Page 131 - CW E-Magazine (30-4-2024)

Point of View

India – the fastest growing market for personal care

ingredients in the world

The diversity of chemical ingredients – synthetically made, extracted from natural resources or from bio-based raw materials –
was amply evident at the recently held expo for the business, In-cosmetics Global, in fashionable Paris from April 16-18. While a vast majority of
new launches at the show, as well as those showcased by companies ranging from large chemical producers to boutique firms specialising in the
business of speciality chemicals intended for the personal care industry, harped on familiar themes like ‘green’, ‘organic’, ‘sustainable’, etc., it was
also amply evident that synthetic chemicals are still very much the mainstay of the business, even, but not restricted to, the developed world.
In developing countries – India included – wherein price weighs in heavily in procurement decisions, this is even more so.

$20-bn ingredients industry
The personal care ingredients (PCI) business is a B2B (business-to-business) play, in contrast to the B2C (business-to-consumer) PC business.
The former is also much smaller compared to the latter and estimated by the US-based market research and consulting company, Kline and Company,
at about $35-bn in 2023.
PCI span the full spectrum of chemicals – from undifferentiated commodities & fine chemicals to speciality performance products, and several
that fall somewhere in between. Growth prospects are determined by several factors including changing demographics & customer preferences;
safety & sustainability concerns; performance requirements; and, last but not the least, economics.
By function, PCI can be classified as emollients, surfactants, conditioning polymers, rheology control polymers, UV absorbers, anti-microbials,
emulsifiers, hair fixative polymers, and opacifiers & pearlizers – to name the major classes. Each have several chemicals – from commodities and
fine chemicals to performance ingredients.
The undifferentiated segment of the industry accounts for about 45% of the overall PCI market and is a commoditised play. Price is often the
sole differentiator between companies and consumers go shopping for the best deal they can get. Margins are low, except for brief periods wherein
a combination of factors (plant closures, raw material price surges, supply chain issues, etc.) lead to a flare-up in prices and higher returns.
About 55% of the total market for PCI are differentiated products – specialities sold on the basis of performance, i.e. for what they do, rather
than for what they chemically are. With few exceptions, this is a business wherein fragmentation is moderate-to-high, and here too competition
has intensified due the emergence of several producers in China, to a large extent, and in India, to some.

Challenges in 2023
While the challenges facing the global chemical industry in 2023 – soaring energy costs, slowdown in demand, and destocking of inventories –
did rub off on the PCI industry as well, western companies were adversely impacted by the decisions of big brands to increase outsourcing of PCIs to
emerging markets. A study by Kline, highlighted in a presentation at the expo, showed that this trend was stronger in large companies (with turnover
> $100-mn), among brands (as opposed to contract manufacturers) and more so in Europe than in USA.
Unlike many parts of the chemical industry, the global market for PCIs grew in 2023, compared to 2021, and this was seen in all markets, albeit to
varying levels. While the overall market last year is estimated at about $35-bn, speciality products accounted for about $20-bn and about 5.6-kilotonnes.
Covid had an impact on the markets – by altering supply chains and product choices. Interest in local sourcing has grown since the pandemic, particularly
in specialties, partly to mitigate supply chain risks, and to improve the sustainability profile (e.g., carbon footprints) of ingredients. There is also a greater
interest to work with smaller suppliers capable of reacting swiftly to changing market conditions, unlike in the past when large companies preferred to
deal with a core list of suppliers with scale and reach to serve them in markets spread across the world.

Covid impacted PCI suppliers differently. While some benefitted (e.g., those offering ingredients that went into hand sanitisers), others
(e.g., suppliers of actives for sun protection) had to endure reduced demand. In most cases, the disruptions have played out, and markets have
more or less returned to historical growth trends. Some trends have, however, persisted. With inflation reigning high in much of the world in 2023,
consumers resorted to cutting discretionary spends, and downgrading to simpler products that typically require less sophisticated ingredients. Brand
owners responded to these signals, slashing pack sizes (while keeping prices static), or lowering prices through product reformulation. The former
move has been viewed as customer-unfriendly by regulators, particularly in Europe, and clear disclosures to the extent of pack size reductions are
now being mandated on brand owners.

From a supply side, the PCI business remains a fragmented one. The top-10 suppliers in the world control only about 60% of the volume and
this has a lot to do with the emergence of China and India as market participants.

Strong growth in India
Europe and the US are the biggest markets for PCI. Both are mature, and a substantial chunk of the growth in the latter is coming from exports.
While the PCI markets in these two regions will continue to expand, growth rates will be muted compared to the past.

Chemical Weekly April 30, 2024 131

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