Engineering and high performance polymers cover a wide spectrum of materials from well-established plastics such as nylon and ABS to developing polymers such as LCP and PEEK. They are valued, amongst other properties, for their temperature resistance, strength, dimensional stability and chemical resistance in several demanding applications. Engineering and high performance polymers experienced high growth during the second half of the 1990s because of high demand for IT/telecom products and automotive components. Product and applications development and substitution of traditional materials were also key drivers of growth. As plastics producers struggle with a slowing economy, rising raw material prices and increasing competition, the one bright spot in this industry continues to be that of high performance polymers (HPP). This category has evolved rapidly over the past few years and stands as a US$6.1 bln industry, projected to grow at a CAGR of 6.1% over the next five years, as per Principia Partners. High performance polymers continue to exhibit a growth rate that surpasses growth in GDP. The eight end-markets that consume different kinds of high performance polymers for various applications are: • Aerospace and defense, an end-market valued at US$290 mln for high performance polymers that has ever-increasing requirements around flammability, smoke and toxicity, and is projected to grow at a CAGR of 7.1% to 2012 • Automotive, an end-market that consumed US$1.3 bln worth of HPPs in 2007, is forecast to grow at 5.7% over the next five years with continued metal replacement and to address increasing temperature performance requirements in engine compartments • Computers and peripherals accounted for US$180 mln of HPP consumption, projected to grow at 8.3%, where key issues include miniaturization and related heat management, and also increasing use of multi-function products that combine printers, copiers and fax machines in a single device • Consumer goods, where HPPs are used in a wide range of applications such as appliances, cookware, sporting goods and other household items, is estimated to be valued at US$420 mln and growing at 5.2%. This area's growth has been dampened by the economic slowdown but new application development continues at a rapid pace • Electrical and electronics, the largest end-market for HPPs valued at US$1.8 bln and forecast to grow at 6.8%, where regulation along with increasing demand for electronic devices are some of the growth drivers for increased consumption of HPPs • Industrial application that primarily includes chemical processing, oil & gas, food processing, power plants and water treatment is estimated at US$1.4 bln of HPP consumption growing at 5.6% • Medical sector, valued at US$290 mln is projected to grow at 8.7% with HPPs being used in applications requiring strength and stiffness, sterilizability and biocompatibility • The study also estimates other application areas, for example the use of HPPs in coatings for building and construction, and is valued at US$390 mln in 2007. Although the majority of HPPs continue to be molded, other forms such as films, fibers, stock-shapes, and coatings are expanding the reach of high performance polymers. The high performance polymers value-chain, from polymerized resins to articles of usable forms, is estimated to exceed US$14 bln. While China is exhibiting high growth in demand for HPPs, most suppliers have been reluctant to add polymerization capacity in the region. Companies are cautiously entering the Chinese market with compounding operations and sales and marketing offices in the region before committing to resin production in China. The growth in demand for HPPs is delineated as a function of the underlying market growth, new application development and specification, minus the attrition, for each polymer. While certain polymer categories, such as fluoropolymers are witnessing relatively lower growth due to a slowdown in application development, other categories such as LCPs are projected to be the fastest growing based on widespread use in electrical and electronics. As per another report by Report Buyer on the US HPP market, • The US consumption rate for high performance films was 12.8 bln lbs in 2005 and reached almost 14 bln lbs in 2006. Growing at an average annual growth rate (AAGR) of 2.9%, national consumption should cross 16 bln lbs by 2011. • Correspondingly, most high-performance resins had a very significant increase in value in the same time frame, but only a minor increase in average price, from US$2.77 to US$2.98. Part of the reason was the market devastation wreaked on much of the polyester-based film market due to the dramatic swing to digital formats. • There was a tilt toward higher-value, higher cost high-performance materials, a trend that will accelerate in the next five years. This is partly by design and partly a result of market forces. Major players, such as DuPont, made corporate decisions to sacrifice markets, particularly in polyesters that had become commoditized, in favor of market development in areas with greater potential, such as solar cells and structural glass laminates. As per an assessment by Frost and Sullivan, HPPs have been among the fastest-growing product groups for many years, giving way to new applications driven by innovation and product development. Market interest is particularly high in these materials because they offer suppliers high margins at a time when the rest of the industry is facing rising raw-material costs and dwindling profits. Many niche polymers constitute the high-performance market. Some of them are well known, having been in use for decades. These include product groups such as fluoropolymers and high-performance polyamides. There also are many emerging materials that have grown in importance over the past decade: examples include polyketones and polyphenylene sulphide. The high-performance market is characterised by material volumes considerably lower than commodity and even many engineering polymers. However, higher pricing means that the market is still substantial in terms of revenue. In Europe the HPPs market was worth €1.6 bln in 2007, and will grow at a rate of 7% through 2014. Polymers at the top end of the performance scale, such as PEEK, will show growth rates that are much higher than this average, while the comparatively higher-volume fluoropolymers will grow at a lower annual rate. Important factors driving demand for HPPs include product development and innovation, increasing