What role do specialty chemicals play in emerging industrial policy?

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Adam Bland:

When it comes to sustainability, the best way to tackle this at the moment is through partnerships and collaboration. But then going forward, of course, I think there's going to be a lot more focus on trying to reduce those scope 3 emissions. And of course, if they can do that upfront through scope 1 and 2, then that'll benefit down the value chain as well.

Vincent Valk:

Hi, and welcome to the Chemical Week Podcast. I'm Vincent Valk. Our guest today are Adam Bland, executive director for Specialty Chemicals at S&P Global Commodity Insights, Kevin Micoine, executive director for Specialty Chemicals and Use Markets, also at S&P Global Commodity Insights and Sotirios Frantzanus, Specialties Editor at Chemical Week. Hi guys.

Sotirios Frantzanas:

Hi Vincent.

Adam Bland:

Hi Vincent.

Kevin Micoine:

Hi Vincent.

Vincent Valk:

Thanks for joining the podcast today. We're going to talk a little bit about specialty chemicals and particularly the intersection of specialty chemicals and industrial policy as trade tensions and tariffs have been dominating the headlines over the past couple of months. And I think even if you look backward from that, there is a lot of industrial policy even was coming out of the Biden administration before the election. There's things brewing in the EU. A Chinese industrial policy has had a really big impact on the industry in recent years. So we're going to dive into all of that. But to kick it off and set the stage here, our most recent Chemical Week cover story was focused on specialty chemicals and sustainability. The conversation around sustainability certainly feels quite different today than it did a couple of years ago. How is the geopolitical and economic environment impacting how specialty producers approach sustainability. And Sotirios, you wrote that story. Take it away.

Sotirios Frantzanas:

Great. Thank you, Vincent. The strong link between specialty chemicals and sustainability, I would say there is a mutual relationship as specialty chemicals are driving sustainability while sustainability is driving innovation in specialties. At the same time, I would say that specialty chemical companies are leaders of sustainable initiatives among chemical companies. But as you said, the world has changed a lot in the last couple of years with the war in Ukraine and the reelection of Donald Trump. Geopolitical tensions, protectionist policies and de-globalization signaled I'd say a shift away from sustainability. So the question I wanted to investigate in the recent cover story was whether specialty chemicals producers are still considering sustainability as a priority within this environment.

So the answer to that question is that the dedication of specialty chemical producers to developing eco-friendly solutions, advancing green energy transition and reducing the carbon footprint of their operations remains strong. Sustainable development continues to be an integral part of their strategy despite the market headwinds and the volatility caused by trade tensions. I would say interestingly, some of the companies noted that under these adverse circumstances it is even more important to integrate sustainability into corporate strategy. All of them emphasized that they will continue to invest in making their operations and products more sustainable. All in all, I would say the business case for sustainability remains strong among specialty producers, and there is even optimism that the apparent shift away from sustainability, especially in the U.S. will be reversed.

Vincent Valk:

Great. Yeah, thanks for that. It does seem like sustainability is at least sitting in the U.S. is moved down on the agenda, but I think if you look at what the industry is doing, it's still on the priority list, although maybe it's a mid-priority as opposed to a top priority. And I want to hone in here on industrial policy, and major economies around the world are using industrial policy towards various ends, whether it's decarbonization, beefing up domestic manufacturing or aiming to get a leg up in strategic competition or in many cases some combination of those. And there's a lot of elements to this, but the one that has made the most headlines lately is trade tensions. So what are the impact of trade tensions on specialty chemical supply chains, which I know are very complex, and how do companies see the impact going forward on demand?

Sotirios Frantzanas:

As you would imagine, companies are concerned about the trade tensions, mostly a result of the U.S. tariffs on imports. However, most of the major European specialty chemicals producers expect the direct impact of tariffs to be minimal or manageable. So this is because these big companies, they have global presence that allows them to serve their customers from their local or regional production. As a result, they expect they will be able to continue supplying their customers without any major disturbances. This is, of course, not necessarily the case with the smaller specialty producers that are probably going to be the ones affected the most by this situation. So the main concern I would say of all specialty producers are the indirect impacts of trade tensions such as the market uncertainty has been caused by them, which may lead to slower growth and weaker demand.

