REPORT BIOCIDES IN LEATHER Biocide Information Limited More about us on

REPORT BIOCIDES IN LEATHER 2016 Prepared by: Biocide Information Limited Email: info@biocide-information.com More about us on www.biocide-information.com

GLOBAL SUMMARY BIOCIDES IN LEATHER Market Size 2016: Active Ingredient $ 83.3 million BIOCIDE SALES BY REGION: Table 1: Biocide Sales by Region for Leather REGION SALES ($M) AMERICAS 27.0 ASIA PACIFIC 35.3 EUROPE 21.0 BIOCIDE SALES BY LEADING ACTIVE INGREDIENT: Table 2: Biocide Sales by Type BIOCIDES SALES ($M) TCMTB 16.6 Phenolics 10.2 OIT 10.9 IPBC 5.0 BIOCIDE SALES BY LEADING ACTIVE INGREDIENT SUPPLIER: Table 3: Biocide Sales by Manufacturer COMPANY SALES ($M) Buckman 18.8 DowDupont 7.9 Lanxess 8.8 Thor 5.0 Outlook for the future: The market for Biocides in Leather is expected to increase by 2% due to the ongoing global shift from salted hides to more sustainable fresh hides which require preservation. There are many challenges facing the leather industry such as increased government regulations on active substances, especially from Europe / USA. There are also significant increase in restrictions from NGO s: Automotive Industry, Brands, Retailers, eco-label organizations which is resulting in RSL s = Restricted Substance Lists. This results in increased requirements for testing and certifications and will result in more limits placed on the amount of Biocide allowed in a leather article. Ched is the newest Biocide to be introduced to the Leather market. CHAPTER 6 2 www.biocide-information.com

TABLE OF CONTENTS 1 INTRODUCTION & METHODOLGY...5 1.1 OBJECTIVES...5 1.2 METHODOLOGY...5 1.3 ACCURACY OF THE INFORMATION...5 1.4 DEFINITIONS...5 2 END USER ANALYSIS...7 2.1 TARGET MARKET...7 2.2 MICROBIAL CONTAMINATION...9 2.3 GLOBAL ANALYSIS...10 2.3.1 Tanning of Leather...10 2.3.2 Purchasers of Biocides...10 2.3.3 Biocides Used...11 2.4 END-USER MARKET SEGMENTS...12 2.4.1 End User Market Sectors...12 3 BIOCIDE COMPARISON...14 3.1 PRICING...15 4 BIOCIDE CONSUMPTION...16 4.1 GLOBAL AND REGIONAL ANALYSIS...16 4.2 BIOCIDE CONSUMPTION AT END-USER LEVEL...20 5 BIOCIDE MANUFACTURERS...21 5.1 GLOBAL AND REGIONAL ANALYSIS...21 6 DISTRIBUTION...25 6.1 OVERVIEW OF DISTRIBUTION CHANNELS...25 7 VALUE CHAIN ANALYSIS...26 8 REGULATORY ANALYSIS...27 8.1 EUROPEAN BIOCIDES PRODUCTS REGULATION...27 8.2 UNITED STATES OF AMERICA - EPA...27 CHAPTER 6 3 www.biocide-information.com

8.3 REST OF THE WORLD...27 8.4 NGO S AND RESTRICTED SUBSTANCE LISTS...28 9 TRENDS...29 10 FUTURE...30 10.1 THE FUTURE OF THE LEATHER INDUSTRY...30 CHAPTER 6 4 www.biocide-information.com

1 INTRODUCTION & METHODOLGY 1.1 OBJECTIVES The key objectives of this study were: 1. To provide marketing data on biocides, major leather applications using biocides, suppliers and customers. 2. To identify and analyse the trends taking place within the biocides industry. 3. To define the distribution channels in the industry. 1.2 METHODOLOGY The report is based on over 20 interviews conducted throughout the globe. In each industry analysis, BI contacted end-users, biocide manufacturers, suppliers, distributors and trade associations by telephone and conducted unstructured interviews typical of the type used in industrial market research. In addition to interviews, the report also summarises suppliers' product literature, data from trade associations, BI databases and our monthly biocide information report. 1.3 ACCURACY OF THE INFORMATION BI believes our estimates to be within 20% of the actual value. The accuracy of the information is dependent on many factors such as the number of interviews conducted per application, industry concentration and industry usage patterns. In order to increase our accuracy, BI increases the number of end-user interviews where an industry is fragmented and continues to interview until there is similarity in responses. Also all conclusions and data per industry were confirmed with the key manufacturers of biocides. 1.4 DEFINITIONS Biocide manufacturers are defined as companies who manufacture Biocide active ingredients in-house. For example Buckman, BASF, Clariant, DowDupont, Lamirsa, Lanxess, Lonza, Tex Bioscience, Thomas Swan, Thor and Troy. CHAPTER 6 5 www.biocide-information.com

Biocide Blenders / Formulators are defined as companies whose majority of sales comes from purchasing biocides which they blend into their own products. For example ATC, Sanitized, Schill & Seilacher, Schulke & Mayr, Zenith. Distributors act as agents for both active manufacturers and biocide blenders. They are the most popular choice of supplier for small end-users. Distributors sell a range of additives and so will be making deliveries to end users and therefore biocides tend to be combined with other products which allow the distributor to be competitive. For example BASF, Chemroy, Chemtan, Krab Chemical, Pulcra, Stahl, TFL are one of the leading global distributors. Prices are in U.S. dollars and are at active manufacturer level unless stated. The exchange rates used are as in Table 4 Table 4: Currency Conversion Rates $ Currency 1 0.88 EUR 1 6.25 CNY 1 118 JPY 1 0.65 GBP Source: www.xe.com Volumes are reported in tonnes based on a 100% active biocide basis. In the case of formulated products, the data is reported with a typical percentage of the formulated product. CHAPTER 6 6 www.biocide-information.com

