01 September 1999 00:00 [Source: APC]An increasing number of plastics companies are moving, through acquisition, into the speciality arena to keep abreast of a changing global marketplace
The performance of many modern plastics is highly dependent upon the use of additives. Properties such as flammability, colour and stability to light and heat are all dependent on their use. There are a large number of additive categories which include antioxidants, flame retardants, plasticisers and heat and light stabilisers. Of the many groups of additives, these contribute the highest revenues in the plastics additives market.
Lower margins resulting from expiring patents for antioxidants and light stabilisers have been a major contributor to the changes which have taken place in the market. According to consultancy Frost & Sullivan, these changes have accelerated the industry shift from high-priced proprietary chemicals to high-volume, low-priced commodity additives. As a result, companies are looking for strategic partners that will position their businesses with the requisite technologies, production capabilities and distribution networks to compete in the global market.
Indeed, the global market for plastic additives is a lucrative one, being valued at $16bn in 1998, according to figures published by Townsend-Tarnell consultancy. The recent flurry of mergers and acquisitions is being prompted by the need to increase shareholder value. Forecasts estimate that growth in the plastics additives market is set to continue at 5.5%/year, excluding materials such as plasticisers, now regarded as a commodity. This will take the market from around 2.7m tonne in 1996 to 3.6m tonne by 2001.
According to Phillip Townsend Associates, the global plastics additives industry is highly fragmented, with approximately 14 suppliers accounting for around one-third of sales. Most of the major players are based in Europe and North America, while the Asia-Pacific is widely considered to be the fastest growing region. With the current pace of change, many smaller producers, particularly those in the Far East and China, will face an uncertain future, being forced to find partners or expand to remain competitive.
The pace of change seems unlikely to slow down in the foreseeable future. Recent developments have seen Uniroyal Chemical acquire Aristech Chemicals' Unite plastic additives product line. Unite products are maleic anhydride grafted polypropylene, which are used as coupling agents for the glass-filled polypropylene market. Aristech's president and chief operating officer, Patrick Jack, said its long-term strategy was to focus more on reactor grade polypropylene specialities rather than compounded products. Uniroyal will sell and service the product line worldwide.
William Stephenson, Uniroyal Chemical executive vice president, says: 'The acquisition complements our existing portfolio of high-value-added plastics additives'. He says it has also expanded Uniroyal's technology and customer base, providing an opportunity to give its customers a broader offering of high-performance plastic additives backed by strong technical service support.
Meanwhile, Rohm & Haas shareholders approved the company's acquisition of Morton International, a Chicago, US-based manufacturer of speciality chemicals and salt. The acquisition will create a $6.5bn speciality chemical company. Rohm & Haas says the acquisition places it among the world's top three speciality chemical companies. Among the specialities is a plastic additives portfolio which Rohm & Haas says will offer $500m worth of processing aids, impact modifiers, stabilisers and lubricants.
According to Michael Fitzpatrick, Rohm & Haas president, the intention of the new Rohm & Haas was to grow faster and become even more efficient than either of the existing independent firms. He maintains that, as separate companies, Rohm & Haas and Morton had the capability to increase sales revenue at above GDP rates around 4-5%. As a combined company, he expects to report sales growth of around 6-8%, beginning in 2001, as long as economic conditions remain stable. The Morton acquisition will extend the plastic additives range of Rohm & Haas, adding heat stabilisers and lubricants to the company's line of impact modifiers and processing aids.
Morton has benefited from the shift away from lead-based stabilisers to tin-based alternatives. Its strength in biocide formulations complements Rohm & Haas' position in active biocidal molecules. The general consensus is that, while Rohm & Haas is on the acquisition path, the company is likely to continue looking for good buys, particularly in the area of plastics additives.
Henkel is also putting itself in the speciality arena, having spun off its chemical products division to form the stand-alone speciality chemical company Cognis. While not one of the largest speciality producers, Cognis believes that as a separate company it will have more focus and flexibility, allowing it to enter strategic alliances or joint ventures. Cognis' plastics additives division will have around an 11% share of the global market and occupy the number three position.
Staying ahead of the game, however, requires more than getting hold of the right partner; research and development are key to building market position. Additives such as flame retardants, once deemed a speciality chemical, have evolved into commodity chemicals being bought as if they were a bulk chemical, but without any real pricing regime. These chemicals are subject to a number of regulations due to their constituent components being linked with detrimental effects on the environment. Lack of proper pricing means that many producers are not able to invest in the necessary research and development and incorporate the latest technology.
The latest move by Ciba's speciality chemicals business has seen the company post a price increase for its antioxidant and process stabiliser. Ciba will raise the price of its Irganox 1010, Irgafos 168 and Irganox B blends for Nafta and Europe by 5%. Felix Meyer, head of Ciba's polymer additives business, says: 'Prices for polymer stabiliser have declined considerably over the last years. For the identified polymers stabilisers, prices are now at levels which are not sustainable. As we strive to meet the needs of our business partners today and in the future, we want to correct this situation.'
In 1998, Ciba generated sales of $8.4bn and spent $300m on R&D to foster innovation across the company. Recent figures suggest that expenditure on R&D declined at a rate of 0.5% during the mid-1990s. On average, the R&D spend in 1997 was significantly lower in the speciality chemicals sector than in 1993.
It is often the case, however, that as an industry matures R&D expenditure will decline. Yet all is not doom and gloom and current developments could see new light stabilisers and antioxidant systems becoming available. Reduced metal and metal-free heat stabilisers are also being developed for PVC resin which, together with the positioning of vitamin E in the antioxidant market, is an example of new technologies that address environmental issues.
For many of the leading players, however, R&D is still a key element. Elf Atochem's plastic additives research division develops new products to improve the impact resistance and thermal weathering of PVC plastics. One of the aims of the division is to develop additives to improve the versatility of the plastic, which has a large number of applications. Products made with PVC modified by additives include PVC foam, vinyl siding on vinyl window profiles, plastic pipes and packaging film.
Elf Atochem's decision to build a new additives plant at its site in Vlissingen, the Netherlands, shows its commitment to further its strategy of expanding and consolidating its global leadership position in the performance product additives area. The new facility will produce acrylic impact modifiers, as well as processing aids, used in PVC windows and in the engineering plastic market. The investment will take capacity for acrylic plastic additives at the Vlissingen plant to 30 000 tonne/year. The new facility is scheduled to start up at the end of this year.
Elf Atochem says that the new Vlissingen facility will enable it and Metablen, which is a 50:50 joint venture between Elf Atochem and Mitsubishi Rayon, to strengthen industrial facilities of the production site.
For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.
Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.