Water treatment chemicals - Focus on Industries and Markets

Business Economics, April, 2003 by Andrew C. Gross, Michael B. Richardson

The demand for water treatment chemicals in the United States is expected to rise at a five percent annual rate between 2000 and 2005, almost double that commonly projected for GDP. Higher value formulations are replacing low-cost, commodity compounds in almost all markets and applications. The nominal price of water treatment chemicals is expected to increase by over three percent per year from 2000 to 2010. Current market breakdown, which should remain stable, shows manufacturing industries accounting for about fifty percent of shipments, followed by municipalities, electricity generators, commercial, and residential users. Applications or end-uses include cooling, supply, waste, process, and boiler water. There are over 300 suppliers of water treatment chemicals in the United States., an eclectic mix of large and small, diversified and specialty firms. Three firms (Suez/Ondeo-Nalco, GE Betz, and Ashland Specialty Chemical) hold about thirty-five percent of the U.S. market, and further consolidation is like ly.

Water treatment chemicals is currently about a $4 billion business. The demand for water treatment chemicals is influenced by a host of factors. As a general rule, water availability, usage patterns, presence of pollutants, government policies, and tradeoffs among the various chemical compounds are more important than the level of economic activity. Mandated water purity standards and physical limits on effluents serve as a buffer in times of economic downturn. The extent to which chemical commodities and sophisticated compounds are used to clean water in a given sector is determined by a combination of the intended use of the water, traditional application practices, and a wide range of regulations. The most pervasive trend has been the replacement of low-cost commodity type chemicals by higher-value formulations, which do a better job of cleansing with far less dosage. In other words, while physical volume falls, the dollar value of shipments is increasing.

While a robust level of economic activity has a favorable impact on the use of water treatment chemicals, shipments are not highly sensitive to shifts in manufacturing activity or energy generation. Legislation and regulation are succeeding in reducing the volume of water used by practically every sector. Nonetheless, incoming, internal, and outgoing water must all be treated. While recycling of water has become a way of life in industry, chemicals are still needed for maintaining the quality of recycled water. Another factor favoring the use of water treatment chemicals in industry is that cleaner water contributes to fewer deposits in pipes, thereby lowering energy bills. In municipalities, protection of the population from waterborne diseases is an absolute mandate, so disinfecting agents are widely used.

Economic and Business Environment

The economic slowdown beginning in early 2001 has caused a slump in industrial production but has not had a major impact on shipment of water treatment chemicals. Thus, we expect that the dollar value of water treatment chemical shipments will grow at five percent annually, about the same rate as that which prevailed during 1995-2000.

Water Use Patterns and Trends

Total water withdrawal in the United States is expected to remain flat at about 148 trillion gallons per year during the 1995-2005 period (equivalent to about 400 billion gallons per day). About one fourth originates from groundwater and three-fourth from surface water sources such as lakes, rivers, and oceans. The United States is rich in water resources, but intense irrigation, industrialization, urbanization, and accompanying pollution creates pressure to search for additional supplies and to implement conservation measures. Groundwater is plentiful, but once depleted it cannot be replaced. Some aquifers are threatened, especially in the central portion of the United States. Dwindling supply of freshwater is leading to increased use of desalting plants, since saline water is plentiful from oceans, bays, and inland brackish lakes. Such augmentation of water sources, coupled with conservation measures, keep total withdrawal at a stable figure of about 148 trillion gallons per year.

Of the total water withdrawn, agriculture takes thirty-six percent, electricity generators forty-seven percent, municipalities ten percent, and manufacturing and other end-users a mere seven percent. Water in agriculture is generally not treated with chemicals to any appreciable degree. Electricity generators use large amounts of water, but mostly for cooling purposes. While this application uses chemicals, cooling water does not have to be overly pure. Thus, water treatment chemicals find their largest markets in municipalities, manufacturing, and other commercial applications. Factories operated by manufacturers typically recycle water four or five times; electricity generators do it once or twice. While recycling lowers the quantity of water withdrawn, it still has a positive impact on the amount of chemicals needed for operations. Basically, recycled water needs to be cleared of contaminants, just like "new intake."