2 END USER ANALYSIS 2.1 TARGET MARKET The manufacturing process of Leather takes a number of stages as follows:. Raw Material: Hide comes from cattle and as soon as they are removed, they must be protected from bacteria via curing which is a method of short term preservation and achieved by sprinkling with salt or immersing in a saturated brime solution. Liming: hair and epidermis is removed by treating with lime (calcium hydroxide) and sodium sulphide. The hide also swells up in this process which gives the finished leather softness. This process lasts one to two days. Fleshing: process of removing fat adhering to the back of the hide. Splitting: the hide is split layer wise to provide a fine smooth grain leather Tanning: involves combining a tanning agent and the hide protein that prevents decomposition. There are 3 types of tanning process (a) vegetable tanning where the hide is treated with vegetable tannins (acid chemical) found in bark & wood of certain trees. (b) mineral tanning where the tannage is carried out with chromium sulphate (Tanning waste contains chrome which is hazardous and there is a movement away from chromium). This accounts for 85 % of tanning. (c) Metal free tanning which uses glutaraldehyde, THPS & Oxazolidines. Selection: excess water is removed and hides selected into quality grades. Shaving: hides are mechanically shaved to give a uniform substance Dyeing: hides are in the finishing stage of production. A wet drum process allows the addition of dyes, anti-mould chemicals, a re-tan agent, fat liquors to give the finished product a soft feel and where necessary flameproof chemicals. Drying: hides are dried by first of all wringing excess water out in a large mangle or setting machine and then by stretching the hides on a frame which is then passed through a large heating chamber. Surface coating: Finished hides will have pigments applied to the surface. This is done using a roller coated for the initial application and a spray carousel to add subsequent coats of pigment. A top lacquer coat is applied to give the finish a layer of protection against wear and soiling. Finishes & Patina: An embossed grain pattern is sometimes printed onto the leathers surface. This creates a more uniform break (the natural pattern which occurs along the fields of the hide) and will help disguise scars and marks. CHAPTER 6 7 www.biocide-information.com

Drumming: The hides are placed inside large stainless steel drums. This allows natural fibres to loosen and soft feel is created. Final Inspection: Leather producers have 100 % inspection policy where they check for colour accuracy, thickness and general appearance of the hides. This is carried out in our inspection table and in a testing laboratory. Cutting: this is a skilled job. As leather is a natural material, the aim is to keep wastage to a minimum while preserving all the natural character of the hide. CHAPTER 6 8 www.biocide-information.com

2.2 MICROBIAL CONTAMINATION Microorganisms can be a major cause of economic loss to the leather industry. Bacterial attack at the raw stage and during the soaking process can damage hides and skins severely; white fungal growth on wet leather can weaken the structure and cause irregular dyeing. Thus there are three stages where leather is prone to attack and protection is needed: raw hides (pretanning), soaking liquors (pretanning) and wet leather (tanning). For raw hides, salting is still the most widely practiced form of microbial control. As the microorganisms are bacteria, the use of biocides is an option. During soaking, bacteria are the cause of damage to skins and are most effectively controlled by bactericides. The following table shows the most popular bacteria isolated on soaking leather. Table 5: Bacteria found on Soaking Leather BACTERIA NAME Achromobacter spp. Clostridium spp. Vibrio spp. Pseudomonas spp. Bacillus spp. Bacteriodes spp. In the final tanning stages of the leather, partially processed hides or skins are often stored at high temperatures; this combined with the moderate acidity of the tanning solution gives an ideal medium for fungi to grow. The following table shows the fungi that are commonly found on wet blue leather. Table 6: Fungi found on Wet Blues FUNGUS NAME Aspergillus spp. Aspergillus spp Aspergillus spp Cladosporium spp. Paecilomyces spp. Penicilium spp. Tricoderma spp. CHAPTER 6 9 www.biocide-information.com

2.3 GLOBAL ANALYSIS The leather industry has become a complex global business, deriving various components for the same article from different geographical sources. Hides tend to come from one country, tanning can occur in a second country and finishing in a third. Production, moreover, has shifted from Europe and North America to South East Asia and South America where wage rates are low. Technology transfer has ensured good quality production to satisfy Western expectations. Leather manufacturing is currently estimated at around $4 billion world-wide. This is equivalent to 6.8 million tonnes (wet-salted equivalent) of hides and skins being processed. The major producer of leather goods is Asia with 40% of total output followed by India and South America. Italy is the single largest country with 12% of the global production. The movement of the leather industry from developed to developing Countries is directing the focus on Asia by the major suppliers of leather chemicals such as BASF, Pulcra, Stahl, TFL s. The leather chemicals market breaks down 50% tanning and post tanning treatment chemicals, 20% dyeing chemicals and 30% finishing chemicals. In spite of the massive growth in the use of synthetics in clothing, there is still a growing market for leather chemicals. 2.3.1 Tanning of Leather Tanning of leather is a process used to change the physiochemical structures of collagen, the major structural protein of the hide or skin. The moist tanned leather stock, known as wetblue, is extremely sensitive to mould growth and fungicides are required at this stage in the tanneries. The tanning of leather wet-blue stage is the largest user of Biocides (fungicides). As hides and skins make up the raw material for the industry, tanneries have tended to locate close to suppliers in agricultural regions. The world s tanneries are normally concentrated in developing Countries such as Argentina, China and Mexico. However this may be changing as evidenced by German tannery ISA TanTec setting up a new production center in Vicksburg, Mississippi. The company is responding to the growing demand from US shoe manufacturers for high-quality leather that is made in the USA. ISA TanTec has two existing tanneries in China and Vietnam. 2.3.2 Purchasers of Biocides Footwear is the tanning industry s largest market followed by upholstery (Auto industry), leather clothing and leather goods. While purchasing of Biocides is via the Tannery, the endmarkets have an influence on Biocides used and will often produce restricted lists which includes Biocides. CHAPTER 6 10 www.biocide-information.com

