Materials & Natural Resources

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What are they key trends that will impact the chemical market in 2015?

In 2015, the principal trends will include (1) growth within emerging markets outside the Western region – where local players are ahead of the competition thanks to lower manufacturing costs, (2) tailored innovative solutions to both end users and supply chain players, (3) business and operational strategies driven by market demand, competitive landscape, regulations to increase revenue and the desire to win a better market share. In order for global companies to succeed they will need to take all these factors into consideration and be ready to dramatically adjust their overall business models to new market demands. But more importantly, green chemistry/sustainability and the elimination of the commerce of chemistries with unfavorable environmental characteristics is another important trend that offers boundless opportunities for companies to create new products through advanced manufacturing biotechnologies using biomass and new agricultural materials. These trends will play a major part in the year(s) to come, but there tends to be one overarching tenant in this discussion which I will focus on and that is increased regulatory burdens on chemical manufacturers to demonstrate environmental safety of their processes and products.

As a practicing ecotoxicologist, environmental exposure analyst and environmental risk assessor for major chemical companies for the past 25+ years I will focus my remarks regarding the key trends in the chemical industry in 2015 toward the environmental safety perspective. As I note above, the overarching tenant in this discussion is the certainty of increased regulatory pressures regarding environmental issues that chemical companies will face in 2015 and beyond and the increasing time and resources required to address these regulatory requirements.

Specific key topics that I wish to address include TSCA reform within the US, risk assessment in emerging markets, sustainability/green chemistry, endocrine disruption and finally, Persistent/Bioaccumulative/Toxic [PBT] chemicals and Persistent Organic Pollutants [POPs].

The Toxic Substances Control Act [TSCA] was passed in 1976 and is the principal legislation within the US for ensuring the safety of chemicals used in commerce. At the time of this writing a modernized bill [Senate S.697] has been amended and approved by the Environment and Public Works Committee to be presented to the full Senate for review. Importantly, the amended bill has provisions for, among other items, a requirement that USEPA make an affirmative determination that a new chemical does not present an unreasonable risk of injury under its intended conditions of use before it can be manufactured, imported or processed in the US. The bill would also require EPA to designate existing chemicals (i.e., those on EPA’s TSCA Inventory) as “high” or “low” priority through a risk­based prioritization process and then conduct safety assessments of and make safety determinations about the high-priority chemicals. Clearly, this initiative while beneficial with regard to environmental health will increase regulatory costs as a function of increased toxicity testing and risk assessment activities for chemical registrants.

China and Latin America [LATAM] are emerging markets for chemical companies. In addition to the nascent nature of these markets on the business side of the equation, the environmental safety assessment approaches of these emerging markets are in the developmental stages as well. In general, the assessment of chemical safety in these markets are conservative and reflect a Tier I level of analysis.  Tier I risk assessment are maximally conservative in terms of toxicity and exposure. In some instances these conservative assessments are based not on the risk assessment paradigm, i.e., toxicity versus exposure but on a hazard based approach. The hazard based approach evaluates chemical safety as a function of inherent toxicity of the chemical entity and lacks the scientific rigor of the risk based approach. The industry as a whole must educate the regulatory authorities in these emerging markets with regard to the state of the art of the risk assessment process and to the downside of chemical safety assessment based solely on hazard.

Sustainability/Green Chemistry initiatives are growing significantly in today’s market place. The sustainability/green chemistry initiatives encompass sourcing and selection of precursor chemistries to chemical use practices. With regard to sourcing and selection of chemical precursors, consideration is of course given to cost but also and perhaps more importantly to the environmental profile of a particular chemistry in terms of characteristics such as, persistence, bioaccumulation potential and toxicity. Concerning sustainability and end product use, 2015 will see increased insistence of the market place for materials with low precursor and end product use volume, low environmental impact and relatively superior performance/safety profiles.

