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Water treatment: Industrial applications drive demand

2:42 PM MST | January 27, 2014 | —Vincent Valk

Reverse osmosis membranes, developing markets, and more stringent requirements are driving growth in the water treatment chemicals sector.

Water treatment chemicals, services, and equipment are increasingly in demand at industrial operations. Companies are also looking to expand in China and help customers comply with environmental rules, producers say.

Industrial facilities—the highest-growth end market—are driving the adaptation of reverse-osmosis (RO) membranes and other processes to enable plants to reuse and recycle water. Municipal water treatment customers remain cost-conscious, although continuing infrastructure development in China and Brazil is helping the market grow. Meanwhile, water-intensive hydraulic fracturing processes are drawing makers of water treatment chemicals to the increasingly competitive energy market in North America.

From 2010 to 2015, the most current data available, global consumption of water treatment chemicals will grow by 3.2%/year, to about $12.4 billion, according to IHS Chemical. Growth will total 6.1%/year in China, leading major markets, IHS Chemical adds. Consumption is forecast to grow by 5%/year through 2015 in South America, 2.9%/year in North America, and 2.2%/year in Europe.

For 2014, producers of water treatment chemicals are optimistic about growth prospects. BASF’s membranes business grew significantly in 2013. “We are confident it will continue,” says Matthias Halusa, v.p./water solutions at the company. BASF purchased a small membrane technology business in 2011, and sales in the company’s membranes business rose by 50% year-on-year (YOY) during 2013, Halusa says. Other companies, including BWA Water Additives (Atlanta), also say the membranes business is growing strongly.

Membranes for industry

While membranes—which usually employ an RO process—are used in both industrial and municipal water treatments, industrial adoption has been strongest. “We see a lot more use of RO in industrial plants for pretreatment, to enable reuse of boiling water and cooling water,” says Shahnoz Hamidi, v.p./marketing at BWA. Hamidi notes that new drinking water plants will usually employ RO membranes as well. However, in industry, “there are so many different applications of RO,” she says. “You find them in semiconductor plants; power utilities; pharmaceuticals—anything that involves filtering a lot of water.”

Bly: Industry moving toward zero discharge.
HamIDI: RO membranes in strong demand.
Halusa: Chinese customers become more sophisticated.

The increasing use of desalination, especially in dry regions, has helped drive the growth of RO membranes. The recycling and reuse of water is another issue that is especially prevalent in dry regions, such as the Mideast, the US southwest, and parts of China. “Where there is not enough water, that drives initiatives for water reuse in industrial plants. If you recycle water, chances are somewhere you will put in an RO unit to recondition water,” Hamidi says.

However, dry conditions in some places are not the only thing behind the trend for more reuse and recycling of industrial water. Another is the desire—or, in some cases, the need—for zero discharge, or an industrial water system that operates on a closed loop and does not release water into the local treatment system. Yet another reason is the desire, even among industry itself, to have cleaner water for operating purposes. “Increasingly, industry has gotten to realize that they have to pretreat and purify raw water intake to make it fit for purpose, and increasingly membranes are being applied,” Halusa says.

The situation with discharge is similar. “Zero discharge is a big driver,” according to Halusa.

Zero discharge “is a big deal” in the relatively dry states of California and the US southwest, “but even in Minnesota, we are doing three zero-discharge projects,” says Al Bly, founder and president of US Water Services (St. Michael, MN). In that well-watered state, famous for its lakes, Bly says regulatory agencies “are looking at projects we’ve done in the past and saying, ‘Well, if some of these have gone to zero discharge, why can’t others?’” He adds, “It’s becoming a best available technology.”

Even where discharge may not get all the way down to zero, reducing discharge and pretreating wastewater on site at industrial facilities drives demand. “The theme of reduce, reuse, recycle,” Bly says. “Reduce the water footprint. It’s something a lot of customers are starting to look at.” Industrial operations want to cut energy and operating costs and see reusing water and rethinking water use as a way to do that, producers say. “They are looking at solutions that require less energy, higher recovery of clean or purified water, and a smaller footprint,” according to Halusa.

These themes are even making inroads in China, where concerns about environmental degradation or resource efficiency have been less urgent. BASF recently won a membranes contract for a chemical project in China that will be “fully zero discharge,” Halusa says.

Changes afoot in China

Like other specialty chemicals sectors, the water treatment chemicals space has turned to China to drive growth as mature markets have lagged. BASF’s water treatment business “has been looking at 25% growth in China in 2013,” according to Halusa. “We are confident that this will continue.” China is adopting RO membranes quickly as it upgrades its municipal infrastructure and industry expands, producers say. Many new municipal facilities in the country are state-of-the-art. “If you go and see the municipal treatment plants in China, it blows you away how sophisticated they are,” Halusa says.

