plant in Texas. The demand for fluorocarbons is expected to grow at a CAGR of 2.5% in North America (2010-2015).
Impact on HCl Supply: The current slowdown in the economic activity has taken a toll on manufacturing activities in the U.S. which has led to a reduction in the HCl supply in the
merchant market which is estimated to be around 35-40% below the average levels. The seasonal turnarounds in the isocyanates and fluorocarbons industry in Q4 2011 aggravated the conditions leading to price hikes. The reduction in export activity of urethanes (derived using isocyanates as raw material) and fluorocarbons have added to the supply disruptions. The situation could redeem when the plants improve operating rates which would be visible with the improvement in economic conditions and the onset
of demand for urethanes and fluorocarbons. The reduction in demand from the oil drilling sectors which occurs seasonally in the winter months could also help alleviate the tight market scenario. Based on speculations, the HCl market supply could redeem by beginning of Q3 2012.
Hydrogen Fuel Cell
Brine (sea water)
H2 NaOH Cl2
HCl
Captive: Ion-exchange purification, brine treatment Non-captive: Merchant market
Industry Update: Chlorine burners have been running at full capacities, especially at this time of sever supply crunch to meet the merchant market demand needs. Industry Outlook: The burners are expected to run at high operating rates for the rest of 2011. Increase in HCl supply in merchant market depends on increase in burner capacity.
Chlorine Burning
Crude Oil Naphtha Aromatics
Aromatic Amines
TDI/MDI
HCl
Amination
Phosgenation
Captive: Insignificant quantities Non-captive: Merchant market
Industry Update: The operating rates for isocyanates have been low since August owing to the economic slowdown in the U.S. The urethane exports have been less. Industry Outlook: The operating rates are expected to remain low for December 2011. The recovery will depend on improvement in economic conditions which is expected to set in by Q3 2012.
Isocyanates Production Fluorocarbons Production
Primary Product Base Raw Material
Intermediates HCl
Hydrochloric Acid Industry Outlook - Demand
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Oil-well Acidizing
Steel Pickling
Food Processing
The oil drilling demand in North America is expected to increase by 30% over the next 5 years (2012-2017). The oil well acidizing activities are expected to grow
at a CAGR of 2.5% (2008-2013) in the U.S. The chemical manufacturing company Canexus
identifying the increasing demand from the oil well drilling operations is bringing online an additional capacity of 280,000 WMT of HCl by 2013.
The steel pickling operations are expected to increase with a CAGR of 1.6% (2008-2013) in the U.S. Sulfuric acid is a close competitor to hydrochloric
acid for steel pickling operations. Sulfuric acid is cheaper than hydrochloric acid. However, hydrochloric acid is a much faster and more efficient pickling agent. Thus, sulfuric acid is losing demand from this segment of application.
Hydrochloric acid is used in the food industry for processing a number of products. High purity grade hydrochloric acid is used in this industry which is the same grade as used in pharmaceutical applications. Hydrochloric acid is mostly used in the food industry for the processing of HCFS (High Fructose
Corn Syrup) whose demand in the U.S. is expected to grow at a CAGR or 1.9% (2008-2013). 70-75% of the demand for HFCS comes from the beverage industry.
Source: CMAI, ICIS, News Articles
Source: CMAI
Source: CMAI
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Supply Chain Risk Analysis Risk Mitigation Strategies
Risk Analysis
Supply Chain Risk Factors
Supply Chain Risk
Good Relations In times of supply crunch, the one
with better relations gets precedence Lack of supplier understanding of
consumers consumption levels
Networking Lack of a diverse and well-mapped
producer-distributor/consumer networking Bottle necks in the supply chain Lack of efficient management
TDI/MDI/Fluorocarbon Manufacturing Activity Slowdown in economic activity
leading to decrease in demand for furniture, automobiles, etc. Planned and unplanned plant
outages owing to maintainence, natural calamity, fire outbreak ,etc.