Endocrine disruption issues have been at the forefront of the science of chemical safety assessments for 50+ years beginning with the publication of Rachael Carson’s Silent Spring in 1962. At issue is the activity of exogenous chemicals that mimic endogenous hormonal substances. Adverse effects in humans can include reproductive impairment, potential increased hormonal based cancer incidences, e.g., testicular, breast and prostate and premature puberty. In wildlife, causal links of chemicals to endocrine disruption have been established for aquatic invertebrates [imposex in whelks], egg shell thinning in birds [DDT], reproductive impairment in fish evidenced by changes in reproductive organ structure and function, and in terrestrial mammalian species [PCBs]. With regard to the potential environmental effects, it is noteworthy that most of the occurrences of these effects were found to occur in heavily contaminated areas. USEPA has developed an endocrine testing program and should be commended for their efforts.  However, while the breadth of the testing program is broad and comprehensive, it lacks a clearly defined risk assessment paradigm. Testing may provide toxicity endpoints in dose concentrations of sufficient magnitude to induce a toxic response in test organisms. However, how these endpoint concentrations relate to exogenous environmental chemical concentrations orders of magnitude lower, with less activity than the endogenous hormones remains to be established. Hormesis, the notion of chemical activity at very low concentrations with regard to the cellular mechanisms of the endocrine system is under significant debate. However, the consensus appears to be that hormesis in this regard is NOT a plausible mechanism for endocrine activity. Chemical mixture toxicity may a play a role in allowing low levels of exogenous chemicals to affect the endocrine system. Testing paradigms do not currently capture the mechanisms of the toxicological effects induced by chemical mixtures.

PBT chemicals are persistent in the environment, toxic and by their lipophilic nature accumulate within the food chain. As such PBTs effect human and ecosystem health. Persistent Organic Pollutants [POPs], codified by the 2001 Stockholm Convention, are chemical entities that like PBT materials persist in the environment, bioaccumulate through the food chain and pose a risk of adverse effects to human health and the environment.  POPs have been identified under the auspices of the Stockholm Convention and slated for elimination from commerce with few exceptions e.g., DDT for malaria abatement in developing countries. The criteria for PBT and POPs are defined nationally/geographically dependent upon half lives in soil, water and air, octanol water partition coefficient (Log P) or Bioaccumulation Factors (BCF) and species specific toxicity levels. For chemical manufacturers the challenge is to eliminate potential PBT or POPs from their synthesis routes and /or product portfolios.  Substitutions of PBT chemicals from marketed formulations can be costly and can alter the efficacy of the formulated product. The key then is to define potential PBT materials during the initial stages of product research and development and to eliminate them from process/products prior to commercialization where replacement may become problematic.

These key trends will continue to influence the chemical market place in 2015. Increased regulatory burdens will lengthen product development cycle time and increase costs of developing new chemical active ingredients. The use of state of the art risk assessment science at the product concept inception phase through sales and marketing will reduce development costs, support appropriate product stewardship and reduce potential product liability costs. Finally, awareness of the key trends in the chemical market space and forward looking risk assessment strategies with regard to environmental health and safety can be employed as a value added component of a chemical manufacturer’s product portfolio.

What are the most important trends for the 2015 in the materials & natural resources industry?

The commodity super-cycle which began in the early part of the 2000’s is most definitely over. Signs of its demise were evident in 2013 and steadily falling commodity prices and mine closures since that time have confirmed it. Iron ore, coal and oil have been the most prominent minerals in terms of the decline in price and are certainly the most talked about, but few if any mineral commodities have been untouched. What does this mean for the mining industry in the year ahead?

The retreat of mineral commodity prices from their super-cycle peaks quickly saw the closure of high cost operations where lower grades, complex treatment routes and long logistics chains locked in a high cost base such that these operations could only ever be “swing producers”, viable only during peaks in commodity prices.

Not only did declining commodity prices see the natural elimination of high cost producers, it also brought about a change in the thinking of all resource companies. During the boom times, when skills and other resources were scarce and came at a premium, companies were prepared to pay just about anything or agree to any terms just to ensure that output and revenue were maximised, with perhaps only a cursory thought for margin. The end of the super-cycle has seen a complete turnaround in thinking. Many skilled professionals now find themselves without work and those that are still employed are happy just to have a job. Not surprisingly salaries have declined. The focus of the industry over the past 12 to 18 months has been on cost-cutting and this is perhaps where early opportunities have been missed and where focus will be placed during the course of the coming year.

Cutting costs is easy, and is the normal knee-jerk reaction of almost all businesses. What appears to come less instinctively, at least in the mining sector, is the search for productivity improvements. A notable exception is perhaps Rio Tinto’s “Mine of the Future”, although I believe that this was driven by scarcity and cost of resources at the peak of the boom, rather than a search for improved productivity per-se.