For example, many companies said during their first quarter result announcements that the current market uncertainty is making customers more cautious and their overall sentiment is not improving. This may lead to unpredictable customer behavior that could fluctuate even from one week to the other. Overall companies are staying vigilant as it is currently not possible to quantify the indirect impact of trade tensions. In fact, some of them have put together their own teams of experts in attempt to assess the demand situation as well as monitor the possible impact of tariffs on foreign change rates. So I would say it is a wait and see situation for all of us since, as you know things in some markets change overnight.

Adam Bland:

Absolutely. I think you've hit the nail on the head really there, Sotirios. It really is uncertainty, if you like, is the biggest enemy for the economy. Specialty chemicals are used across basically all industrial and consumer products, and that will have an indirect effect basically on the economy, on basically consumer spending and investment as well. So I think you've hit the nail on the head really. Uncertainty is self-fulfilling, if you like, as economies really have struggled to emerge again. We're still on that roller coaster really after the COVID situation as well. So we've had obviously a lot of fiscal policies that were starting to bite into inflation, but now, of course, we do have inflation on the horizon again. So I think it's going to be more fiscal policies for longer basically. So I think we're going to see a long haul out of this to be honest.

Kevin Micoine:

There is one thing I would like to add also. I completely agree with you about the demand side. There will be also an impact on the prices then. Because many raw materials will become more expensive if the tariffs increase, and the prices will be passed on along the value chain. And until the end of the value chain, the prices will probably increase for many products.

Adam Bland:

There's a real boomerang effect as well here because obviously a lot of manufacturing is done in Asia on when the U.S. and if the U.S. continue with tariffs, then I'll say we're going to have that boomerang, that final products are then heading back to the U.S. market.

Vincent Valk:

That's a good point, Adam, and I think it has been off and on talk of reshoring for a number of years so that this could bolster the case for that. I want to shift a little bit looking beyond the headlines about tariffs. We're in the middle of some big global changes with industrial policy reshaping the landscape and energy transition playing out in the background. I want to talk a little about energy transition here. Specialties producers often speak of their products as enabling the energy transition. What do they mean by that? And Kevin or Adam, whichever you want to jump in on this one first, feel free.

Adam Bland:

Yeah, I'm happy to. If you want a top line, especially chemicals, I say they're used across the entire value chain. So when you think about enabling energy transition, that can be anything, whether it's the feedstocks, whether it's logistics, whether you're sourcing energy for the production processes, and of course, you're enhancing the performance of the final products as well. So obviously we're looking at lowering energy use in the application and ultimately, of course, trying to close out the life cycle circularity. Yeah, whether it's, I'd say, reducing the maintenance, whether it's through longer services for things like lubricants, whether it's more durable products with a longer lifespan, anything to do with that. And again, when you think about things like the auto industry, there's a lot of products there used, whether it's the lightweight thing or again, whether it's using the battery materials, everything to do with enabling energy transition. So again, Kevin, if you want to jump in as well.

Kevin Micoine:

Yes, I would like to add also that the renewable energy is not possible without specialty chemicals. When you look at solar panels, you have plenty of specialty chemicals within, of course, silicon for the solar cells as everybody know, but you have many layers of polymers to encapsulate the solar cells. You have backsheets to protect the panels with also multiple different polymers. In winter bins, also you have plenty of chemicals. You have epoxy resins with fibers with carbon or glass fibers to make composites. You have also coatings and adhesives, synthetic lubricants, magnetic materials, and even specialty additives in the concrete for the foundations of the winter bins.

When you think about energy production, each type of energy needs many types of specialty chemicals and especially the new types of renewable energy. And of course, also the energy transition isn't possible without energy storage, because the new types of energies like wind or solar are not constant production of energies. You need to store, for example, solar energy in the night or the wind is not also constant all over the year. And you will also need some specialty chemicals to produce new types of batteries or solutions to start this energy.

Adam Bland:

On that point as well. Kevin, I think is more and more important that in the whole value chain, whether it's the producers or whether it's the end-use customers, everybody's now starting to look at things like whether it's scope one, direct emissions, scope two for the indirect emissions, and obviously for the other emissions, it covered it in scope three. So I think historically we've always thought of specialty chemicals as being the enabler, if you like. As I say, that element of lowering carbon emissions is becoming more and more as a prerequisite if you like, because if that helps the end-users of that chemical as well, then of course, they can use that in their mass balance of carbon emissions.