But, like in other regions, the real growth in China will be on the industrial side in the coming years. This change represents a shift from recent times, when the country’s huge infrastructure investments extended to water treatment. “There has been enormous growth over the past five to seven years [in China] due to infrastructure investments,” Halusa says. “What we see now is the next wave of investment in China will move more toward industrial use. Public infrastructure investments are declining as they’ve caught up there, but we still see a lot of growth potential on the industrial side.”

Chinese industry, too, is becoming more sophisticated about water management. “You need to maintain your assets,” Halusa says. “It’s not just wastewater treatment; it’s chemistry preventing industrial assets from corroding and developing scale or bacteria. That’s only starting now in China.” This is a big driver for growth in consumption of water treatment chemicals and systems, he adds.

Another important driver are efforts, often orchestrated by the Chinese government, to clean-up industry. Chinese industry is looking to emit cleaner water discharges, according to Hamidi. Firms in the country are also looking to use chemicals that do not contain substances like phosphorous or nitrogen, she adds.

The government recently announced changes to the pricing structure for water, which is heavily subsidized and regulated by the government. Authorities in the country also say they want to improve urban sewer infrastructure, another opportunity for makers of water treatment chemicals, according to Halusa.

Municipal treatment: Low prices, high competition

The municipal water treatment market, meanwhile, is often marked by high competition and increasing margin pressure for chemicals suppliers, especially in mature markets, such as Europe and North America. “It is a market that is driven by price and budget constraints,” Halusa says. “They may not always look at the highest overall value they can get out of a solution.”

As budget cuts take hold in many places, municipalities are cutting back on infrastructure spending, including water management. Many smaller or mid-size water treatment chemicals’ firms do not compete, or barely compete, in the municipal space. ProChemTech (Brockway, PA) a regional firm in the US northeast, has about $5–6 million in revenues and over 1,000 customers, none of whom are municipalities, says firm president Tim Keister. The company mostly does business with small industrial facilities and institutions such as hospitals, schools, and shopping malls. Even US Water Services—which has about $100 million in annual revenues—does not emphasize the municipal space. “It’s not a focus for us,” Bly says, “It’s very competitive. … There are bidding processes, and some the value-add engineering that goes along with our programs is hard to pay for. There is a lot more price sensitivity in that market.” Price sensitivity among municipalities, always an issue, is rising, Bly adds.

Companies that do compete in the municipal area try, with varying degrees of success, to sell on total cost of ownership. “We tend to focus not on price sensitivity, but value,” Hamidi says. “We try to encourage them to look at it as part of a whole system.” BASF has a new product aimed at the municipal market that dries out sludge, making it easier to incinerate or put in landfills. “It may not necessarily be the cheapest on a dollar-per-kilo basis, but on total cost of ownership it gives you the better value.”

BASF, of course, has one other weapon in its arsenal: It is the largest chemical company in the world. Back-integration and economies of scale help the company create low-cost water treatment products. “We are trying to introduce a standardized set of low-cost products aimed at the municipal market,” Halusa says. For highly price sensitive municipalities, which are often not receptive to a total-cost-of-ownership sale, having the lowest-cost product is a necessary barrier to entry.

Energy in energy

Separately, in North America, the energy sector is an important area of focus for growth and investment. The sector has always used lots of water, especially in power plants, but the hydraulic fracturing boom has led to increased demand for water treatment chemicals in the oil and gas business. “The energy sector right now is very positive in water treatment,” Bly says.

It is not just water for the hydraulic fracturing process, too; the rise of natural gas as a power source is an opportunity for many makers water treatment chemicals. “The push to convert from coal [power generation] to natural gas is leading to the development of new power plants and the conversion of power plants,” Bly says. For US Water Services, which designs equipment in addition to manufacturing chemicals, the conversion of utilities from coal to natural gas represents a big opportunity, he adds.

Hydraulic fracturing itself remains the large opportunity for many firms despite some challenges. “Things are happening so fast [in the shale gas boom] that not everyone is in tune with what good water management and chemistry [are],” Hamidi says. Drillers want to move quickly and may not have time to evaluate complicated chemistries like biocides or scale inhibitors. Still, producers are optimistic that eventually these issues will be sorted out. “In general, we still feel very good about all the segments we are in and are projecting good growth,” Hamidi says.

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