Whilst perhaps it should have been their initial focus, those companies still operating are now being forced to look for improvements in productivity and I believe that this will be a major trend during 2015.

Every operator will be asking themselves whether there is a way to operate that would increase output using the currently available resources and thereby reduce unit costs. The decision that each will then have to make is whether to maintain output at the increased level and risk oversupply, further reducing prices, or whether reducing output, laying off more personnel and idling some equipment may result in a better outcome for the business. My 35 years of experience in the industry inclines me to think that most, if not all, will choose the former and argue that it is natural selection at work ensuring that only the fittest survive.

With falling commodity prices has come a capital strike, where even projects with seemingly robust economics are finding it difficult to gain funding. Those that have found finance have often had to surrender a significant portion of the project or company to the financier.

At the small cap end of the market, funds appear to have dried up almost completely with companies struggling to raise even $1m to $2m from their existing shareholders via share purchase plans. This has some significant long-term implications because it is often the small exploration companies that make the discoveries which lead to future operations.

It is an old adage that capital always needs to find a home and whilst there are rumours circulating that there are investors with funds ready to be placed in the resources sector, it appears to be something of a stand-off, with no one wanting to blink first and make an investment.

The gold sector may perhaps provide a beacon of hope for the industry and act as a trigger for investment of these funds. Whilst the gold price is well off its 2012 peak of US$1901 /oz it does appear to have stabilised in the range US$1250 to US$1300 /oz. More importantly, for those producer countries whose currency has devalued against the US dollar, prices in local currency are, in some cases, approaching previous all-time highs. Reductions in the cost of labour and the cost of energy mean that these operations could offer attractive margins and therefore good returns for investors.

So to summarise, in my view, 2015 will see the industry focus on productivity, most likely with a greater focus on mechanisation and automation and an easing of the tight capital markets with early investments being made in the gold sector.

What are the top three opportunities and challenges faced by the raw material industry over the next 12 months?

From the many challenges faced by the natural raw material industry, I can see the following three being the most important to the supplying industry of the perfumes and flavors industries and their customers, the fast moving consumer goods and food industries: 

  1. Supply availability
  2. Mounting regulatory pressure and certification needs
  3. Local versus global

Those three are not particularly new but these themes have been increasing in importance over the past 10 years and they repeatedly come to the front of the minds of sourcing professionals in our industry.

Let’s look at them in more detail:

1.       Supply availability

More than ever, our industry is governed by low inventories due to cash flow and financial short-term results, coupled with uncertainty of demands, due to the ever increasing overabundance of choices faced by the consumers and often uncertain economic times. It does not allow for predictability, forecast and long-term commitments, as used to be the case in the early 2000s. Unfortunately, when one talks about natural raw materials, one needs to plan ahead, commit to volume, price and guarantee working farmers a steady income. There is less and less commitment in the industry, coupled with two additional factors that are of increasing importance year-on-year: on the one side we have an internal competition for the skilled farmers and their lands, attracted by other jobs or other crops (e.g. palm oil), and on the other we seem to see an increase in natural disasters badly affecting some harvests every year (e.g. citrus this year).

My advice: fight your inventory pressure and go back to partnership, long-term partnership and contract with your natural suppliers.

2.       Mounting regulatory pressure and certification needs

The mounting regulatory new rules and regulations is in itself a positive factor as it aims at ensuring a better quality of products and allowing the consumers to know that the products are safe and do respect national rules and regulations. In addition, it somehow also rewards those in our industry who comply with those rules by forcing the players who are not 100% compliant out of the market. However this means that, for a while, less supply (even if it was of bad or adulterated qualities) is available and all demands concentrate on less supply. In the long-term the supply-demand balance will be re-established but in the short-term it means there might be less material available to all and almost always more expensive.

My advice:  be close and fair with your supplier, ensure that you treat them well and commit when needed on an annual contract covering at least 2/3 of your annual forecast needs.