2.3.3 Biocides Used Cattle and sheep hides are the most popular type of leather produced and they are susceptible to microbial attack at the pretanning and tanning stages. In the pretanning stage, fresh hides are soaked in salt solutions to preserve the hide for shipping to the tanneries. At the tanneries, the salt cured hide is first soaked in water to rehydrate it to its original condition. The salt curing and resoaking processes offer ideal conditions for microbial growth especially bacteria and Biocides are used at both these stages. The following table shows a list of the Biocides used in the leather resoaking processes. Table 7: Popular Biocides used in Resoaking Leather POPULAR BIOCIDES USED IN SALT CURING / RESOAKING OF LEATHER Boric acid o-formals Polyhexamethylene biguanide Quaternary Ammonium Compounds Sodium-dimethyl-dithiocarbamate solution (Preventol Z) Potassium N-Hydroxymethyl-N-methyldithiocarbamate (Busan 40) Potassium dimethyldithiocarbamate (Busan 85) BIT, Dithiocarbamates, PHMB, Quats and o-formals are the most popular biocides used during the salt curing of fresh hides to control bacteria in the brine soaking tanks. Dithiocarbamates, PHMB and Quats are also used in the resoak waters. The next stage for Biocide consumption after the resoaking, is the tanning of leather wetblue stage. This stage is the largest user of Biocides (fungicides) and according to the leading supplier of Biocides, Buckman, TCMTB is the leading Biocide used in wet-blue followed by Phenolics such as (OPP, PCMC) and OIT. According to Buckman, these four Biocides account for 90% of Biocides used in Leather. CHAPTER 6 11 www.biocide-information.com

2.4 END-USER MARKET SEGMENTS 2.4.1 End User Market Sectors The leather tanning and finishing industry comprises establishments that are primarily engaged in tanning, currying and finishing raw or cured hide skins into leather. There are an estimated 4,000 companies involved in the processing of leather which is then sold onto enduser markets. Footwear is the Leather industry s largest market followed by Automotive and leather clothing as shown in the following table:. Table 8: Consumption of Leather by End Market in percentage terms END MARKET CONSUMPTION (%) Footwear 40% Automotive Industry 25% Leather Clothing 20 % Other 15% In the Americas, the leading tanner is I.B.P (owned by Tyson Fresh Meats) and this is vertically integrated from slaughterhouse through to wet-blue stage. The high labour intensity and costs in tanning has seen the industry move to Asia and South America with North America only treating an estimated 10% of domestically produced hides. Other large companies in the Americas include SB Foot. In Europe, tanneries are highly fragmented and mainly based in southern Europe which account for 90% of the EC s tanneries. Italy alone represents 77% of them with nearly 3,000 establishments. Spain is next with 300 tanneries or 8% of total tanneries. In Italy and Spain the tanneries are mainly located along the Mediterranean coast (Valencia, Catalogna, Tuscany, Campania, Veneto). Other important European centres are located in Lombardy, Mazamet, Pirmasens, the Stuggart area and Northamptonshire in the United Kingdom. Small companies predominate in the tanning sector. In a recently created databank of the EU tanning industry recording the 1,000 most important companies of the sector, only 10 tanneries appear to employ more than 200 personnel, 28 are listed in the range of 101 to 200 employees, 82 in the range of 51 to 100, 175 provide work for 21 to 50 people and the rest have less than 20 workers. Companies are often family businesses transmitted from generation to generation. The following are the largest tanneries in Western Europe: CHAPTER 6 12 www.biocide-information.com

Italy: Gruppo Mastrotto (www.mastrotto.com). Iberia: Grupo Lederval (www.lederval.es) France: Costil Tanneries de France SA (www.costil-tf.fr), Tanneries Du Puy (www.tanneriesdu-puy.fr), Tanneries Pechedo Germany: ISA Tan Tec, Weinheimer-Leder (www.weinheimer-leder.com) United Kingdom: Pittard (www.pittards.com), Strong and Fisher (www.argentgroup.com, Scottish Leather Group (www.scottishleathergroup.com), Scottish Tanning Industry Ltd (www.stla.uk.com). CHAPTER 6 13 www.biocide-information.com

3 BIOCIDE COMPARISON The level of biocide incorporated into a leather formulation depends on level of protection required including expected storage period and quality of raw materials. Higher fungicide concentrations are typically used when wet-blues are destined for extended storage at ambient conditions. The following table lists some of the more prominent biocides used in leather applications with tradename, active ingredient, supplier, and pricing. Table 9: Comparison of Biocides used in Leather Chemistry Trade name Supplier % AI in formulation Formulated Price $/kg CMIT/MIT Kathon SF 886 Dow 1.5% 2 TCMTB Busan Buckman Laboratories 60% 15 TCMTB & MBT Busan 1126 Buckman 10% TCMTB / 4 5% MBT Dithiocarbamates Busan Buckman Laboratories 40% 3 3-Iodo-2-propynlbutyl carbamate Omacide IPBC Polyphase Buckman Lonza 20% 10 Troy O.I.T. Kathon LP Dow 9% 5 p-chloro-m-cresol Preventol CMK Lanxess 99% 3 (PHENOLIC) 0- phenylphenol (PHENOLIC) Sodium phenylphenate (PHENOLIC) S-Hexyl-S- Chloromethylcyanodithiocarbimate Dowicide 1 Preventol O Dowicide A CHED Dow Lanxess 99% 6 Dow Buckman 97% 5 20% Tolysulfone Amical Dow 48% 40 Quats Various Akzo, Huntsman, Lonza, Stepan 10 50% 2 Propiconazole Wocesen Janssen 95% 50 Biocides are used at concentrations of between 0.1% and 1.0% in the chrome liquor. The concentration used depends on a variety of factors such as expected storage period and environmental conditions. Higher biocide concentrations particularly fungicides are typically CHAPTER 6 14 www.biocide-information.com

