The Green New Normal
Some of the things that people hoped would be turning around by midyear 2012 aren’t really turning around. Take the U.S jobs market, for example. Or the pharmaceutical chemicals market. In both cases, the statistics can be turned to illustrate solid headway being made (especially where isolated segments are viewed from particular angles). The fact is, however, we are still in the long stall before the turnaround in both cases—provided there ever comes a turnaround.
The contract active pharmaceutical ingredient (API) market is nowhere near returning to its pre-2008 level of profitability. Of course the economy has had a lot to do with prolonged struggle in the sector. A sea change in the world of manufacturing and R&D in the drug industry has had an even more profound impact on the market for chemicals. The reshaped pharma sector will create opportunities (where isolated segments are viewed from particular angles), and there are certainly companies that are pleased with business over the last couple of years. But producers agree the sector is dealing with a “new normal,” one in which the number of opportunities is decreasing, requiring contractors to increase their technical specialization or add services, including final dose formulation.
Meanwhile, the agricultural chemical sector keeps chugging right uphill. The market cycles have become a bit more dramatic in recent years, but the trend line running through these cycles is steadily moving higher. I recently spoke with Matthew Phillips, agchem market analyst with crop protection and biotechnology consultancy Phillips McDougal in the U.K. Phillips sees the stars aligned for steady improvement in the market—they have been since 2006, he says, with crop prices rising, demand for meat in China rising (bringing with it a dramatic increase in demand for crops to feed livestock), and markets developing in Brazil, Russia, and India.
The agchem business is vulnerable to weather, of course, as well as to commodity price swings—swings in the price of crops themselves as well as in the price of fuels. These affect each other at times, such as when hedge fund managers shift their bets to crop futures in the face of high oil prices as they did in 2008, notes Phillips. But he and others see a steady rise in crop pricing balancing the vagaries of the market in a continued upward push.
Walking through the exhibition hall at ChemSpec Europe in Barcelona last month, it seemed to me that the optimism over agricultural chemicals had tipped a balance. Firms such as AllessaChemie and Saltigo, major players in agchem and pharma, were putting their green feet forward. Saltigo’s amalgamation of what had been separate business groups for pharma and agchem seems like a step up in prestige for agchem—or a step down for pharma?
Let’s face it. Business in agricultural chemicals has always been eclipsed by the perceived dazzle of doing business with the drug industry—a perception that is partly a hangover from the overheating of the 1990s when most major drug companies tried and failed to get into the fine chemical/API business. But, thinking back, agricultural chemicals remained relatively steady through that bust. And they’ve stayed steady since…unless you count constant gradual improvement as a kind of tilting of the boat. Pesticide and fertilizer chemicals will probably never score as highly as drug chemicals on the glamour scale, but there is no doubt that the agchem section of the market is getting increased attention from the diversified fine chemical players this year.