3.       Local versus global

There is a clear trend in the market for natural, close-to-home, organic, etc… coupled to push for many of us to reduce our carbon footprint and come back to a more “natural” way of life. It indeed increases the pressure to source more raw materials locally and/or at least closer to the consumer.  In the fragrance and flavor industry, and I am sure for many of its clients too, this is rather difficult to manage. Today, factories are often sized for regional productions and deliveries taking sourcing and supply to the scale of a country or even a continent – they would have to be down-scaled and the whole manufacturing footprint would be redefined over time. On the raw materials side, we are facing a very difficult, if not impossible challenge, as many natural raw materials do not grow in every country of the world but only in a few particular ones.

My advice: Don’t try to grow plants anywhere to extract an essential oil locally, but look closely at bio-technology and the possibilities it offers.

Opportunities for the fragrance and flavor industry

As always, the market is looking for innovative new products and ideas. Therefore the industry should:

  1. Try developing fragrances with added functions, like active ingredients, where the perfume is not only perfuming but also adding a benefit to the final product. The same goes for flavors.
  2. Sustainable, fair and natural are all attributes which strongly resonate with consumers today and the industry should offer more choices to clients and consumers. The challenge lies with the price that consumers are ready to pay for those products.
  3. Closer contact with customers has always been a key successful factor but today it is even more important than before, as clients need flexibility and speed. Global organizations should decentralize and localize as much of the customers interface as possible, without losing the benefit of global processes and systems.

What are the key trends to watch in the Global Mining industry over the next 1-3 years?

The key trends to watch in the Global Mining industry over the next one to three years primarily root into one or both of the big ticket items: Access to Resources and Cost Management.

Access to Resources – Low-Cost Reserves (Producers)

Over the past decade, exploration for many mineral commodities has not been extremely effective at substituting the annual production by new reserves. Although commodity prices have been high and metal production revenues have been robust, most companies have seen their overall reserve base shrinking or have seen the low-cost production being replaced by higher-cost reserves, whilst development timelines through the exploration and development cycle have lengthened and the associated costs from exploration to feasibility have been steadily rising. Companies are aware that in the years to come they will need to be even more rigorous in project development, from the first exploration stages or acquisition, through development to production, so as to have reserves that can be extracted at all-in low costs. A clear focus on operational efficiency and on effective risk management will serve a sustainable low-cost, reserve-based business.

Access to Resources – Security of Supply (Users)

Whilst mining companies will be encouraged to focus on cost-efficient production, the governments of industrial countries will be seeking ways to secure their future supply of raw materials. In the years to come, the G8 and other governments will aim to forward-manage their access to more resources, not to miss out on the availability of mineral resources that are critical to their respective industries. Industrial partnerships will likely see more government involvement, through strategic alliances, pre-guaranteed mineral resource off-take, and other means, all aiming to mitigate potential future scarcity of critical raw materials.

Capital Management & Cost-Efficiency

Financial discipline will be further requested in the coming years. Cost efficiency and business optimisation, again at every step of the business development and mine production, is necessary to lower the all-in cost of production. Volatility seen on the capital markets has introduced further uncertainty of the availability of funds; in quantum, source and in timing. Projects that demonstrate a clear, cost-effective focus and present greater returns through robust capital management, cost optimisation and cost-efficient project performance, will be having an advantage in the on-going competition for funds. Along with this general trend, companies and financiers will be developing more integrated funding solutions in support of their project development.

 

Top Trending Topics – Materials & Natural Resources

    • “Green” buildings and functional materials will become a major growth–driver for the international chemical industry
  • Cost reductions and performance improvements in the mining industry will occur due to the adoption of new technologies
  • Eco-innovative food production and processing will experience a noticeable increase in private investment

 

Can the Mining Industry Save Greece?

Greece is an important producer of a number of mining assets, such as lignite, bauxite, nickel, lead, zinc, copper, perlite, bentonite, gypsum, among others. Recent publications revealed that the mineral resources wealth have been known to the Greek leaders for more than 70 years. Furthermore, since 1965 there are maps of various other resources, including uranium, oil, gas and gold.[1] Despite the natural wealth and mineral reserves, mining in Greece has remained until now an under-developed industry.

After the outburst of the global financial crisis and the crash of the Greek economy, mining prospects have become both a beacon of hope and conflict.[2] While previous governmental policies focused on tourism, the deteriorating economy has urged Greek leaders to reconsider the mining dynamics.[3] Continue reading