used when wet-blues are destined for extended storage at ambient conditions in tropical climates. Tanneries often use different biocide combinations that provide a synergistic mixture to meet bactericidal and fungicidal requirements. For example, tanneries use IPBC, MBT, OIT or tolysulfone as a TCMTB booster. 3.1 PRICING The prices of biocides are governed by; (1) Quantities purchased (2) Regulatory approval (3) Formulation of Biocides (4) Technical and Laboratory Support (5) Geographical Region (6) Licensing (7) Promotional Support Regulatory and quantities purchased were the most important criteria in determining prices. The following table compares biocide prices observed in the field for the leather industry by each of the main geographical regions. Table 10: Comparison of Prices in $/kg (99% AI unless otherwise stated) Biocide Americas Asia Europe BIT 6 (20%) 5.7 (20%) 5-chloro-2-methyl-4- isothiazolin-3-one & 2-2 (1.5%) methyl-4-isothiazolin Dithiocarbamates 5 (30%) 4 (40%) Glutaraldehyde 6 (50%) IPBC 60 (98%) MBT $ 4 (10 %) PCMC 9 (98%) 10 (98%) TCMTB 12 (60%) 9 (30%) 11 (30%) Thiabendazole 60 (China), 80 (98%) CHAPTER 6 15 www.biocide-information.com

4 BIOCIDE CONSUMPTION 4.1 GLOBAL AND REGIONAL ANALYSIS The global market for specialty Biocides in Leather is $ 83.3 Million. Asia Pacific is the leading region for Biocide consumption with the leading Biocide consumed in the Leather industry being TCMTB with sales of $ 16.6 million as shown in the following table: Table 11: Biocide Sales by Type within Leathers AMERICAS ASIA PACIFIC EUROPE BIOCIDE GLOBAL ($M) ($M) ($M) ($M) BIT 0.6 1.0 1.6 CMIT/MIT 0.5 1.0 1.5 Dithiocarbamates 1.0 1.2 1.0 3.2 Formaldehyde Releasers 1.5 1.0 0.1 2.6 Glutaraldehyde 2.0 2.0 0.8 4.8 IPBC 2.0 2.0 1.0 5.0 MBT 1.6 1.5 1.0 4.1 OIT 4.3 4.0 2.6 10.9 Organic acids 1.0 2.0 1.0 4.0 Phenolics 1.4 5.0 3.8 10.2 PHMB 1.0 1.0 1.0 3.0 Propiconazole 0.5 0.5 Quats 1.0 1.0 1.5 3.5 Silver 1.0 1.0 2.0 Sodium Pyrithione 0.8 1.5 1.0 3.3 TCMTB 4.6 8.0 4.0 16.6 Thiabendazole 0.2 0.2 Tolysulfone 1.1 1.0 0.2 2.3 Other 1.6 0.9 1.5 4.0 TOTAL 27.0 35.3 21.0 83.3 Biocides used for Leather tanning applications can be classified as fungicides or bactericides depending on where they are used in the tanning process. Bactericides are used in brine solutions to prevent bacteria damaging the hide whereas fungicides are used to prevent mould formation on wet blues. Benzisothiazolinone (BIT) is consumed as a bactericide within the Leather industry with sales of $1.6 million. The leading supplier of BIT to the Leather industry is Lonza. 5-Chloro-2-methyl-4-isothiazolinone and 2-methyl-4-isothiazolinone (CMIT/MIT) has sales of $1.5 million within the global Leather industry. The chloromethyl and methyl isothiazolones (CIT and MIT) biocides are used in a ratio of 3:1. CMIT/MIT can be used alone or in combination where it offers the following benefits: (1) Broad spectrum antibacterial activity (2) Low cost effect (3) Broad Regulatory approvals. The leading supplier of CMIT/MIT is DowDupont and Thor. CHAPTER 6 16 www.biocide-information.com

