AlliedSignal builds HFA slot in Europe

20 March 1995 00:00  [Source: ICB]

AlliedSignal Fluorine Products is making an aggressive push into Europe, with its eye on a second acquisition to follow last year's Akzo purchase. But it will not compromise its product portfolio - it is aiming to be 'the one-stop supplier'.

By Susan Royse

ALLIEDSIGNAL FLUORINE PRODUCTS' activity in Europe this last year has exceeded expectations, president Mark Byrne said in passing through London recently. It is less than a year since the US company affirmed its presence in the European CFC replacements market with the acquisition of Akzo Chemicals' fluorochemicals business, which included a production site - albeit currently for CFC-11, CFC-12 and feedstock hydrofluoric acid - at Weert, the Netherlands.

Today Allied continues on the acquisitions trail, with talk of a second 'deal of at least the same size as Akzo'. That deal could provide much needed facilities to produce new generation HFC blends in Europe. Meanwhile, Allied is pushing ahead with the development of a European distributor network.

In making its aggressive, push into Europe, Allied is emphasising the breadth of its product portfolio. While competitors have concentrated resources on a few key products, Allied has focused on developing a range of non-ozone-depleting blends. But it has also built up a line of 'interim' products, notably the foam-blowing agent HCFC-141b which Byrne considers 'a critical transitional' product.

In Europe, Byrne reports particular success with two proprietary non-ozone-depleting blends. The first is AZ-50, a mixture of HFC-125 and HFC-143a, targeted as a drop-in replacement for refrigerant R-502 in retrofits, as well as new-equipment applications. The second blend - commercialised more recently - is AZ-20 (R-410A), an azeotropic mixture of HFC-32 and HFC-125, primarily designed as a long-term replacement for HCFC-22 in new-equipment applications, including residential and commercial airconditioning systems and some commercial refrigeration applications.

'AZ-20 is starting to accelerate in terms of acceptance by the equipment manufacturers... it is taking off much more so than we thought even a year a ago,' Byrne reports. AZ-20 is claimed to feature improved energy efficiency -around 5-6% over HCFC-22 - and superior performance characteristics but, because it operates at higher pressure than R-502 or HCFC-22, it requires OEMs to re-tool. 'AZ-20 is going to present the opportunity to downsize equipment, which should be cost-effective for OEMs,' Byrne enthuses.

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Transportation equipment manufacturer Frigoblock of Germany and airconditioning system manufacturer York International have already identified it as their leading long-term HCFC-22 replacement candidate; other equipment manufacturers such as Carrier Corp and Dunham-Bush continue to evaluate it.

Allied is also offering a second HCFC-22 replacement for airconditioning systems: R-407C, a ternary blend of HFC-32, HFC-125 and HFC-134a. However, the company believes this will primarily find use as a short-term replacement in retrofit applications. Long term hopes are pinned on AZ-20, which in tests has been shown to outperform the ternary blend, demonstrating around a 10% increase in energy efficiency.

At the heart of Allied's strategy to support development of blends is the need for multi-product manufacture. The company has invested heavily in recent years at two of its US fluorochemicals sites, Baton Rouge and Geismar, about 30 miles apart in Louisiana.

A plant to produce HFC-152a, the latest addition to the company's product portfolio, is due to start up at Baton Rouge during the second quarter of this year, while a commercial HFC-32 facility required to support the growing markets for AZ-20 and R-407C - to be located at either Baton Rouge or Geismar - is planned for 1996. The blend component HFC-32 is currently produced in a pilot unit at Allied's R&D centre in Buffalo, New York.

Allied's interest in adding HFC-152a to the portfolio stems from its use as a component in a number of refrigerant blends. However, Byrne also notes that HFC-152a - though flammable - could find application as an aerosol propellant, particularly as some of the more recent hydrocarbon-based propellants are beginning to come under attack on the grounds of high VOC levels.

Byrne is proud of Allied's process technology and its ability to adapt existing plant and equipment. The company is thus able to start up new capacity quickly and cost-effectively, he says. He points to the 'swing' plant at Geismar, onstream since mid-1994, which took just 17 months to complete from the initial design stage.

That plant has the flexibility to produce either HFC-134a or the 120 series of products. But it was built for $72m, considerably less than the capital amounts invested by competitors in single-product commercial plants, Byrne claims. Allied also claims a further advantage in being the world's leading manufacturer of feedstock HF - with the world's largest production unit at Geismar.

The acquisition of Akzo has given Allied a production foothold in the European market, though the Weert site - employing around 70 people - manufactures CFC-11 and CFC-12 to meet essential-use demand and the needs of the lesser-developed countries as permitted under the Montreal protocol.