Inventory Levels Low economic sufficiency of
suppliers to maintain high inventories as storage costs are high Insufficient inventories of
consumers
Quality Concerns Complexity of supply chain Lack of resources of small-scale
distributors for efficient check on quality norms
Pipelines Disruptions in operations in
pipelines connecting manufacturers of technical grade HCl to the distributors/consumers Maintainence repair work of
pipelines
Environmental Concerns To reduce carbon footprints,
companies want to increase captive consumption and this brings pressure on supply Fluorcarbons industrys constant
environmental concerns has reduced HCL production from this industry
Logistical Capability Poor logistical power of the
distributors Failure to acclimatize to the just-
in-time business model as is spreading the HCl market lately
Source: CMAI, ICIS, PE, News Articles
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Supply Chain Risk Likelihood and Impact
Impact
Manufacturing Activity Slowdown
Natural Disaster Risk
Negligible Marginal Critical Severe Catastrophic
Rar
e U
nlik
ely
Poss
ible
Li
kely
C
erta
in
Like
lihoo
d
Plant and Pipeline Maintenance Technological Changes to Reduce HCl Supply
Increase in Parallel Demand Segments
Inventory Shortage
Economic Slowdown
Feedstock Price Fluctuation
Hydrochloric acid market is a balanced to tight market where every factor bearing an impact on the supply chain is significant enough to change the market dynamics at a given point of time.
Source: CMAI, ICIS, PE, News Articles
Supply Chain Risk Mitigation Strategies
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Source: CMAI, ICIS, PE, News Articles
Audits Rigorous Quality Checks on Product Delivery
Regular audits should be conducted to assess the inventory levels and storage facilities. Checks conducted to make sure quality check measures
are strictly adhered to. Incentives given to the distributors to conduct audits at the
respective supplier sites manufacturing facilities. Mapping down to the last link in the supply chain and
making sure all necessary certifications to supply for pharmaceutical operations are in place.
The shortage of supply faced in the current market could lead to reduction in inventory levels of distributors and might give them a cue to adulterate product with other cheap acids to prevent losing customers to other suppliers and to maintain profitability. Strict internal quality measures should be undertaken. The U.S. Pharmacopeia standards should be given prime
importance while accepting products. FDA defined cGMP should be adhered to.
Importance to Inventory Supply Chain Mapping
There should be a safety inventory level maintained instead of completely depending and trusting the inventory levels of the distributors or manufacturers. Good relations should be maintained with trustworthy
distributors to get precedence over other consumers in cases of situations of supply crunch. Consumption levels should be documented and a forecast
should be arrived at and based on seasonal fluctuations in the supply-demand dynamics of hydrochloric acid, inventories should be stacked.
Market research for essential commodities should be done and a supply chain should be mapped in order to prevent any bottlenecks in the value chain. Necessary preventive measures in bottleneck situations
should be analysed and implemented. The nature of the supply chain should be diverging at the
manufacturer level rather than converging.
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Rx-360 Contact Details: Jim Jamieson Rx-360 Secretariat Drinker, Biddle & Reath [email protected] +1 (202) 230-5189
Beroe Contact Details: Norman Timmins VP Life Sciences Mobile: +1 940 597 3786 Fax: +1 866 675 0451 [email protected]
For More Information
Slide Number 1Table of ContentsGlossary (1/2)Glossary (2/2)Research Methodology Research RoadmapHCl supply in the current merchant market is 35-40% below average levels due to unbalanced supply-demand conditionWeak dynamics in the HCl production market and the steady pace of demand segments has created a supply shortage which is expected to recover by Q3 2012Prices are likely to remain on the higher end through H1 2012. However major distributers assure constant supply in the short to medium term owing to high inventory levelsCompanies are ensuring supply assurance by optimization of procurement volumes and detailed supply chain mappingSlide Number 11Industry StructureU.S. Hydrochloric Acid Supply - Demand ScenarioHydrochloric Acid Industry Outlook - SupplyHydrochloric Acid Industry Outlook - DemandSlide Number 16Supply Chain Risk FactorsSupply Chain Risk Likelihood and ImpactSupply Chain Risk Mitigation StrategiesSlide Number 20
