06 December 1999 00:00 [Source: ICB Americas]By Ivan Lerner
BASF AG is greatly expanding its business in superabsorbent polymers (SAP) through a large acquisition and the construction of a new plant. This suggests, that although competition may be fierce, there is still room to expand in the SAP market--and there may still be new markets for producers to open.
For $656.5 million, the German company is acquiring Amcol International Corporation's Chemdal absorbent polymers unit, including Chemdal's three manufacturing operations in the US, the UK and Thailand. The acquisition still requires the consent of Amcol's shareholders and various regulatory agencies in both the US and Europe.
BASF is also building a plant in Brazil that will initially manufacture 70,000 metric tons of SAP per year. That facility is expected to come on by 2002, and BASF has already begun construction of a butyl acrylate plant in Brazil. Butyl acrylate is a derivative of acrylic acid, a primary feedstock for SAP.
Producers were previously reluctant to expand into an economically developing region like Latin America because of its scarcity of acrylic acid feedstock. BASF says that its patented innovations in catalysis research have enabled the company to increase its acrylic acid capacity.
The global market for SAP is growing by about 7 percent per year. Superabsorbent polymers are crosslinked polyacrylates that can absorb many times their own weight in liquids. Principal applications are in diapers and hygienic articles.
Annual US consumption of SAP is 284,000 metric tons, 38 percent of global consumption, according to Andrew Eldib of the Berkeley Heights, N.J.-based consultancy Eldib Engineering and Research Inc. Kimberly-Clark Corporation and Procter & Gamble, the major manufacturers of diapers and hygiene products, are the largest US consumers.
"SAP is a functional polymer that can improve the quality of life for people everywhere," Mr. Eldib says. "I think the fastest growing area is going to be adult incontinence," with a 12 percent annual growth.
"Overall, the US growth will probably be proportional to the population--but it will also depend on the new phenomenon of increased use of SAP per diaper to make the diaper thinner. This will increase the demand for SAP, but at the same number of diapers [produced]. The same thing for female hygiene products--and that market will see more growth as well."
The consultant adds that "the market in the US and Japan is saturated," and with 32 percent of global consumption, Western Europe is not far behind. Mr. Eldib considers Eastern Europe the next major market that SAP producers should target.
"I think the potential production capacity in Eastern Europe could be 50,000 tons by 2005, with even greater growth given time. It is a growth market there right now, but the question is who is going to build plants."
Citing the cost of building an SAP plant in Poland, Hungary or Czechoslovakia, Mr. Eldib says that any construction is likely to entail a joint venture between a host nation and investors from Japan, Western Europe or the US. The investors would have at least a 51 percent interest in such a facility.
The consultant says that in Russia, SAP growth will be particularly slow, especially since investors will be reluctant to build there. Mr. Eldib adds that current SAP production in Russia is almost negligible. "If there's any, it's a maximum of 10,000 tons.
"In Russia, where diapers are a luxury, there is a very big need for adult incontinence products. But, there is another group of countries where growth has very good potential: Latvia, Lithuania and Estonia. The standard of living is higher there, and they are more tuned to Western Europe than Russia is."
BASF plans to start up a 120,000-metric-ton SAP plant at its Belgian site in Antwerp, mainly, the company says, "to supply the European market." A BASF spokesman adds that "this will make imports from the US superfluous."
Mr. Eldib expects growth to be even stronger in Latin America than in Eastern Europe. Latin American demand for SAP grew strongly because of a 15 percent increase in diaper production in Brazil between 1997 and 1998 (CMR, 5/24/99, pg. 27), and the consultant notes that US producers have been aggressively marketing in the region.
"The breakthrough will be a producer of acrylic acids in Latin America," Mr. Eldib says. "As long as these countries' industries are dependent on imports of SAP, they will never expand their production. The only way to do that is if they can have access to SAP produced domestically. Which in turn will reduce the cost of the product and make it more affordable to the public. Brazil has the potential to become the biggest consumer of SAP in South America."
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