Byrne confirms that, given the limited life expectancy of the CFC production units, the 10ha Weert site is under evaluation for the manufacture of longer-term substitute products for the European market. The site's 'tremendous advantage' is production of 11 000 tonne/year of feedstock hydrofluoric acid.

'The HF plant is sufficiently sized - we are comfortable that with debottlenecking we can add to that capacity,' Byrne says.

However, Byrne is clearly keeping his options open until Allied's next intended acquisition is sealed, which may or may not include a production site in Europe. 'The nature of future plans will depend on the extent acquisition would bring facilities,' he confirms. 'We are pursuing both activities in parallel.'

The Rhône-Poulenc and Solvay fluorochemicals businesses, both now believed non-core, have long been speculated as possible acquisition targets, though no new initiatives would appear on the cards. The Italian Ausimont is another potential candidate.

Meanwhile, the Akzo acquisition is allowing Allied to build up its technical support in Europe. Support is currently being coordinated from Amersfoort, the Netherlands. 'We're looking very hard at the people requirement,' says Byrne. 'With performance considerably stronger than initially projected, we are having to find the resources necessary to grow the business,' he says. Byrne singles out Italy, Germany and France as the next European countries in line to have technical support people on the ground within 1995-96.

Most of Allied's new business is from local European companies, not US subsidiaries or transplants, Byrne claims, though he is quick to stress that work with the US-based multinationals remains key to the company's development strategy.

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As well as acquisitions, Allied is also open to alliances. 'We will grow the business through product development, acquisition and through alliances or joint ventures,' Byrne confirms. Cooperation is particularly favoured in product development in the foam-blowing area, where Allied has built a significant position in the 'interim' HCFC-141b product.

Earlier this year, Allied licensed-in applications patents from Bayer covering isomers HFC-245fa and HFC-356mffm, molecules identified as potential long-term non-ozone-depleting replacements for HCFC-141b in foam blowing applications (ECN 30 January). Allied now hopes to have a compound - the preference is currently for HFC-245fa - on the market by 1999, well ahead of the phaseout deadlines for HCFC-141b. 'Customer evaluation strongly supports HFC-245fa as the prime candidate to replace HCFC-141b,' Byrne claims. Allied currently produces HCFC-141b and HCFC-142b at a third fluorochemicals site in the US, El Segundo in California.

Allied's fourth North American fluorochemicals site is at Amherstburg, Ontario, where 'active consideration' is currently being given to restarting a mothballed HF unit. The plant was moth-balled in 1992 when HF demand dipped as the rate of CFC phaseout exceeded the rate of uptake of HCFCs. 'Now that HFCs are beginning to take off, the demand for HF is increasing considerably,' Byrne notes.

Allied also has a leading position in Mexico, where it holds a 49% stake in Quimobasicos, currently a producer of CFC-11, CFC-12, HCFC-22 and HF. Although Mexico has exemptions under the protocol, the country has stated an intention to be out of CFCs by the end of the decade and conversion of the production units would be considered. Similarly, Allied last year mothballed its CFC-11 and CFC-12 production at Danville, Illinois, but here again Byrne has identified a potential for conversion to HFC production if required to meet market demand.

Asia too features in Allied's longer-term plans. In South Korea, it has already established a joint marketing arrangement with Lucky, but Byrne confirms that 'other activities are in the discussion phase in Asia'. China is one obvious target, with talks in hand with potential local partners, though Byrne declined to be specific. 'We intend to enter Asia,' he says, 'to build at a time to meet customer needs.'

And what of the environmentalists' continuing insistence that HFCs are greenhouse gases and should themselves be phased out? Byrne dismisses any potential threat. 'HFCs are a tremendous improvement over CFCs from an environmental standpoint. We're committed to working responsibly to develop environmentally safer products for uses that have the highest societal benefit,' he says.

Byrne is clearly confident for the future. However, he declines to be drawn on either volumes or prices, both of which are generally considered to be disappointing at present. 'In justifying capital spending we try to do a good job at understanding the true price over time,' he says. 'You have to be realistic... we are not terribly surprised at current pricing levels.'

Full-year 1994 results for the engineered materials business of Allied, the business division which includes the fluorochemicals activities, indicate a good year, with divisional net income of $331m on net sales of $3.272bn, compared with an income of $269m on net-sales of $2.791bn in 1993. Nevertheless, income from fluorine sales declined in the fourth quarter due to pricing pressures and startup costs for the multi-products plant in Geismar.

But Byrne stresses Allied is in Europe for the long-haul. After what he terms 'a realistic transition period', he reports that customers are viewing Allied 'as a reputable, reliable supplier - a company that can provide quality products and service to meet their needs'. And he is optimistic that the trend will only continue and strengthen. 'We want to offer all products... we want distributors to look to AlliedSignal as the one-stop supplier,' he says.

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