Dithiocarbamates are declining in the Leather industry with sales of $3.2 million. Dithiocarbamates are mainly used during the salt curing of fresh hides to control bacteria in the brine soaking tanks and also in the resoak waters. The most frequently used dithiocarbamates are Sodium-dimethyl-dithiocarbamate solution (Preventol Z), Potassium N-Hydroxymethyl-N-methyldithiocarbamate (Busan 40) and Potassium dimethyldithiocarbamate (Busan 85). Dithiocarbamates are sold as a 40% active solution for an estimated price of $3 per kg ex-manufacturer. The recommended application rate is 0.1%. Buckman is the leading supplier followed by Melzer Chemicals in India. Formaldehyde releasers have sales of $ 2.6 million to the Leather industry and includes Biocides such as o-formals which are widely used in the soaking of leather hides. O-formals are formed from the reaction of formaldehyde with alcohol. They provide a broad spectrum of antimicrobial control with good stability under acid and alkaline conditions Glutaraldehyde has sales of $4.8 million to the Leather industry. It has broad spectrum of activity and rapid speed of kill. Glutaraldehyde s usage is growing due to its rapid action and its effectiveness as a tanning agent. The major supplier of Glutaraldehyde to the Leather industry is BASF. 3-Iodo-2-propynylbutyl carbamate (IPBC) has sales of $ 5 million within the Leather industry. IPBC can be supplied in a VOC free formulation and will continue to gain market share due to its effectiveness against mould, bluestain and some activity against decay fungi. The leading manufacture of IPBC is Troy followed by Lonza. A related product is p- chlorophenyl-3-iodopropynylformal from Nagase Chemtex. Methylene Bisthiocyanate (MBT) is a non metallic organosulfur and is widely used in the Leather industry with sales of $ 4.1 million. MBT is effective against a wide range of microorganisms. MBT is used extensively in systems up to PH 8 but hydrolyses rapidly in more elevated systems, reducing its persistence and activity. MBT is only partially soluble and may need to be formulated with dispersants in order to enhance its activity. The leading manufacturer of MBT is Buckman Laboratories. MBT is normally supplied as a 10% solution direct to Leather processing mills and to the specialist formulators as technical grade MBT. 2-n-octyl-4-isothiazolin-3-one (OIT) has sales of $ 10.9 million to the Leather industry. OIT is a highly effective fungicide used in the Leather industry. OIT is manufactured by Dow and Thor. It is normally supplied as a 9% solution and sold under the tradename of Kathon LP for $ 5 per litre. OIT has grown and substituted phenolics (main ones PCMC & OPP). Organic Acids are growing in popularity within the Leather industry with sales of $ 4 Million. Organic acids are helpful against microbes as low ph suppresses microbial growth and spore CHAPTER 6 17 www.biocide-information.com

germination is delayed. Some of the popular organic acids used are Acetic Acid, Alkyl Hydroxybenzoates, Benzoic Acid, Dehydroacetic Acid, Formic Acid, Propionic Acid, Lactic Acid, Salicylic Acid, Sorbic Acid of which the most popular is Lactic Acid. Some organic acids do not make any preservative claims and so do not have to be registered as a Biocide. This makes them attractive to biocide suppliers and leather manufacturers. Phenolics especially chlorinated phenols are widely used in the leather industry as biocides as they provide broad spectrum effectiveness and are not deactivated to any extent by dirt, organic materials or protein. The sales of Phenolics to the leather industry are $ 10.2 million. The main phenolics used include chlorophenol, OPP, PCMC and blends of phenolics. Lanxess is the leading supplier followed by Dow and Thomas Swan. The chlorinated phenols pose a severe effluent problem and for this reason they are been replaced in the Leather industry by other biocides including Phenolics with a better environmental profile. Polyhexamethylene biguanide hydrochloride (PHMB) has sales of $3 million and is growing in usage within Leather as a bactericide. PHMB has broad spectrum of activity, fast speed of kill and is compatible with non ionic and cationic surfactants. The product can be applied during most stages of production. The leading supplier of PHMB is Lonza. Smaller producers include Medichem and Evonik. Propiconazole has sales of $0.5 within the global Leather industry where it is used as a fungicide due to (1) High effectiveness (2) Good selectivity (3) Excellent toxicity and ecotoxicity profile. Propiconazole is most effective against staining and mould fungi. The main disadvantage to propiconazole is its price and as a result applications tend to be restricted to high value. The leading supplier is Janssen. Quaternary Ammonium Compounds (Quats) are used in the soaking of leather hides. Quats provide broad spectrum antibacterial activity with a fast speed of kill at good cost effect. They are of low toxicity and are non irritant. The main disadvantages of Quats are that they have a tendency to foam and their activity against gram negative bacteria is poor. Quats has sales to the leather industry of $ 3.5 million. The main Quats are Alkylbenzyldimethyl ammonium chloride (ABDM). ABDM is normally sold as a 50% solution for $3 per kg exmanufacturer. The recommended application rate is 0.5%. 2-(Thiocyanomethylthio)benzotiazole- (TCMTB) is the most popular biocide used in the Leather industry with sales of $ 16.6 million. TCMTB is a broad spectrum biocide with good CHAPTER 6 18 www.biocide-information.com

activity against fungi. The product is available in a wide range of formulations but the 30% formulation is the most popular in the leather industry. The typical application rate for the 30% formulation is 0.15% calculated on the weight of leather. The average ex manufacturer price for the 30% formulation is $7 per kg. TCMTB is supplied by Buckman, Guangdong Petrochemical, Lamirsa, Lanxess and Thomas Swan. Tolysulfone (Diicomethyl-p-toly-sulfonate) is sold under the tradename of Amical WP and is a 48% active used in the global Leather industry. Amical WP is effective against moulds, yeasts, and algae. The product has estimated sales to the leather industry of $ 2.3 million. Amical WP is supplied as a powder and the powder disperses in water. Tolysulfone is supplied by Dow. Other has sales of $ 5 million and includes CHED which is produced by Buckman and a new entrant to the market. It is based on S-Hexyl-S-Chloromethyl Cyanodithiocarbimate. It performs well on ASTM D7584 10 which is the standard test method for evaluating the resistance of the surface of wet blue to the growth of fungi. It is applied at 0.1 % and Buckman says it exhibits good synergy with other biocides such as TCMTB and OIT. CHED is awaiting BPR approval which should happen in 2016. Currently Leather treated with CHED is allowed in Europe but is not approved to be used in Europe. Salicylamide which is the common name for the substance o-hydroxybenzamide, or amide of salicyl. Salicylamide is used as a fungicide within the Leather industry in China and supplied by a number of companies of whom Guangdong Petrochemicals is the largest. Peracetic acid is an oxidizing agent and is very effective with a broad spectrum of activity; it covers Gram-positive and Gram-negative bacteria, yeasts, fungi and spores. In addition, peracetic acid can also be used as a bleaching agent. A major advantage of peracetic acid is that they are non foaming water soluble liquids which are fast acting and break down to environmentally acceptable decomposition products. Solvay, Evonik, Mitsubishi Chemical, Nippon Peroxide and Peroxychem are the leading manufacturers of peracetic acid. CHAPTER 6 19 www.biocide-information.com

