In this week's Chemical Market Reporter

30 April 2001 00:30  [Source: ICIS news]

Top Headlines

Chem companies hope Q1 earnings mark bottom

As expected, major chemical companies are posting significant declines in first quarter earnings as high energy feedstock costs and weak demand from a slowing economy take a big bite out of profitability. While Wall Street largely expects a recovery in chemical earnings in the second half, one unsettling phenomenon is that the slowdown in the US economy appears to be spreading to Europe and Asia. "For diversified chemical companies, it's possible we've seen the worst," says Lehman Brothers analyst Sergey Vasnetsov. "The question is how quickly the economy will recover. However, the second quarter will not be that much better than the first."

OM Group, Ferro to acquire dmc2 in $1.08bn deal

In the first billion dollar specialty chemicals acquisition of the year involving US buyers, OM Group and Ferro, both based in Cleveland, Ohio, will buy separate parts of Degussa Metals Catalysts Cerdec (dmc2), significantly boosting their presence in key specialty areas. The Hanau, Germany-based dmc2 is being acquired by OM for $1.08bn (Euro1.2bn) in cash. Dusseldorf, Germany-based Degussa, dmc2's parent company, says the transaction amounts to about $1.53bn if off-balance-sheet precious metals leases are included. The dmc2 unit had sales of $628.4m in 2000. OM and Ferro "wanted to have a joint buyer arrangement but it appears as if it was easier for Degussa and OMG to deal with each other, then do a second transaction with Ferro," says Banc of America Securities analyst Mark Gulley. "I think strategically it makes more sense this way."

FDA tells pharma to clean up production

The US Food and Drug Administration (FDA) appears to be sending a message to the industry by issuing warning letters and taking actions against several major pharmaceutical companies concerning manufacturing practices. By telling the big pharmaceutical industry to clean up its act, FDA may be signalling a need for more extensive monitoring. Meanwhile, the target companies are scrambling to remedy the situation to soften the financial blow of a manufacturing disruption. Eli Lilly is the most recent company to be cited for manufacturing deficiencies. In early March, the company reported it had received a warning letter from FDA after an inspection at its Indianapolis, Indiana site. The inspection was part of FDA's review process for marketing approval for an injectable version of Lilly's schizophrenia drug Zyprexa (olanzapine). Then in April, a subsequent letter was issued referencing deficiencies at other units at the Indianapolis campus following an FDA review related to approval of Lilly's new osteoporosis drug Forteo (teriparatide).

Sumitomo-Mitsui merger moves into high gear

Japanese majors Sumitomo Chemical and Mitsui Chemicals have revamped their plans for the completion of their highly touted merger. Newly revealed steps include moving the date of the merger's completion, creating a joint venture for their polyolefins business this October and cutting 20% of the combined companies' total staff by March 2004. In addition, a holding company will be created on 1 October 2003 for a joint transfer of shares. The companies have also settled on a name for their giant-in-the-making: Sumitomo Mitsui Chemical Company Ltd. The headquarters will be in Tokyo.

Bayer seeks options in fibres, eyes divestment

Following the sale of its Dralon acrylic fibres business earlier this year, Bayer Group says its remaining fibres operations are no longer a part of its core operations, and it is actively looking for a partner for the global activities. The company has not ruled out divestment as an option for the businesses. Bayer's fibres operations, made up of Dorlastan spandex fibre and Perlon monofil, had combined sales of roughly $225m last year. The products are manufactured at sites in Dormagen and Goch, Germany, as well as Bushy Park, South Carolina.

ACC supports Bush on POPs

The American Chemistry Council (ACC) is supporting President George W Bush's decision to sign a Clinton-era treaty calling for the global phase-out of a dozen highly toxic persistent organic pollutants (POPs). The chemicals, widely dubbed the "dirty dozen," include polychlorinated biphenyls (PCBs), dioxins and furans, DDT and other pesticides shown to contribute to developmental defects, cancer and other problems in humans and animals.

Chem exec in line for Osha post

The safety director of a Missouri chemical company is likely to be nominated by President George W Bush to head the US Occupational Safety and Health Administration (Osha). John Henshaw, director of environment, safety and health for Astaris, will probably be named shortly to the position of assistant secretary of labor for occupational safety. St Louis, Missouri-based Astaris is a year-old joint venture between Solutia and FMC that supplies phosphorus chemicals, phosphoric acid and phosphate salts. Henshaw previously directed and managed health and safety programs for Monsanto and Solutia.

Ethanol future is subject of industry concern

Although about a dozen bills have been introduced in Congress to expand the use of ethanol through a variety of tax incentives, grants and modifications to the Clean Air Act, California's request to opt out of the federal reformulated gasoline program has the industry concerned about the renewable fuel's future. The reformulated gasoline (RFG) program mandates that about 70% of California's gasoline contain at least a 2% oxygenate blend to make it burn cleaner. Methyl tertiary butyl ether (MTBE) has been the state's oxygenate of choice but Governor Gray Davis ordered a phase-out of MTBE by the end of 2002 after it was found to contaminate groundwater. The phase-out was welcomed by farmers because corn-derived ethanol is the second most widely used oxygenate after MTBE. But while the ethanol industry viewed the move as an opportunity to expand production, Davis maintains that many California refineries have the ability to produce gasoline that provides the required emissions reductions without using an oxygenate.

