NEWS / Foreign Exchange

Nanotech And The Chemical Industry

By Tim Harper

It??™s an oft-misquoted maxim in the world of nanotech that, in any gold rush, the only people who get rich are the ones supplying picks and shovels.

The next port of call is invariably a company such as FEI, whose slogan is Tools For Nanotechnology. And although electron microscopes may reveal some intricacies of the nanoworld, we really need to concentrate on the big picture. So let??™s start with some big numbers, fresh out of our analytical department.

In 2006, the global chemical industry spent some $2.9 billion dollars on nanotech-related research and development (R&D); that??™s almost three times what the US government spent on nanotech. And while government funding will remain fairly flat--how many national nanotech centers of excellence do you actually need--we see chemical industry growth continuing at some 25 to 30 percent a year until 2012.

Globally, the market for nanomaterials is some $80 billion already, although the vast majority of this is business-to-business trade--supplies of bulk chemicals, particles, polymers adhesives, catalysts, etc.--will never end up in the hands of consumers. The industry also has more than 35,000 people worldwide directly engaged in nano-related research, the highest of any industrial sector outside the semiconductor industry (most of whose products are nanoscale already).

This isn??™t so much picks and shovels as producing the bricks and mortar for the nanoworld. Although nanomaterials may have myriad uses, many have been developed by specialist companies that have only the ability to produce the small quantities required for research.

The problem comes when an end user requires tons of material per year, material that??™s stable and has a constant level of quality. This is where the big players need to be involved.

Scaling up production without scaling up the cost or scaling down margins isn??™t a trivial exercise, and it??™s not something that can be achieved with the resources and the expertise of a small university spin-out company. The more-successful nanomaterials-based businesses--the UK??™s Oxonica, for example--have been through a number of business model changes.

The first time I visited Oxonica in 2001, the company was attempting to commercialize quantum dots for medical diagnostics. However, within a few years the company had shifted to producing titanium dioxide and had signed an agreement with a major UK cosmetics and pharmaceutical company, Boots (which just rejected a takeover offer from Kohlberg Kravis Roberts & Co ), to use its products in a range of sunscreens under the trade name Optisol.

A second product line then emerged, using cerium oxide as a fuel additive with the aim of reducing fuel consumption by 10 percent.

The cerium oxide functions as a kind of oxygen store. It releases oxygen to oxidize carbon monoxide and hydrocarbon gases to form carbon dioxide; it also absorbs oxygen to reduce the quantities of harmful nitrogen oxides. The result is a cleaner burn that converts more fuel to carbon dioxide, produces less noxious exhaust and deposits less carbon on the engine cylinder walls.

The cerium oxide product, named Envirox, was experimented on with one of the UK's largest bus operators, Stagecoach, and proved so successful that the bus company invested in the nanomaterials company.

Both Optisol and Envirox are manufactured under license by German chemicals company Clariant, with the key patents held by Oxonica relating to the modification of the nanoparticles rather than simply the production of oxide nanoparticles.

Modifications include coating the nanoparticles in an organic solvent called dodecylsuccinic anhydride, which helps them disperse better within the fuel, and doping the particles with a conductor such as copper to make the fuel burn better.

Smart investors will know that management is often more important than the technology, and Oxonica is no exception. The recruitment of CEO Kevin Matthews from the business world is what turned a start-up company run by scientists, exploring every possible application of nanoparticles they could find, into a company that identified and focused on a smaller number of exploitable opportunities. And, of course, Oxonica was lucky in finding willing partners in Boots and Stagecoach.

But even successful companies such as Oxonica can't tackle the scale-up issues. So two distinct types of nanochemical companies are emerging--the large and the small.

If the model works, small players such as Oxonica can develop the intellectual property and subcontract all their manufacturing to midsize companies such as Clariant. If it doesn??™t, companies such as BASF and Bayer will use their R&D and marketing muscle to shut out niche players that haven't secured their markets.

Looking ahead, it may be that the best of times for the (nano) chemical industry is right now. Although we??™ll see a gradual shift to higher value nanomaterials, competition--especially from Asian producers--will depress margins and keep them at similar levels to existing fine chemicals. (Have a look at some of the Chinese producers on alibab.com for examples.)

The shift will be from high margin/low volume to high volume/low margin, which--although it fills up space in the chemicals catalog--probably isn??™t anything to get too excited about.

However, with the prospect of low-cost nanomaterials being available in the next few years, the real opportunities will come from companies that are able to exploit them. So it's worth keeping an eye open for the next Sony, not today??™s Shockley Semiconductor or Clevite Transistor.