4.2 BIOCIDE CONSUMPTION AT END-USER LEVEL The global market for speciality Biocides in the Leather industry at the end user level was estimated at $ 144.1 million or 73% more than the value of the sales at the active level as shown in the following table:. Table 12: Consumption of Biocides within the Leather Industry at Manufacture and End User level Sales at manufacture level ($M) Distribution route to enduser in % % Mark-Up Sales at end-user level ($M) Active Manufacturer 83.3 20% 60% 26.65 Leather Auxillary 30% 70% 42.48 Supplier * Distributor * 50% 80% 74.97 Total 83.3 100% 144.1 * Includes Mark-up for Biocide Manufacturer and Leather Auxillary Supplier Distributors have the highest percentage of sales at end-user level with 50% of formulated biocide sales to the Leather industry being supplied via distributors such as Univar. Leather Auxillary manufacturers are the next leading suppliers of formulated biocides with 30% of formulated biocides sales to the Leather industry. The Leather auxillary suppliers provide a comprehensive Leather additive product range. The sales of biocides to the Leather industry via this route was estimated at $ 42.48 million or an equivalent 30% of total formulated product sales. The leading Leather additive suppliers are global companies with a strong regional presence in their home base. In the US, ChemTan in Exeter, NH is the largest supplier. Outside of US, BASF, Pulcra, Stahl and TFL are leading players in Europe with a strong Asian presence. CHAPTER 6 20 www.biocide-information.com

5 BIOCIDE MANUFACTURERS 5.1 GLOBAL AND REGIONAL ANALYSIS Buckman is the leading manufacturer of Biocides to the Leather industry with sales of $ 18.8 million. The sales of Biocides at active ingredient manufacture (a.i.) level for the leading manufacturers are illustrated in the following table:. Table 13: Biocide Sales by Manufacturer in $ Million - Global and Regional MANUFACTURER AMERICAS ASIA PACIFIC EUROPE GLOBAL SALES ($M) SALES ($M) SALES ($M) SALES ($M) Amazon Papyrus 1.0 1.0 API 0.5 0.5 BASF 2.0 1.0 1.8 4.8 Buckman 8.0 6.8 4.0 18.8 Clariant 0.5 1.0 0.7 2.2 DowDupont 4.0 2.0 1.9 7.9 Guangdong Petrochem 2.0 2.0 Janssen 0.3 0.5 0.5 1.3 Lamirsa 2.0 2.0 Lanxess 3.0 4.0 1.8 8.8 Lonza 1.5 1.3 1.0 3.8 Makhteshim-Agan 0.5 0.5 Melzer Chemical 1.0 1.0 Mitsui 1.0 1.0 Nagase Chemtex 1.0 1.0 Ouchi Shinko 1.0 1.0 Sanshin 0.3 0.3 Thomas Swan 1.0 1.0 1.2 3.2 Thor 2.0 2.0 1.0 5.0 Troy 2.0 1.0 0.8 3.8 Other 2.7 6.4 4.3 13.4 TOTAL 27.0 35.3 21.0 83.3 BASF is a major international chemical company with headquarters at Ludwigshafen, Germany. BASF produces Glutaraldehyde, Lactic acid for the Leather industry and has estimated sales of $ 4.8 million. BASF mainly sell biocides to end users via their own Leather auxillary distribution service. Buckman has sales of $ 18.8 million to the Leather industry. The company became a leading player in the industry when it offered a viable alternative to chlorinated phenolics with TCMTB. Buckman s product range is shown in the following table:. CHAPTER 6 21 www.biocide-information.com

Table 14: Biocides Supplies by Buckman to the Leather Industry Biocide Tradename Dithiocarbamates Busan 40, Busan 85 Dazomet Busan 1058 TCMTB TCMTB & MBT Busan 1009 20 % S-Hexyl-S-Chloromethyl Cyanodithiocarbimate. CHED Busan 30 L, Busan 30 WB Buckman sell both bactericides into the fresh hides industry and fungicides into the wet blue market. The company sells directly and also via distributors and leather auxillary suppliers. Buckman recently introduced CHED which is based on S-Hexyl-S-Chloromethyl Cyanodithiocarbimate. It performs well on ASTM D7584 10 which is the standard test method for evaluating the resistance of the surface of wet blue to the growth of fungi. CHED is applied at 0.1 % and Buckman says it exhibits good synergy with other biocides such as TCMTB and OIT. Clariant has Biocides sales of $ 2.2 million to the Leather industry. The company mainly sells via its owns Leather additives division which is the leading global supplier of additives to the Leather industry and also offers a comprehensive portfolio of biocides including BIT, Dithiocarbamates and TCMTB for the Leather industry. DowDupont is a leading global manufacturer of biocides with sales to the Leather industry of $ 7.9 million. DowDupont sells Amical WP (tolysulfone), Kathon LP which is a 9% solution of OIT and Kathon SF 886 which is a 1.5% solution of 2-methyl-3(2H)-isothiazolinone (26%) and 5-chloro-2-methyl-3(2H)-isothiazolinone (70%), Silvadur (silver). The company supplies a complete line of tannery chemicals including dyes and finishes. The company sells via distributors and Leather auxillary suppliers such as Pulcra. Guangdong Petrochem is based in China and has sales of $2 million to the Leather industry. The company manufactures Salicylamide and TCMTB for the Leather industry. Janssen is based in Belgium and has sales of $1.3 million to the Leather industry. The company supplies propiconazole, Sodium Pyrithione for the Leather industry. Lamirsa has sales of $ 2 million to the Leather industry with TCMTB. This Biocide is manufactured in Spain and sold under the Mirecide brand name. The company claims to have a leading position within the middle east Leather industry. CHAPTER 6 22 www.biocide-information.com