In the News

Tosco refinery outage may strain petrochemicals

A fire on 23 April knocked out part of Tosco's Los Angeles, California area refinery (LAR) system. The system has two plants. A unit in Carson processes crude oil and another at Wilmington upgrades that feedstock into finished gasoline and other products. The company has shut down the coker processing unit at Carson and reduced the throughputs of the site's other processing units. But the Wilmington site is operating normally and has enough feedstock to continue producing gasoline and distillates at normal levels.

EPA urged to ban wood preservatives

Anti-pesticide activists are asking the US Environmental Protection Agency (EPA) to immediately ban wood preservative products that contain chromated copper arsenic, pentachlorophenol or creosote. In a recent letter to EPA, the group Beyond Pesticides/National Coalition Against the Misuse of Pesticides claims the product's registrations should be canceled because they pose health risks to children.

Albemarle buys Martinswerk

Albemarle has agreed to acquire Bergheim, Germany-based specialty chemicals company Martinswerk for around $44m. The deal is expected to close 31May.

Solutia settles PCB suit

Solutia has agreed to pay $40m to settle a suit brought by 1600 plaintiffs in the Owens vs Monsanto case stemming from their alleged exposure to polychlorinated biphenyls (PCBs) produced at Monsanto's Anniston, Alabama manufacturing site. Solutia continues to dispute health claims made by the plaintiffs but settled the case to focus attention on remediation efforts. The chemical contamination allegedly was spread by Monsanto, which manufactured PCBs in Anniston until 1972. The PCBs entered the creek in Anniston through waste water emptied from the plant into a local drainage ditch. Solutia inherited the lawsuit when it was spun off from Monsanto in 1997.

Merck, Pharmacia, BMS, AHP post Q1 results

Led by Zocor and Singulair, Merck was able to meet analysts' estimates for the first quarter despite lower-than-expected sales of Vioxx. Meanwhile, Merck's rival in the anti-arthritis market, Pharmacia, posted strong sales but Bristol-Myers Squibb and American Home Products reported only single-digit growth.

Brazoria County air study draws heat from TNRCC

Texas Natural Resource Conservation Commission (TNRCC) executive director Jeffrey Saitas has sent a letter to Brazoria County Judge John Willy sharply criticising a report by RMT Consulting that appears to justify the county's removal from the Houston-Galveston ozone nonattainment area. Brazoria County is home to such industrial facilities as the huge complex of Dow Chemical at Freeport, as well as plants of BASF, Phillips Petroleum, Rhodia, Shintech and Schenectady Chemical. Three of the eight counties in the designated area - led by Brazoria County - are suing TNRCC for what they consider unfair restrictions imposed on them by a new smog-reduction plan.

Spec chem companies post steep Q1 declines

Specialty chemical earnings dropped significantly in the first quarter, plagued by high raw material costs and weak demand. Rohm and Haas, Cytec, Albemarle, Crompton and Engelhard all experienced double-digit earnings declines.

Industrial gas makers post mixed Q1

Industrial gas company first quarter earnings were mixed as Praxair posted a robust gain and Air Products reported a decline. While industrial gas volumes were strong, Air Products' results were dragged down by its chemicals segment. Praxair's underlying first quarter earnings increased 11% to $126m as sales gained 9% to $1.34bn. Results were driven by significant price gains in industrial gases, good demand growth outside the US and "much improved" results in its surface technologies business.

Morre Tec bets on niche markets, moves beyond bromine

Morre Tec Industries, known for its expertise in bromine chemistry, is forging its way into niche markets in the food and pharmaceuticals industry. The move not only balances the company's specialty portfolio but will also fuel growth in the face of a possible economic downturn.

Air Products boosts WF6

Air Products and Chemicals has begun construction of a second tungsten hexafluoride (WF6) plant at its Hometown, Pennsylvania manufacturing complex. The company plans to double its WF6 capacity to 272 tonne/year, saying that the investment in a second WF6 plant is to ensure supplies for contracted semiconductor manufacturing customers. By early 2002, Air Products plans to bring on stream 45 tonne/year of capacity with the remaining capacity coming on line as the market demands. The new plant will be an "exact duplicate of the original," the company says. The original plant was expanded to136 tonne/year in late 1999.

Akzo to buy Covance

Akzo Nobel's Diosynth pharma business will acquire Covance Biotechnology Services (CBSI) for $190m. CBSI's estimated sales volume for 2001 is $110m. The acquisition provides Diosynth with access to CBSI's professional development group and its commercial network in the US biotech market, which will increase Diosynth's market strength alongside Organon and Intervet, both technology platforms of Akzo Nobel Pharma.

BOC buys hydrogen plants

BOC plans to assume full ownership of two South American hydrogen projects from Foster Wheeler Power Systems. The projects in Chile and Venezuela provide 60m cubic feet/day of hydrogen to two oil refineries. BOC and Foster Wheeler's original investments in the projects totalled about $70m.

Perstorp accepts Industri Kapital take-over bid

Perstorp's board last week formally recommended acceptance of a new take-over bid by Industri Kapital, the equity fund management company, reviving long term plans for the formation of a Nordic specialty chemicals group.

Major Markets

PE producers seek to restore margins amid high energy costs

Ethylene glycol fundamentals worsen

Chloralkali producers hit with regional energy crisis

Custom players see increased demand for bio services

Glycerine on downward track because of oversupply

Further News

CSB budget gets boost; seeks funds for new hires

Brownfield rehab bill gets Senate approval

Rodel, Clariant partner

GAO argues for more complete TRI data

GlaxoSmithKline reports strong Q1 results

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By: Gary Taylor
+1 713 525 2653

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