CTO and Derivatives Market Is In Flux As Restructuring Looms

15 January 2001 00:00  [Source: ICB Americas]

By Doris de Guzman

Decreasing crude tall oil (CTO) production and rising demand for resins used in coatings and adhesives are tightening the supply of CTO derivatives. There have been recent price increases for both tall oil fatty acids and more recently for rosin resins. The upward pricing comes at a time of increasing consolidation in the CTO derivatives market.

Over the past two months, there have been two price changes. Two months ago, Hercules raised its tall oil rosin ester products by 3 cents per pound (CMR 11/13/00, p.8) while Arizona Chemical raised its rosin-based tackifiers by 3 cents per pound earlier this month. The increases were necessitated by continued significant energy and raw material cost increases incurred throughout last year, according to the two companies.

"The rosin increase by Arizona and Hercules is long overdue," says D.F. Stauffer, president of International Development Associates Inc. (IDA), a Mendenhall, Pa.-based consulting firm. "The price of their competitive products--hydrocarbon resins--has been going up, necessitated by the increase of the price of feedstocks. Rosin derivatives are now following the trend," he adds.

Moreover, the price increases come at time of change in the CTO market. The restructuring in both the paper and fractionating industries for the last two years is yielding fewer and fewer major participants in the CTO derivatives market, with only Arizona Chemical, Hercules, Georgia-Pacific Resins Inc. (a subsidiary of Georgia-Pacific Corporation), and the chemicals division of Westvaco remaining.

The dwindling market players underscore the relative niche nature of pine chemicals. "Pine chemicals are a relatively small player when compared with petrochemicals or other basic segments of the overall chemical industry," says Walter Jones, executive director of the Pine Chemicals Association (PCA). "In spite of a considerable amount of restructuring at the present time, the pine chemicals industry will remain viable and vital serving a broad spectrum of end use industries."

Currently, Hercules and Arizona Chemical are in the midst of restructuring as both companies are on the block for sale or merger. An official from Georgia-Pacific Resins Inc. has also confirmed that the company is considering divesting its chemicals division. The product line for Georgia-Pacific's chemical division includes wood adhesives, industrial resins, formaldehyde, paper chemicals and pine chemicals.

Hercules has already agreed to sell its hydrocarbon resin and selected rosin resin businesses to Eastman Chemical Company.

However, industry observers have doubts that the deal will go through as the negotiations have been underway for months. "It is difficult to understand why this negotiation has taken so long. People are wondering if there are irreconcilable differences existing between the parties," says one industry source.

The sale will pay down Hercules' debt and allow Hercules to focus more on building core businesses, which is also International Paper's (IP) goal through a sale of Arizona Chemical.

Arizona Chemical assures that business will go on as usual; however, it is too early to tell how the divestiture will affect its raw material supply mostly now coming from IP, its parent company. "We can't speculate on how the divestiture would impact our raw material supply as the announcement has just been made, and we are still in the preliminary stages of preparation for sale," says the company spokesperson.

Industry observers are not concerned about the effect of the sale to CTO supply, but are more concerned on supply of CTO derivatives. "Although CTO production has been declining, there is still ample supply of CTO in the industry," says IDA's Mr. Stauffer.

"I don't think Arizona Chemical will be cut off from IP's CTO supply; however, Hercules' future supply of CTO is very much in doubt due to the fact IP had acquired Champion, a major producer of high quality CTO contracted to go to Hercules. Champion's CTO supply to Hercules will probably in time go to Arizona," Mr. Stauffer adds.

CORRECTION--Crompton Corporation does not have any plans to divest itself of its fatty acid and glycerine business or manufacturing facility in Memphis, Tenn. An article in a recent issue of Chemical Market Reporter (1/1/01, pg. 7) had indicated that the company planned to divest its fatty acids and glycerine business. Crompton emphasizes it will aggressively continue managing the business to meet its customer needs.

WAXES--Clariant has increased prices by 3 to 4 percent on all Clariant wax products, including the montan and synthetic waxes of the Licowax, Licolub and Licomont product range as well as the Ceridust micronized waxes, effective January 1.

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