Lanxess manufactures and supplies a range of tannery chemicals. Lanxess sales of active ingredients to the Leather industry is estimated at $ 8.8 million. The following table shows the biocides supplied by Lanxess to the Leather industry. Table 15: Biocide Supplies by Lanxess to the Leather Industry Biocide Tradename TCMTB Combination of phenolics 41% sodium-dimethyl-dithiocarbamate solution Preventol CR Preventol WB Preventol Z Benzyl-alcohol-mono-(poly)-hemiformal Preventol D 2 Thiabendazole OIT, OPP, PCMC Preventol TBZ Preventol U-Tec In 2012, Lanxess introduced Preventol U-Tec G, a fungicide formulation that preserves raw hides using Lanxess X-Tan technology. Preventol U-Tec can be used in small dosages (0.25 %) to ensure that these organically tanned hides and skins, known as X-Whites, can be stored for longer periods. This means that, like chrome-tanned raw hides (wet-blues), they can be transported over greater distances, thus opening up new marketing opportunities. Preventol U-Tec is readily biodegradable in wastewater treatment plants. Lonza is a manufacturer of Amines, IPBC, n-butyl BIT, PHMB, Quats and Sodium Pyrithione of which BIT, IPBC and PHMB are used in the Leather industry. The company has sales of $ 3.8 million. Lonza supplies directly and via specialist Auxillary suppliers and distributors. Melzer is based in India and has sales of $1 million to the Leather industry. The company supplies Dithiocarbamates for the Leather industry. Nagase Chemtex is based in Japan and has sales of $1 million to the Leather industry. The company manufactures p-chlorophenyl-3-iodopropynylformal for the Leather industry. Thomas Swan has sales of $ 3.2 million to the Leather industry with TCMTB. This Biocide is sold under the Casacide brand name and was acquired from Solvay. The company also supplies Phenolics. Thor has sales of $ 5 million to the Leather industry. Thor manufactures CMIT/MIT, OIT and quats and sells via TFL for the leather industry. The agreement allows TFL to offer the CHAPTER 6 23 www.biocide-information.com

Acticide WB range to all major leather markets. The Acticide WB range contains the following Biocides: ACTICIDE WB 500 Phenol base Wet-blue fungicide ACTICIDE WB 410 OIT/carbendazim mix Wet-blue fungicide ACTICIDE WB 300 TCMTB base Wet-blue fungicide ACTICIDE WB 200 OIT base Thor, with more than 800 employees, are a leading producer of biocides with R&D facilities and production sites in UK, Germany, Spain, France, Mexico and Malaysia. The group also provide micro-biological services in every continent. TFL operate exclusively for the global tanning industry, providing superior service, products and branded systems. Their expertise ranges from beamhouse right through to finishing. TFL currently employ around 1,200 people worldwide. Troy has sales of $ 3.8 million to the Leather industry. Troy is the leading manufacturer of IPBC which is growing in usage as a fungicide within the Leather industry. The company also manufactures formaldehyde releasers. CHAPTER 6 24 www.biocide-information.com

6 DISTRIBUTION 6.1 OVERVIEW OF DISTRIBUTION CHANNELS The leading manufacturers of Biocides sell direct, via distributors and via suppliers of leather auxiliaries as shown in Figure 1. DISTRIBUTION OF LEATHER BIOCIDES Active Ingredient Manufacturer (50%) (20%) (30%) Distributor (50 %) (20%) Suppliers of Leather Auxillaries (30%) Leather Manufacturer Figure 1: Distribution Channels for Biocides Distributors and suppliers of leather auxiliaries play an important role in the distribution of Biocides to leather manufacturers with a combined 80% of all biocides going to leather manufacturers via this route. Biocide manufacturers (including Formulators) supply an estimated 20% of all formulated Biocides direct to Leather manufacturers. The Biocide manufacturers also supply via distributors and suppliers of Leather Auxillaries. The leading Biocide manufacturers are ATC, BASF, Buckman, Dow, Lamirsa, Lanxess, Lonza, Thor and Troy. Distributors account for 50% of all Biocide sales to Leather manufacturers at end-user level. Distributors include the leading suppliers of chemicals such as BASF, Brenntag, Chemtan, Pulcra, Stahl and Univar and also regional distributors who supply the small tanneries. CHAPTER 6 25 www.biocide-information.com

7 VALUE CHAIN ANALYSIS The value chain in Figure 2 illustrates the value added for biocides used within the Leather industry. VALUE ADDED FOR PRESERVATIVES ALONG THE SUPPLY CHAIN Active Manufacturer Mark-Up 40 % Own Formulations Mark-Up 20 % Formulator Mark-Up 30 % Distributor / Service Company Mark-Up 10 % End-User e.g. Leather Supplier Figure 2: Value Added Analysis - Biocides in the Leather Industry Value added (mark-up) is defined as selling price less purchase price as a percentage of the selling price. As can be seen in Figure 2, value added is highest at the biocide manufacturer level. Biocide manufacturers expect to receive value added of 40% when they supply technical grade biocides to Auxillary Suppliers. For direct sales to End-Users, biocide Manufacturers expect to receive value added of 20% for formulated biocides. In the last few years, biocide manufacturers have started to offer their own formulations so as to maximise earnings along the supply chain. Buckman is a leading biocide manufacturer to the Leather industry who has been most proactive in moving up the value chain. Leather Auxillary Suppliers expect to receive value added of 30% when they supply biocides to End-Users. Biocide Distributors receive an average value added of 10% when they supply biocides to End-Users. CHAPTER 6 26 www.biocide-information.com

