Lab Chemicals -Shrinking R&D spend

The declining budget allocation for research and development (R&D) activities due to global economic slump as well as the exorbitant rise in the lab instrument costs have impacted the fortunes of the lab chemicals and equipment sectors.

Specifically for India, the budget allocation for R&D from the Union government has fallen from 15 per cent in 2009 to five per cent in 2013-14. The scientific community now foresees a further dip in the R&D allocation.

There is a serious erosion of confidence among the scientific community as they fear that the abysmal fund crunch would badly hit innovation. The government should understand that research will not yield immediate results and unless there is continuous funding, prospects of innovation is bleak, they point out.

The steep hike in the cost of lab instruments even within weeks is also posing a serious problem. For example Gas Chromatography-Mass Spectrometry (GCMS) instrument costing Rcostings. 35 lakh in mid-2013 has soared to Rs. 46 lakh at present, point a section of scientists.

All is not well from the lab chemical industry and instrumentation supplier perspective also.

The year 2013 was better off, compared to 2012 as many of the Contract Research Organizations (CROs), contract research manufacturing services (CRAMS), or stand alone contract manufacturing organizations (CMOs) and pharma companies performed better. The year 2013 also witnessed the consolidation of the lab chemicals sector with changes at management levels.

Though the market growth is close to double digit, majority of the lab chemical companies depend on pharma or related industries for business development. In 2014, we expect Indian lab chemical manufacturers to move on to production of pharmacopeial grade chemicals like USP- NF, PhEur and BP. There is some optimism that in 2014 , after country’s general elections, there could be an increase in the fund allocation for research.

Chemical industry - Russia

The Russian chemical industry looks set for a serious crisis, as the country’s flagship chemical producer, Khimprom, faces liquidation. The closure could have a knock-on effect on other Russian producers.

Rostec, a Russian state corporation (established to promote, develop, produce and export hi-tech industrial products for the civil and defense sectors) and the majority shareholder of Khimprom, says that the enterprise will completely cease its operations by March 2015 and will be liquidated by May 2016. Of the 5000 workers Khimprom currently employs, about 4000 will be laid off.

According to an official Rostec representative, the company was hampered by high energy prices; outdated technology; depreciation of equipment, which reached 95%; as well as unsuccessful competition with foreign rivals.

Rostec is working with the Russian government to solve the most pressing issues, in particular the fate of Khimprom’s workers. There are several options, including transferring some employees to other Rostec enterprises, but no final decision has yet been taken.

Analysts from the Russian Ministry of Industry and Trade believe that liquidating Khimprom, which currently produces a wide range of chemical products, may result in a serious crisis in the Russian chemical industry. The company remains the only Russian producer of calcium carbide, emulsion PVC, perchloroethylene and some other products, and its closure may lead to market shortages of some of these products.

The Bioeconomy

The bioeconomy provides an opportunity for European innovation and differentiation. In certain areas, the chemical industry has been using substantial volumes of renewable raw materials. Furthermore, the use of alternative feedstock in the chemical industry is gaining importance in light of increasing oil prices and finite fossil resources. Although our industry will remain predominantly petrochemicals-based in the next decades, there is potential for an increased use of bio-based feedstock - not only for the production of specialty chemicals but also of the key building blocks of high-volume chemicals.

 One key limitation for the bioeconomy to develop in Europe is the availability of  renewable feedstock at competitive prices and in sufficient quality and quantity. The European bioeconomy definitely needs to be based on a mix of home-grown and imported raw materials, due to a foretasted limited availability of biomass in Europe.

Biomass today is already being widely used in the production of food and feed, the pulp and paper industries as well as for the bio-fuel industry. A broad base of locally  developed and imported renewable feedstock will be required in order to develop a successful bioeconomy in Europe.

In order for the demand generation process to be economically viable and sustainable, the approach must be definitely market- driven, by consumers’ requirements and expectations. In this respect, the use of mandatory targets should be avoided. Moreover, taxation policy should not create any distortion of competition or conflicts of interests between value chains, as is presently the case for instance with biofuels, biomass for energy or animal fats incorporated in bio-fuels, clearly detrimental to the use of renewable feedstock in the chemical industry.