What the Potential Economic Recovery Has to Do with Cleaning: Detergents as a Good Commodity Bet

Spend Matters welcomes a guest post from Robert Miles of Mintec, Ltd.

There's a good chance sharp eyes on the lookout for opportunities in commodities over the next few decades could increasingly focus on the raw materials of detergent manufacture. Some think that these are such a good potential bet because if there are lessons to be learned from previous trends in economic development, just as calorie and protein intake tends to rise with an individual's salary, so too does their purchase and use of cleaning products and detergents.

Glance at a list of ingredients for a typical cleaning product such as washing powder or liquid, however, and you might be forgiven for thinking that a degree in chemistry and a few years of Latin are actually what is required for any chance of getting a handle on what is actually going on.

Washing ingredients lists on packaging can almost seem to be designed to look complex and baffling to consumers. Producers might be shy of listing commonplace, inexpensive items like water and salt as being amongst their primary ingredients, opting instead for Latin or scientific terms such as Aqua, for water, or sodium chloride instead of salt. The vast majority of the world's main detergents are made from a surprisingly small group of commonly available oils, fats and minerals.

Laundry detergents, for example, are comprised of minerals, which are mined, and chemicals, which are ultimately derived from crude oil. By weight they are a mix of what are called builders (50%), alkylbenzenesulfonates (15%), and bleaches (7%), with most of the remaining (28%) being a filler (such as sodium sulphate, in the case of powder, or water in the case of liquid detergent), and salt.

Builders are water softeners, e.g. sodium carbonate, or sodium triphosphate. These chemicals are mined or extracted from brine (dense salt waters). Hard water (water with a high mineral content) prevents the formation of suds and builders counteract this, enabling the formation of decent washing foam.

Adding sulphuric acid to hydrocarbons processed from crude oil produces alkylbenzenesulfonates, molecules similar to fatty acids in soap. These molecules are more effective at cleaning laundry than soap, as they are less affected by hard water.

Salt is also used by the detergent industry in a wide variety of ways. For example, once the process of saponification is complete, salt can be used to precipitate soap out from the solution. Salt can also be used to modify pH for the correct pH balance.

In the past, commodity spikes in the detergents category have, to a degree, been mitigated by the fact that many detergents are used diluted. Large price rises were therefore significantly "watered down," but not anymore. The recent trend to reduce packaging and produce more concentrated products means that any cost increase is now likely to be much more ¬pronounced and potentially noticeable to the consumer as a result.

The key global players controlling the vast majority of the world's detergents market are currently stressing that profitability in this sector is below average for a number of reasons: excess capacity came on stream during 2008/09 while the recession was causing oil prices to fall. Since then, all that new capacity has been merrily churning out household and industrial products while the cost of energy and raw materials has seen a significant rise.

While the whole detergent market is reported as being pretty stagnant in the West, global demand has been increasing by about 4% per annum over the last ten years. The Western European share of the global market, for example, has declined from about 40% to less than 35% over the last ten years. North America slipped from 35% to 27% over the same period. These falls are countered by demand rising far faster elsewhere. Consumption is growing most rapidly in regions of particularly high income growth, spurred by rising demand in China, India, Africa, Central and South America.

The growing wealth of the middle classes all round the world, however, should ensure that detergents have a bright future, once the current difficulties are ironed out.

- Robert Miles, Mintec, Ltd.

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