One of my big long term obsessions is the profound changes needed in a global economy which is swiftly decarbonizing. We rightly obsess about the obvious areas of contention such as transport and power generation but the cascading impacts across the wider economy are huge not least in industries such as construction (concrete production) and the chemicals industry.
It’s clear that in the latter sector – chemicals – there’s going to be a need to come up with more sustainable raw materials for the chemicals industry. The public does have some sense of this with the debate about curbing the use of plastics, but this has become one-sided witch hunt – all plastics have been labeled as evil whereas plastics strike me as an essential component of the modern world but one which needs rethinking. This message came through loud and clear at a recent event on cannabis and hemp I hosted – one participant reminded the audience that hemp was long an essential raw material for the chemicals industry. That need may re-emerge again as we shift to new inputs – Lego is apparently talking about using hemp-based materials for their kids’ blocks.
This last innovation speaks to the fast-emerging Bio revolution within chemicals, the subject of a fascinating paper this week by Navina Rajan and her colleagues at Morgan Stanley. This very detailed paper reminds us that “before the 1950s, chemicals were largely biobased (e.g.derived from sugar or animal/plant oils). By the 1970s, petchems had replaced >95% of markets previously held by biobased chemicals (Morris and Ahmed, 1992). We now see a gravitation back to biochemicals as awareness of petrochemicals’ environmental impact is increasing amongst corporates, consumers and governments, fostering further encroachment in markets once dominated by fossil-based counterparts”. The first chart below maps out the emerging biosphere of chemicals across eight product niches.
One niche to watch is the biosurfactant products used by the Personal Care industry (which consumes 18% of the surfactant market) “as consumers are increasingly aware of health effects of some products and are willing to absorb higher costs of production (a ‘green premium’) for formulations with seemingly less harmful health implications”.
The Morgan Stanley analysts reckon that biosurfactant penetration rates are set to increase, and not just in Personal Care end markets. “We model out the surfactant market and forecast biosurfactant penetration rates to increase from 26% today to 39%, reaching a market value of $16.5bn by 2030”.
Listed businesses likely to benefit from this huge structural shift are outfits such as Evonik (Overweight) and Croda (Overweight) which are both “ well-placed to capture potential growth in the biosurfactant market due to their commercial-scale biobased manufacturing capabilities and technology leadership in renewable chemistry processes (e.g. fermentation)”.