performance requirements, new applications, and the effect of regulatory controls. Product development will help expand the presence of high-performance materials across various end-user markets. Increasing performance requirements placed on materials in key applications, such as automotive and electronics, demand the use of HPPs, while expansion into new applications will create incrementally growing demand for these materials. A good example of this is PEEK, which is now being offered for varied applications, including coating for cookware and medical products. Regulations such as RoHS, WEEE, and the impetus in areas such as emission control act in favor of high-performance plastics, as they can provide fire resistance without the addition of harmful chemicals such as halogenated flame retardants. However, high-performance polymers also present unique challenges to overcome if the real benefits from these market drivers are to be realized. Important issues include timing capacity additions, managing geographical presence, and competitive structure. Often in the high-performance-plastics industry, the market has been limited by a lack of production capacity. In the past, significant jumps in demand have immediately followed extra capacity becoming available. This not only represents demand for the product, but also shows that companies have been very successful in offloading additional material. Suppliers have adopted a cautious and safety-first approach toward capacity increases, and it is common to see them increase production every other year, mostly in small increments. This can result in potential end-users resorting to competing product types because of a lack of availability. For product types where there is no competition, suppliers are free to time their capacity additions. These companies certainly do not want to see prices going down because of excess capacity. However, the situation changes as more players enter the market, and this is being seen among producers of materials such as PPS, and during the medium to long term will also be the case for PEEK. Building capacities in the market for HPPs requires considerable investment, as the production processes are generally much more complicated than for engineering plastics. This explains the reluctance of companies to invest in capital expansion. But they should be concerned about losing potential opportunities because of their unwilling ness to expand. Timing the market efficiently with respect to capital expenditure can make or break companies and even product types in the high-performance-plastics market. Many high-performance polymers are not produced in Europe. For example, there are no European LCP production units; much of the material is imported from either USA or Japan. In such cases, there is a definite competitive advantage for any supplier electing to set up a production facility in Europe. However, suppliers have shied away from this worrying about dwindling Europe demand for a plastic that is highly dependent on the electronic industry for its growth. In this case, the key to competitiveness becomes efficiently managing distribution to allow for the absence of local production. Therefore, companies will have to develop very strong sales networks in countries where they do not have a physical presence. Using distributors or compounders is not the preferred route in the HPPs industry, considering the high level of technical competence that is required. Compounding high-performance plastics is much more complicated than engineering resins, and requires specialized equipment. Competitiveness is not determined by the amount of polymer that can be produced, but rather by its quality and performance characteristics. Also, companies see technical service as a key component of their overall business, one they do not want to outsource. As a result, suppliers will have to invest in developing their capabilities and developing their strengths in the important geographical markets for their products. This means constructing or leasing compounding facilities in Europe, a strategy demonstrated by Chevron Phillips Chemical in the PPS industry; the company has its main polymerisation plant in the US, but it also has compounding facilities in Europe. In the high-performance-plastics market, several manufacturers account for the majority of the market share, in particular for PPS, PEEK, LCP and polysulphone. For the comparatively well-established high-performance polyamides and fluoroplastics, market share is spread across a wider supplier base. The high-performance business is technology-intensive, and it takes years to build up knowledge and competitive strengths. Companies are also protected by patents, although many of the initial patents on material synthesis have now expired. The early movers will continue to hold the advantage over the rest of field as they have developed their strengths across the supply chain, and have established brand names, such as Teflon (DuPont) for PTFE. These companies therefore dominate the markets they developed, and are able to maintain market share. Players like Solvay have established themselves through prudent acquisition and product-development strategies. Solvay and DuPont have much wider product ranges than many of their competitors in this market, and stand to benefit from their ability to service a broader product-performance profile. Driven by innovation and application development, high-performance polymers will continue to grow through 2014. Many of the constituent product types will see growth at double-digit or near double-digit rates through this period. The industry is also beginning to see the entry of newer players, or current suppliers who want to expand their presence into newer product lines, which will increase competition in the high-performance market. Such increased availability of these polymers will also generate economies of scale over the long term, bringing prices down and further accelerating growth. Conditions are favorable for using high-performance polymers in many key end-user segments, such as automotive and electronics. However, the increasing levels of competition in the market will also mean that suppliers will have to be strong in key areas such as innovation and market strategy. They will need to be keenly aware of their competitors, and closely monitor market requirements and the regulatory environment. Developing a high level of market awareness will be more important than ever, particularly in Europe.