Vincent Valk:

And that's a good segue into my next question. If sustainability has remained a key focus for specialties producers as Sotirios outlined earlier, how has their emphasis within the broad area of sustainability shifted over the past two or three years? As we've discussed before, the world has changed quite a bit, and what have been the key drivers for these shifts? And I want to open this one up to the group.

Adam Bland:

Sure. I'm happy again to jump in first if you want, but as I mentioned there really I believe that scope one and two is a lot of the low-hanging fruit. I think that's really been in focus. Everyone's been looking at reducing their carbon emissions, where they're looking at carbon capture, they're looking at partnerships in the value chain. So again, a lot of companies, chemical companies are looking at entering things like power purchase agreements, looking if they can source renewable energy. I think there's a great example as well from BASF.

Only recently in May, they've started transitioning their amines' production, of course, in Europe to basically using 100% renewable electricity. So again, I think there's a lot of cooperation. I think when it comes to sustainability, the best way to tackle this at the moment is through partnerships and collaboration. But then going forward, of course, I think there's going to be a lot more focus on trying to reduce those scope three emissions. And of course, if they can do that upfront through scope one and two, then that, of course, that does benefit down the value chain as well.

Kevin Micoine:

Yeah. I think you're right, Adam. Most of the focus has been on scope one and two emissions. So that means the emission directly from the chemical plants and also the emissions from the energy post-chasing, replacing fossil energy by renewable energies to reduce the scope three emission is much more challenging because it's very complex. It starts from the beginning of the value chain to replace a crude oil by recycled raw materials or by natural raw materials, and you have to pass that along the value chain.

So you need a cooperation from the raw materials producers until the end-use consumers, and you need to have the commitment of the whole value chain to take the higher cost sometimes. You need also some support from regulation, from incentive from governments and so on. And this takes time to take place, so a company cannot act alone. So that's why also it takes much more time than the scope one or scope two emissions where each company can act independently and tackle their own emissions.

Vincent Valk:

I believe there's also a quantification issue with scope three and two. Right?

Kevin Micoine:

Exactly. And certification also, you need to, for example, to certify at the end of the value chain that your raw materials are sustainable from the beginning until the end of the value chain. So you need also some mechanism to certify. So it's taking place you'll see more and more certification. And of course, another very big change is the cost here, because reducing energy consumption usually decrease your cost. So it's quite favorable. But replacing a cheap fossil raw material by a more expensive natural raw material, it increases the cost, and the cost must be either passed on to the consumers or must be incentivized in some way.

Adam Bland:

Absolutely. If we had a great presentation from solution as well in the U.S, and when you look at their new processes as well using novel renewable feedstocks and also their processes as well using enzymes, which of course, can then improve the yields and obviously lower the emissions as well. Their strategy is much more modular plants of placing those nearer to the customers. So that also starts to reduce some of the logistic emissions as well in scope three. So it's very interesting.

Vincent Valk:

Yeah, for sure. I want to move into another key aspect of industrial policy beyond decarbonization and sustainability, at least in the U.S. and that's around semiconductor chips. There's been some question as to the fate of the CHIPS act under the new administration in Congress, but there seems to be relatively little disagreement that reshoring chip manufacturing should be a strategic priority. And specialty chemicals, of course, are key inputs into the chip making process. Is the global supply chain through these materials ready for more domestic manufacturing in the U.S., especially considering the trade tensions that have been in the headlines?

Kevin Micoine:

I thank you for the question, Vincent. It's a very exciting topic. There is a lot of dynamic in the moment, and many people don't know how many chemicals are needed to make computer chips. You don't realize, of course, you need the silicon for the silicon wafers, but you need also many process chemicals, polishing slurries, photoresist resins, high purity gases, high purity solvents and metals, and you need the chemical industry to supply all these materials. Fortunately for the U.S. and also the western world, U.S. and European company together with Japanese companies are leaders in supplying those high purity chemicals and all those types of electronic chemicals.

So I think it's not a huge challenge for the U.S. to supply these materials, and it's not the bottleneck in my opinion. So the biggest challenge for the U.S. industry will be to have the know-how to make these chips, because these most advanced chips, they need very complex technology. You need skilled and experienced workforce. You need, of course, the fabs to make them and takes really some time to build the know-how and to be able to produce it. But once the know-how is there and the demand is there, the chemical industry will be able quite quickly, in my opinion, to ramp up the production of the electronic chemicals.

