Wacker Chemie to invest €1bn in capital projects

Solar storm

07 April 2008 00:00  [Source: ICB]

Wacker Chemie is set to boost its capital spending to €1bn in 2008 as demand for photovoltaics soars

Joseph Chang/New York

MOST WESTERN chemical companies are tightening their belts in today's chaotic economic environment, but Germany's Wacker Chemie is undergoing a record expansion.

"We have earmarked €1bn [$1.5bn] just for 2008," said president and CEO Peter-Alexander Wacker at the Munich-based company's annual press briefing in March. "In relation to sales, this is unmatched within our industry."

Wacker Chemie's capital spending plan for 2008 represents a 43% jump from record spending of €699m in 2007, and comprises a robust 26% of 2007 sales totaling €3.78bn. Capital spending will nearly triple 2007 depreciation of €352m.

Few Western chemical companies are spending beyond depreciation levels, a trend that has continued since 2002.

The booming solar cell market and resulting shortage of the key raw material polysilicon is driving the breakneck expansion.

Wacker Chemie is investing more than €500m to hike polysilicon capacity at its site in Burghausen, Germany, through to 2010 - €370m to expand solar wafer production at Jena and Alzenau, also in Germany, through to 2012 and $1bn together with joint venture (JV) partner Samsung to build silicon wafer production in Singapore up to 2010.

Despite the fact that many players are quickly ramping up capacity, Wacker sees no impending glut in polysilicon for the solar and semiconductor industries.

THE FUTURE'S SO BRIGHT

"We expect the polysilicon business to remain attractive over the next few years," said Wacker. "There are currently no signs of an impending polysilicon oversupply."

Approximately 80% of the company's production has already been sold for the coming years. "Some of our supply contracts span until 2018," he added.

The company's polysilicon expansion stage six at Burghausen, which added 3,500 tonnes of polycrystalline hyperpure silicon capacity, started up in the fourth quarter of 2007 and is running at full capacity.

"Expansion stages seven and eight are fully on schedule, as is a new facility for granular polysilicon," Wacker said. "As a result, our capacity will rise to over 22,000 tonnes/year by the end of 2010."

Expansion stage seven, which will add 4,500 tonnes/year of capacity, is expected to be completed by the end of 2008, said Joachim Rauhut, member of the Wacker Chemie executive board. Expansion stage eight will bring on an additional 7,500 tonnes of capacity by the end of 2009.

SILICONES AND POLYMERS

But polysilicon is not the only area of expansion for Wacker Chemie. The company is also making big investments in silicones and polymers, where it is seeing strong growth in Asia and Eastern Europe.

The company has earmarked $250m (€159m) in new silicone capacity in Zhangjiagang, China through JVs with Dow Corning.

Their siloxane production facility is under construction and is expected to start up in 2010. Their recently completed pyrogenic silica plant is ramping up production.

"In Zhangjiagang, we have made good progress with the expansion of our integrated silicones site," said Wacker. "We are seeing enormous demand for silicone, a truly all-purpose material."

Wacker Chemie is also investing €130m to build dispersible polymer powder capacity in Burghausen, Germany, and Nanjing, China. Dispersible polymer powders are used in construction materials such as thermal insulation systems, tile adhesives and dry mortar mixes.

"We continue to expand capacities in response to a sharp rise in construction industry demand," said Wacker.

The company started up its 30,000 tonne/year polymer powder plant at Burghausen in the fall of 2007 - the largest of its kind worldwide - and is building a similar facility in Nanjing for start-up in early 2009.

DEBT DOWN, GROWTH UP

Capital spending will be funded mainly through cash flow from operations, said Wacker. In 2007, the company generated €1bn in earnings before interest, tax, ­depreciation and amortization (EBITDA) and posted net cash flow of €644m after capital expenditures.

The company is on solid financial footing, with a net cash position of €150m at the end of 2007 after lowering net debt by more than €500m during the year.

In 2008, Wacker Chemie expects to further boost sales by more than 10%, despite high energy costs and the strong euro, after a record 2007 for sales and profits.

"We see sales growth of well over 10% in 2008 and higher EBITDA as well, even with the euro strength and high energy costs," said Wacker. "We think this a bold forecast in the face of the global financial crisis."

In 2007, Wacker Chemie's sales rose by 13% to €3.78bn, while EBITDA climbed by 27% to €1bn. Earnings before interest and tax (EBIT) increased by 40% to €650m and net income gained by 36% to €422m.

The company is off to a strong start in 2008, said Wacker. "Despite the ­current speculations on a global recession, Wacker had a good start into fiscal 2008," said Wacker. "Demand for our products ­continues to be strong and we see further growth potential in Asia, Eastern Europe and South America."

In 2007, international sales accounted for over 80% of group revenues, with Asia representing 33%.

"In Asia, we are experiencing growth rates of over 40%," said Wacker. "The region's significance for our entire business will continue to rise in coming years, primarily thanks to strong demand for our products in electronics, photovoltaics and construction applications."

WHITE BIOTECH

As part of its research and development (R&D) strategy, Wacker Chemie is looking to white biotechnology - the use of biotechnology to produce chemicals and industrial products - to improve its production processes.

Wacker is ready to produce acetic acid and polyvinyl acetate (PVA) from bioethanol if prices made the process affordable.

"The production of bulk chemicals from biogenetic processes rather than from petrochemicals is an important aspect of our R&D efforts," said Fridolin Stary, senior vice president of corporate innovations, at Wacker's international press briefing in Munich. "With the development of second-generation biofuels, this will be possible one day soon."

Wacker Chemie says it had the technical processes in place. It would employ its BUTOX process involving the catalytic oxidation of bioethanol to produce acetic acid, followed by PVA.

"It's only a matter of economics. On the technical side, we are ready. Once the price becomes competitive in Europe and the US, we are ready to go," said Stary. "Bioethanol production costs in Brazil already make it competitive with naphtha-based ethylene."

"There is no doubt that in the near future, bio-based chemicals will supplement and partially replace petrochemicals," said Gunter Wich, director of biotechnology and corporate R&D. "We are well positioned to develop new processes as we have expertise in biotransformation, protein production and metabolic engineering."

In 2007, Wacker Chemie invested about 4% of its sales, or €150m, on R&D. The company uses PVA in its dispersible polymer powders for use in construction applications.

Wacker Chemie is also seeking to produce amino acid cysteine using glycerol feedstock in place of glucose feedstock. Cysteine is used in food and cosmetic applications.

"We now have comparable yields to glucose-based production in our research fermenters," said Wich. "We anticipate commercialization in a few years as we optimize the process."

Glycerol, a by-product of biodiesel production, is much cheaper than glucose feedstock, said Wich.

Every 1,000 tonnes of biodiesel produced yields of about 100 kilograms of glycerol, he said, adding that the company is the world's leading producer of cysteine.

Wacker currently produces cysteine in Slovakia under a toll arrangement, said Stary. He added that no decision had been reached on whether to produce cysteine using the new process at its facility in Burghausen, Germany.

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