INSIGHT: Research collaborations can help drive growth

08 March 2013 16:29  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS)--There are many ways you can grow in chemicals but achieving anything like the growth rates of the past has become increasingly difficult.

In the short term, chemical companies face the prospect of slower demand from China, lacklustre growth in the US and extreme weakness in Europe.

Over the next decade or so, increased capital spending will go a long way to help provide the means to do the job – it has been constrained, industry-wide since the 2008-09 crash.

But chemical firms, quite rightly, eye closer customer collaboration and the sort of research and product development which will allow them to spread their bets.

Many of those bets are being placed on technologies and materials that become important as so-called global “megatrends” play out.

Megatrend ideas tend to be developed to fit company portfolios, or management targets, but there are broad sweeps of demographics and technologies that are impossible to ignore.

Increased urbanisation, for example, is a trend that chemical companies, as suppliers of materials, will need to understand in the developed and the developing world.

Where do you build your next plastics or plastics intermediates plant? You need to balance feedstock and other costs with demand. But to make real inroads into increasingly sophisticated markets, you need to be at the forefront of developing better, lighter, tougher, more easily processable, and recyclable materials.

Examples of new product developments abound as chemical companies push the envelope of materials processing and design. Such progress sometimes involves new chemistry but importantly research at the interfaces between traditional scientific disciplines.

Given increasingly important links between chemical producing companies and customers operating much closer to the end-use consumer, innovative thinking in a very broad sense – from molecule to product design – is key.

Illustrating what can be done, BASF on Friday said that it has launched a new advanced materials collaboration initiative with leading universities in the US that will create about 20 new post-doctoral research fellows.

Working with Harvard University, MIT (the Massachusetts Institute of Technology) and the University of Massachusetts (UMass) Amherst, the aim is to jointly develop new materials for the automotive, building and construction, and energy industries.

“This collaboration with these prestigious American universities is an important expansion of our international research network,” BASF CFO and CEO of the chemical company’s US business,  Hans-Ulrich Engel, said.

The research collaboration will involve chemists, physicists, biologists and engineers with know-how in different industries, BASF says. The trick will be to turn academic research into technically feasible products and processes.

“Topics already identified include micro- and nano-structured polymers with new properties, as well as biomimetic materials that emulate nature,” BASF said.  “The scientists are working on lightweight construction materials for wind turbines and automotive construction and on new colour effects for cosmetic applications,” it added.

”We need the creative spirit of the widest possible range of sciences to develop solutions to meet the needs of a growing world population for clean drinking water, secure energy supply and improved quality of life,” president of BASF's Advanced Materials and Systems Research, Christian Fischer,  said.

“I am convinced that BASF's market-oriented materials and systems researchers, together with the outstanding scientists at the American universities, make up the ideal team for seeking out technically and economically viable solutions.”

BASF wants to be generating about €30bn ($39bn) of its sales in 2020 from products developed in the previous 10 years and €7bn of EBITDA (earnings before interest, tax, depreciation and amortisation). That is a stretch goal from a target of just €10bn of sales and €2.5bn of EBITDA from new products in 2015.

The company has been putting a great deal of emphasis on expanding its research and development (R&D) footprint in Asia as it pushes towards the goal. Last month it said it would open a battery materials laboratory and applications centre at Amagasaki in Japan.

The centre will extend BASF’s local R&D infrastructure and tie in with its own researchers in other fields but importantly be close to customers in one of the most advanced markets for battery manufacturing and development in the world.

Increased mobility is one global mega trend which meshes with BASF’s business portfolio and the company feels it can address through its coatings, chemicals, plastics and new battery materials businesses.

The company generated €9.5bn in sales of an assortment of products for the automobile industry in 2011. One of its targets is to raise that sales level to about €17bn by 2020, including €5bn from precious metals trading and vehicle emissions catalyst production

Taken together, the initiatives to develop new products for the 21st century can help the company generate rates of growth above the norm for the sector. They must also help drive above average returns.

BASF spent €1.75bn on research and development last year or 2.2% of its €78.78bn sales total. Average R&D spending to sales to 2020 is expected to be about 3% a year, excluding the oil & gas business.

The company wants sales to grow on average by 6% a year between 2001 and 2020 so the research collaborations and partnerships it has with more than 600 research institutions and companies are essential.

BASF says it will outperform global chemicals production growth between 2010 and 2020 by two percentage points per annum.

($1 = €0.76)

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By: Nigel Davis
+44 20 8652 3214

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