German chemical sites focus on innovation to survive downturn

High-tech trump card

11 August 2009 00:00  [Source: ICB]

With the recession hitting Germany hard, its chemical sites are boosting innovation to ensure they survive

THE SHEER size of Germany's chemical production, its broad research and development (R&D) capability, well-oiled infrastructure, skilled workers and reputation for reliability have traditionally assured it a place on the international short list of best places to invest.

As the chemical industry has refocused toward specialties, the country's mammoth production complexes - many of them now chemical parks - have enjoyed no small degree of success in filling empty spaces with new life. Many investors come from outside Germany.

In the past 15 years, foreign direct investment in the German chemicals sector - by global players such as US-based Dow Chemical, the UK's INEOS and Saudi Arabia's SABIC, as well as small and medium-sized enterprises - has more than tripled to over €32bn ($46bn), says the trade promotion agency Germany Trade & Invest (GTAI).

While interest is still strong, the agency admits that the time it takes for investors to commit to new projects has lengthened. A major hurdle is access to credit, says GTAI Managing Director Michael Pfeiffer.

With the world economy weak and competition for investment strong, chemical sites need well-developed strategies to attract investment. Germany's trump card is innovation, says Pfeiffer. Its chemical producers spend more than €9bn/year on R&D, according to the chemical industry association VCI, which claims that innovative products make up more than 50% of industry output.

Calculated in euros, the value of all new projects handled by GTAI this year is down by about "a third to half." However, the quality is "undiminished," Pfeiffer asserts. Last year, around 40% of projects were in the high-tech sector; this year's figure is 50%.

Investors in chemicals and related fields are increasingly inquiring about projects in photovoltaics, fiber-reinforced plastics, fuel cells and advanced materials for medical devices, says Rolf Gohdes, the agency's director for chemicals and health care. Many of these, he says, are seeking partners to gain a foothold in the European market.

There are other advantages investors may never have considered. "One of the points underlining our efficiency is how well we solved reunification," Pfeiffer remarks.

Indeed, monies pumped into the eastern states since reunification in 1990 are highly visible. The region boasts some of the country's most modern infrastructure. Companies settling there are eligible for state aid.

Whether east or west, investing in one of Germany's more than 40 chemical parks can be a good option in difficult economic times, Klaus-Dieter Juszak, chairman of the parks subgroup in VCI, comments. Besides space, the operators usually offer all infrastructure services, he points out.

DIVERSITY PAYS
Given the German sites' diversity, firms throughout the supply chain stand a good chance of finding a park with the services they need, says Juszak. Petrochemical sites are connected to the European pipeline grid. Heterogeneous sites such as Industriepark Hoechst also emphasize life sciences.

VCI says investors are becoming increasingly aware of the parks' attractiveness. From 2006 to 2008, the number of companies - German and foreign - doing business there rose by nearly 10% to 920. The parks' capital spending budget averages €3bn/year.

Germany's parks and sites are not all conjoined.ChemPark, for example, links the formerly exclusive Bayer sites of Leverkusen, Dormagen and Krefeld-Uerdingen, while the ChemSite umbrella covers parks at Marl, Castrop-Rauxel, Gelsenkirchen and Dortmund.

Many clusters - in which companies jointly develop a certain market and are often grouped around a feedstock or technology source - are open to outside investors.

"Clusters are the most efficient place for R&D," says current VCI president Ulrich Lehner, chairman of the supervisory board at specialty maker Henkel. VCI has urged the federal government to more effectively promote foreign investment in German clusters.

For Margarete Gersemann, president of ChemSite and a vice president of the European chemical site initiate ECSPP, "clusters are the magic word. They bring scientific organizations and business into contact."

Knowledge-driven project is another phrase to describe clusters, many of which have "valley" in their name. One such showcase project is CFK Valley in northern Germany, devoted to carbon-fiber-reinforced plastics (CFRP).

A number of international players, like US group Dow Chemical - which supplies key raw materials such as epoxy resins used in manufacturing CFRP modules - are participating here. Partners include US-based Hexcel, Japanese producer TOHO Tenax, and Roehm, which is part of Germany-based Evonik Industries.

Complementing the aerospace applications that led to its founding, 12 cross-functional working groups at CFK Valley collaborate on finding new products and technologies for composites used in wind turbines and transportation, for example. In May, ground was broken for a new €70m competence center at Stade, scheduled to open in the fourth quarter of 2010.

Hanau's Wolfgang Industrial Park, near Frankfurt, is in the heart of the economic network calling itself "Materials Valley." The former Degussa (Evonik) site bills itself as "Europe's only high-tech location with complete infrastructure for material science open to investors."

The Degussa catalyst and precious metals businesses continue here under new owners. Activity also focuses on components for fuel cells, and Evonik's functional polymers and films project house is also based in the park.

Many chemical firms, including Germany's BASF and Merck KGaA, are engaged in photovoltaics research - some of it backed by the federal research ministry, BMBF. The ministry sees enormous potential for the technology in Germany, already regarded as world leader in installed solar modules.

CENTER OF THE SOLAR SYSTEM
Around 18% of solar cells worldwide originate in "Solar Valley Mitteldeutschland" in Germany's east. In 2008, a project spearheaded by the Fraunhofer Center for Silicon (CSP) Photovoltaics at Halle was one of five selected by the Federal Ministry for Education and Research (BMBF) as a "Cluster of Excellence." It will receive more than €50m in EU and German funds.

Solar Valley links nearly 30 businesses, 10 research centers and four universities and covers the entire value chain. Goal of the ongoing projects is to optimize technology and thus reduce power generation costs. Mini-plants for crystallization and material analysis are installed in a new Fraunhofer adjunct at Halle. At Dow Value Park in Schkopau, module integration is the focus.

Ralf Wehrspohn, director of the Fraunhofer Institute for Mechanics of Materials in Halle, sees Germany moving closer to grid parity "earlier than we thought" - the target is 2015. However, as prices for silicon as well as solar modules have dropped rapidly, "we need to step up innovation" to improve margins, he says. Chinese competition is encroaching, but Wehrspohn believes "Germany's reputation for reliability and quality" will give it an edge.

The €50m Chemical Biotech Process Center (CBP) going up at Leuna chemical park in eastern Germany and due for completion in 2011, also welcomes additional investors. Under Fraunhofer's technological leadership, the CBP will scale up biotechnology processes to industrial level. Six R&D programs have already been initiated;

CBP's biorefinery research platform will seek to exploit non-food renewable raw materials as feedstocks for chemicals and energy. The center's work will be an important step in reducing dependence on fossil fuels and decreasing CO² emissions, says Andreas Hiltermann, managing director of the infrastructure company InfraLeuna.

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By: Dede Williams
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