Already today, many U.S. companies that supply Asian countries like Taiwan or South Korea or even China with electronic chemicals for the chip manufacturing. So it would be very easy for them also to supply U.S. fabs to produce chips. And, of course, then the commitment from the industry to invest in new production plants for chemicals, because yeah, even if they have the technology for that, they need to make investment decisions and then they need certainty for the future that the chips manufacturing will grow up. And this is the main positive aspect of the CHIPS act. It gives a frame and a certainty in the whole supply chain to invest in the future. And of course the current uncertainty at the moment is a big challenge, because it's not what the industry expects.

Vincent Valk:

Great. Adam, Sotirios, you have anything to add to that?

Adam Bland:

Well, I know Kevin's basically he's our expert in this field, and he's just been producing and doing some insights into this area. So obviously, he would be my anchor man for this, so he's done a great summary there. And again, if you think, I think you mentioned it's basically the skills as well is such an important part of this. And it is very interesting to see with some of the tariffs that being announced, and obviously, the U.S. is very keen to try and exclude some of the key raw materials that they would need to start manufacturing, but it does take time.

And then it's still very interesting to see that there are still potentially tariffs on things like smartphones, which are coming obviously from a lot of inputs coming from Asia at the moment. So yeah, it covers a whole area, whether it's not just semiconductors, but also a lot of the critical minerals and the rare earth which are used beyond that in things like electrification and also where it's needed for wind turbines, whether it's magnets, or from any industrial or pharmaceutical uses as well. There's definitely a walking a tightrope there. I think in the U.S. and trying to get up to speed, we've been able to manufacture cost-effective electronic equipment.

Vincent Valk:

Yeah. I think that's a good way to put it, is walking a tightrope. And finally, on the subject of chips, are there technical advances that need to be made in order for specialty chemicals to support the next generation of chips for use in AI? And is there any role for governments in supporting or incentivizing these advances?

Kevin Micoine:

I think I can answer this question. Yeah. Thank you, Vincent. To make new generations of chips, you will need new types of chemicals, because other chemicals really need to adapt at each process to make the chips. And one of the key technologies for the next generation of AI chips is Extreme UV photolithography. It's a technology which allows to build transistors on the nanometer scale. So you need to imagine below five nanometer scale. And for that you need a UV radiation, which has a very short wavelength, a wavelength of about 13 nanometer. And you need special resins that react to this radiation, UV radiation, that are also able to build extremely sharp patterns on the wafers to produce these very small transistors. And at the end, you build billions of transistors on one wafer. And the U.S. companies, even small U.S. companies, are at the forefront of innovation.

I can cite, for example, Inpria. They developed a metal oxide, Extreme UV photoresist, able to use this technology and also J-List, which develops many innovative products for medical microelectronics personal care. They also have developed precursors for Extreme UV photoresists, and both these companies have been acquired by Japanese companies, which are market leaders today in the photoresist market. Inpria was bought by JSR in 2021 and Gelest was bought by Mitsubishi Chemical in 2020, but they produce in the U.S. So for example, Mitsubishi Chemical has opened with Gelest, a new plant in 2025 in Morrisville, Pennsylvania.

You'll see the U.S. companies together with the European companies, Japanese companies are leader in providing the specialty chemicals for this application. At the end, the government cannot directly incentivize or support these advances. What they can do is support the chips manufacturing in that country so that the specialty chemical producer will have an incentive to invest in production plants in this country. Because in every market, the specialty chemicals producers want to be close to the customers. So if the government support the customers of the specialty chemical industry, that will indirectly support the chemical industry.

Adam Bland:

And I would guess as well, Kevin, just to add to that, if we look at AI and obviously how much that is gathering momentum at the moment, then I guess governments can support by trying to make sure we have a robust infrastructure for the provision of electricity, which obviously AI is very energy intensive. So whether that's data centers or say the electric infrastructure as well. Does that seem fair?

Kevin Micoine:

Yep.

Vincent Valk:

Great. And Kevin, funny you should bring up that Gelest plant. I was actually at the opening ceremony for that plant a little over two weeks ago, so wrote an article about it too.

Kevin Micoine:

Yeah. I saw you on TikTok the other night.

Vincent Valk:

Something we've been covering.

Kevin Micoine:

I brought that. Yeah.

Vincent Valk:

Great. Thanks very much again, Kevin and Adam and Sotirios. It's been a great discussion. And this is Vincent Valk signing off for Chemical Week.