There is a tremendous growth potential of masterbatch business in Asia despite rapid and robust demand for it. Future demand growth will be fuelled by the twin trends of increased demand for plastics components and products in the Asian region and the continuing penetration of masterbatch versus competing coloring methods. At present, masterbatch is estimated to have only a 43% share of the coloring market for plastics as significant amounts of compound, and more pertinently, dry pigments continue to be used in the region. There remains considerable potential for increased masterbatch use in Asia. Demand has grown from just under 90,000 tons in 1990 to nearly half a million tons in 2004, an impressive 13% AAGR. In 2004 the region's production was estimated at around 480,000 tons. The demand for masterbatch will continue showing a robust growth at about 11% up to 2008. It is expected that the demand of masterbatches in Asia will reach 780,000 tons by 2008.
In recent years masterbatch demand has been fuelled by the tremendous growth in plastics processing in countries such as China, Thailand and Malaysia. The region has generally seen a rapid uptake in the use of masterbatch. There are a number of factors that are working in favor of masterbatch and contributing to its growing use. Firstly, many plastics processors in Asia are supplying to Western or Japanese OEMs who will have a very tight specification in terms of color match and performance. Secondly, even if a processor is not directly supplying to a multinational OEM, many within Asia are supplying for export markets in the West and therefore need to manufacture to the standards and quality that these markets demand. In general terms therefore, the combination of rapid growth in plastics processing coupled with a need to produce to ever higher standards has led to a buoyant market for masterbatch demand.
The growth in demand has led to an increased investment in production for masterbatch. The expansion in local capacity is fuelled by both local entrepreneurs and international players locating in Asia to serve the customer base which is moving from developed markets in North America and Europe to the Asian area. Currently the region remains a net importer, although obviously there are marked variations between the import requirements of individual countries and within each of the main masterbatch types. The region is actually a net exporter of white masterbatches, but has a strong import requirement for additive and colored masterbatches. In the medium term future, the trade balance in the region will move from net importer to net exporter, mainly due to the expansion of capacity for all masterbatch types that will fuel continued exports of white masterbatches and a narrowing of the net import needs in black, colored and additive masterbatches.
China emerges as the most important market. In 1994, China accounted for 23.2% of Asian masterbatch demand but by 1999 its share had moved to 31.8%, and in 2003 it had advanced to 44.8%. Despite this remarkable growth, China's masterbatch use continues to lag in importance compared to its share of total regional demand for polymer, which was 60% for 2003. This further illustrates its future potential, and reflects the continuing significant use of dry pigments and compounds in the country.
US masterbatch business is a US$2.3 billion industry with around 200 players. Domestic market participants are facing a crunch time due to the steep escalation in raw material prices, tough bargaining customer cartels and increasing imports of molded finished products, resulting in reduced demand from domestic molders.
Black and white masterbatches are mature commodity type markets, and are the worst hit as they cater mostly to the low-end market that is highly price sensitive. It is expected that the increased price pressure and consequent reduced margins will force consolidation amongst players in the market. Additionally, to offset declining margins, large players are diversifying their product portfolio to include specialty products that ensure higher returns.
Color and additives provide the greatest potential for smaller players in the masterbatch market. Increasing demand from the packaging sector, especially the cosmetics and personal care segments for limited quantities of customized color solutions for specific products have presented significant business opportunity for smaller market participants. It is observed that the larger market participants have recorded growth rates slightly below industry average. Conversely, the smaller players, due to their presence in niche (higher growth) markets, have recorded significantly higher growth rates than the industry average.
Several larger participants have limited exposure to the color and additive segments. They are, however, increasingly focusing on these specialty segments due to higher margins and opportunities to work closely with the end customer. Ampacet, which has traditionally been recognized as a strong player in the commodity segments of black and white masterbatches, has recently forayed into the specialty segments and is actively looking to increase its specialty products portfolio either through in-house plant capacity developments or acquisitions of smaller players with a proven track record in these niche market segments.
Future growth of the masterbatch market in the US is expected from the specialty segments, which offer higher returns and better opportunities for coordinating with the end consumers to build up lasting relationships.
In the commodity markets of black and white masterbatch, the larger players are expected to strengthen their position by leveraging their large scale of production that provides them the price edge and advanced R&D facilities for creating new markets/applications. Shorter lead time, due to proximity to customers is key for smaller players to succeed in the white and black masterbatch markets. Increasing raw material prices have forced a decline in profit margins of compounders. Fostering close relationships with the end consumers by delivering quality customer and technical support is vital for their survival.
Globalization has presented excellent growth opportunities in the overseas markets to the compounders. The large market participants are utilizing these market opportunities to raise their market share and at the same time work towards reducing their cost of production. The smaller market participants can benefit from the strong demand for compounded plastics from the Latin American countries, especially Mexico.
The European masterbatch industry is the largest in the world both in terms of production and demand. For 2006 masterbatch producers in Europe manufactured close to 1 million ton (about 960,000 tons) of masterbatches while the market demand was just over 800000 tons. Europe is thus a significant net exporter of product. Overall the market has been showing good growth in recent years averaging annually at 3% since 2001. It is driven by the increasing penetration of masterbatch into engineering polymer markets as replacement for compounds and growing usage by polymer manufacturers in their own compounding operations. The greater use of color and special effects to differentiate products have also helped to lift demand along with the requirement for improving performance criteria from polymer materials in terms of features such as UV stabilization, flame retardancy, etc. Nearly all countries have benefited from this growth with the exception of the UK market which has seen a drop in the market. The UK market has been particularly affected by the decline in moulding capacity and the transfer of production to Central Europe and Asia. The UK market has moved from accounting for 14% of the European market in1996 to 10% in 2006.
However, as with many other sectors of the plastics processing industry the masterbatch industry also faces pressures with margins constantly squeezed between customers looking to lower their costs and raw material suppliers looking to raise their prices. There has been intense competition and further restructuring in the industry as witnessed by Clairant's purchase of Ciba's masterbatch business in Europe last year.
The largest market for masterbatches in Europe is white masterbatch, which accounted for almost 30 % of demand in 2006. This market, along with black types, is the more mature and its rates of advance have tended to be below that of the other masterbatch types. Another 25% of the market is taken by color masterbatch demand. In the last few years growth for colored products have slowed as demand from the compound segment has declined. Black masterbatch demand has also been slowing and with many markets stagnant or in decline in the processing area in the future the market will see rates slow further. The additive masterbatch continues to be the fastest growing sector and is rapidly increasing in importance within the masterbatch market now accounting for almost 25% of the market. This means the additive segment is greater than the size of the black market and almost equal to the color masterbatch segment. It is expected that overall masterbatch demand will continue growing at just under 3% per year to 2010. The Benelux region has the largest concentration of production accounting for 23% of the total for Europe primarily because of the presence of several large scale producers such as Ampacet, A. Schulman, Cabot and PolyOne. It has a particularly dominant position in the white masterbatch market, but is also the largest producing region for color and additive. UK is the also a large producer because of the presence of Cabot, Hubron & Tosaf.
Benelux is also a significant consumer for the masterbatch due to presence of several large scale film and fiber producers in the region and significant polymer compounding activity. However the largest markets are, as might be expected, Germany and Italy. Germany & Italy account for almost 35% of the total European demand in 2006. Benelux with 14% of the total European demand is third. France at 12% of the masterbatch requirement comes fourth in consumption. UK takes the fifth position at 10% share of the European masterbatch consumption in 2006.