Dyes of the Beholder

Humans cannot see very well, capable of distinguishing only three colors:  red, green and blue.  Well alright, some variations such as orange and yellow are within human sight.  That has not held humans back from wanting colorful and even beautiful clothing and household textiles.  Archeologists have found dyed fabrics as far back as 3500 BC.  Back in those early days, weavings and leathers were treated with natural dyes made from roots, berries, leaves and tree bark.  Natural dyes such as Tyrian purple from snails and crimson from kermes insects were prized trade products.

Fast forward to today, fabric colors have become even more vibrant through the adoption of synthetic colors.  In the 1850s the first chemical dye was mauve and it started a rush to synthetic dye technologies.  No invertebrates spruce up our clothes today.  Over 90% of fabrics are colored with synthetic dyes.

Only snails are celebrating!  Chemical dyes are a messy business.  The World Bank estimates that textile dyeing and treatments contribute as much as 20% of the world’s industrial pollution.  Chemical dyes are made with sulphur, naphthol, nitrates, acetic acid, and chromium compounds.  Additionally, heavy metals such as arsenic, lead, cadmium, copper, mercury, nickel and cobalt are also added to the mix.   Some 72 toxic chemicals have been identified in waste water solely from textile dyeing, 30 of which cannot be removed through conventional treatment methods.

The dyeing process also requires considerable water.  Textile dyeing uses as much as 20 gallons of fresh water for every pound of fabric.  In 2019, the Ellen MacArthur Foundation reported in its New Textiles Economy report that global textile production, including cotton farming, uses about 25 trillion gallons of fresh water annually.    

When the process is completed, waste waters with residuals of all those chemicals and metals are frequently discharged directly to nearby waterways, contaminating the soil and poisoning drinking water supplies.  Good dyes are resistant to light, acids and oxygen.  Since it is near impossible to separate the dye from the water used in the dying process.  Thus, the waste water is also resistant to light, making such water particularly unfriendly to aquatic life.  Chemical resistance also makes the waste water difficult to treat with conventional methods.

It may be messy and it may be a big polluter, but the textile dye business is a large industry.  Research and Markets, an industry research firm, measured the textile dye industry at $8.2 billion in value in the full year 2019.  Their analysts estimated the industry could grow by a compound annual rate of 5.9% through 2024.  Of course, this analysis was completed before the global coronavirus pandemic.  Most industries have been set back by work stoppages and travel bans, but the industry is still expected to grow at a pace greater than the world economy.

SELECTED TEXTILE DYESTUFF COMPANIES
Company	SYMB	Sales	EPS	ROE	PE
Akzo Nobel N.V.	AKZOY	$8.7B	$1.55	12.19%	31.07
Allied Industrial Corp.	4702.TWO	$958.7M	$0.60	4.54%	29.58
Archroma Internat’l	Private	$1.5B	na	na	na
BASF, SE	BAS.DE	$59.2B	($1.15)	neg	45.14
Giovanni Bozzetto Group	Private	$6.8M	na	na	na
E.I. du Pont de Nemurs	DD	$20.4B	($4.02)	neg	neg
Evonik Industries AG	EVKIF	$12.2B	$1.21	5.86%	28.79
Huntsman Corporation	HUN	$6.0B	$4.66	8.96%	24.20
Kiri Industries (incl. Dystar)	KIRIINDUS.BO	na	na	na	5.57
Lanxess AG	LXS.BE	EURO 6.1B	EURO10.22	31.46%	5.86
Sumitomo Chemical	SOMMY	$2.2T	$0.04	3.08%	60.28

The selected members of industry is valued at a wide range, due in part to factors related to the full portfolios of the well diversified specialty chemicals producers.  The industry has at least paid lip service to environmental issues with the now obligatory ESG reports (environment, social and governance).  Generally though, EGS goals are modest, which we suspect is a deliberate to guarantee a claim to goal achievement while not having to make significant changes.

A position in one of these chemical dye producers may be akin to taking a stake in the oil and gas industry.  The only people who have not realized the end is near are those gathered in the boardrooms.  It might be more interesting to look beyond the conventional dye producers to those  developing improved dyes friendly to the environment. 

The next post looks at alternative textile dye producers.  

 

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.