8 REGULATORY ANALYSIS 8.1 EUROPEAN BIOCIDES PRODUCTS REGULATION In Europe, the regulations governing the use of Biocides are via the Biocides Products Regulation (BPR). A biocidal product cannot be supplied on the EU market after 1 st September 2015 unless the Biocide is included in the Article 95 list of the approved Biocides. See the list on http://echa.europa.eu/information-on-chemicals/active-substance-suppliers The use of biocides will be regulated via product type 9 which governs the use of biocides in Fibre, Leather, Rubber and Polymerized materials. The BPR states that biocides in Product Type 9 are products used for the preservation of fibrous or polymerized materials, such as leather, rubber or paper or textile products by the control of microbiological deterioration. The European Chemicals Agency (ECHA) will be responsible for coordinating the approval processes for substances and the authorisation of products at EU level. Interviewees believe it will be 2024 before the finalised list of Approved Biocides for Product Type 9 will be identified. For new Biocides onto the market, the deadline is 2016 and so Buckman cannot market CHED onto the market till 2016 at the earliest. 8.2 UNITED STATES OF AMERICA - EPA In the USA, antimicrobial products used in Leather are regulated by the Environmental Protection Agency (EPA). The EPA will only approve products that have been shown to be non-toxic and non-hazardous to the environment. To obtain EPA registration antimicrobial products must undergo a range of safety and efficacy tests, including dermatological tests to assess whether irritation to the skin is produced. 8.3 REST OF THE WORLD Outside of European Union and USA, countries have their own regulations governing the use of Biocides or rely on the Biocides to have EPA or BPR approval. CHAPTER 6 27 www.biocide-information.com

8.4 NGO S AND RESTRICTED SUBSTANCE LISTS Alongside increased government regulations on active substances, especially from Europe / USA which results in increased costs for Biocide manufacturers, there are also significant increase in restrictions from NGO s: Brands, retailers, eco-label organizations such as Sustainable Leather Management concept, cradle to grave analysis etc. For example, all the ingredients should be readily biodegradable in wastewater treatment plants, etc. NGO s have created RSL s (Restricted Substance Lists) and to avoid being listed, one must participate with increased requirements for testing and certifications. This can result in more limits placed on the amount of active substance allowed in a leather article. For example, the automotive sector is developing guidance to help companies understand where and how Biocides Regulation affects them, throughout the supply chain. The work is being led by a Biocides task force of trade bodies, including the European Automobile Manufacturers Association (ACEA) and the Japanese Automobile Manufacturers Association (JAMA). Task force chair Jonathan Swindell, of Jaguar Land Rover, stated the group's aim is to produce guidance for the automotive industry in and outside Europe in order to increase understanding of the Regulation and improve supply chain communication. The guidance will explain basic terminology in the biocidal products Regulation (BPR), such as the differences between biocidal products and treated articles, and between the various authorisation processes for biocidal products. Biocidal products and treated articles crop up in various parts of a car, for example, as fungicides to prevent mould on leather interior. CHAPTER 6 28 www.biocide-information.com

9 TRENDS The general attitude among the main leather auxillary suppliers and major leather users, is the desire for more environmentally sound biocides. They require an active ingredient with the following features: Broad spectrum of activity Cost effective at low concentrations against the relevant spoilage organisms Product compatibility Liquid formulation as it allows for easy incorporation at the relevant stage during leather processing. Effective over a wide ph range Compatibility with most leather processing chemicals Low odour Chlorinated phenols pose a severe effluent problem and for this reason they are being replaced in the leather industry by other biocides. The future for TCMTB as the leading fungicide is uncertain as it is considered to be highly toxic and non biodegradable. However most tanneries are familiar with this chemistry as it is very effective and so are reluctant to move to alternative fungicides which tend to be more expensive. Also the major suppliers of TCMTB such as Buckman, believe it will continue to be used. The leather tanning industry is undergoing substantial restructuring, leading to a reduction in the number of tanneries. The major reason for this contraction has been the increased cost to meet environmental regulations. The end market for Biocides in leather was growing in Asia Pacific and central America rather than the North Americas and Western Europe due to the movement of the leather industry to those regions. However this maybe changing with Tanneries moving back to the developed regions due to pressure from their customers for traceability etc. CHAPTER 6 29 www.biocide-information.com

10 FUTURE Sales of biocides to the leather industry will grow at between 2 % and 3% as shown in the following table:. Table 16: Projected Sales of Biocides in Leather from 2017 to 2022 YEAR SALES ($M) 2017 85 2018 87 2019 88 2020 90 2021 92 2022 94 The use of biocides in the Leather industry is directly related to the availability of hides which is in turn, related to Global meat consumption. In 2016, the global meat consumption will grow with the return to economic growth. This will result in a growth in per capita consumption of beef which will lead to growth in hides that will increase the usage of Biocides. Among the biocides used, OIT will continue to grow in usage whereas TCMTB will continue to be the dominant Biocide used. 10.1 THE FUTURE OF THE LEATHER INDUSTRY The future will be dominated by legislative requirements, a possible shortage of hides and shifting production trends brought about by regulations. Water-based products are now available and many toxic elements have been removed. The falling consumption of red meat, however, will have longer-term implications for the availability of hides. In the Americas, there will be an increase in Biocide consumption if the Tanning industry moves back to North America. CHAPTER 6 30 www.biocide-information.com