INSIGHT: Sales to help Chemtura profit from long-term trends

22 October 2013 17:33  [Source: ICIS news]

By Al Greenwood

HOUSTON (ICIS)--A little over a week ago, Chemtura announced that it may divest two of its six business units, which made up nearly a third of its operating income in 2012.

It has already reached an agreement to sell Consumer Products, its spa and pool chemicals business, to KIK Custom Products for $315m (€230m).

The company's is now considering a possible sale of Chemtura AgroSolutions, for which it already received an unsolicited offer. Chemtura stressed, however, that it would not consider a sale unless the company receives what it considers a good price for the agro business.

If the sales go through, Chemtura can focus more on its industrial specialties segments, Industrial Performance Products and Industrial Engineered Products, which can make the most of trends that are already benefiting the chemical industry, from rising mileage standards for automobiles to LED lighting.

Industrial Performance includes Chemtura's petroleum additives and urethanes businesses, while Industrial Engineered Products includes flame retardants and organometallics as well as bromine and bromine derivatives.

Those segments have significant opportunities for growth, and Chemtura has "the right technology and the right market-access to be able to create significant value by focusing on those businesses", said Craig Rogerson, Chemtura CEO. He made his comments in an interview with ICIS.

Petroleum additives are increasingly important because automobile producers are developing vehicles that consume less fuel and emit fewer emissions to meet stricter regulations.

This new generation of automobiles require higher-performing lubricants, creating demand for lubricant additives.

Chemtura also produces base stock for synthetic lubricants, which is used to make high-viscosity greases for, as an example, wind turbines, Rogerson said. Synthetic lubricants are also used in crank-shaft oil and transmissions, which have a large market in Europe.

Demand for these products depend more on the number of miles driven than on the number of vehicles manufactured, according to Rogerson. "Even in a down year like this, that business has performed very well," he said.

Among industrial applications, Chemtura produces the synthetic lubricants used by compressors, which can handle the new refrigerants called for by the Montreal Protocol.

The company's urethanes product line manufactures ingredients used to make castable urethanes, which can be used to make discrete, moulded parts. Unlike many castable urethanes, which are time cured, Chemtura's can also be heat cured. This allows them to be poured into large moulds with intricate parts, Rogerson said.

Chemtura and Caterpillar are using such urethanes to develop solid tyres, which would provide unique performance characteristics.

The company is now developing ways to produce polyurethane pellets that could go into injection moulding processes, Rogerson said. This could open up new applications for the company's materials, as injection moulding is more common.

Chemtura is looking to grow its urethanes business through product substitution, Rogerson said. Currently, urethanes count mining as a major end market, and that sector is going through a soft patch.

For brominated products, Chemtura has started producing its Emerald Innovation line of flame retardants, Rogerson said. Its polymeric structure makes it not readily bioavailable, thus reducing the environmental concerns that threaten the sustainability of many current products, according to the company.

Demand for the products could grow because regulations are phasing out some traditional flame retardants, Rogerson said. The performance of Chemtura's flame retardants could also help it expand in the market. These materials are used in insulating foam, made of both expanded polystyrene (EPS) and extruded polystyrene (XPS) foam. These are used as insulation for buildings and houses.

The building industry is still recovering, however, and Europe - considered the leader in encouraging energy efficiency - is still struggling with slow growth, Rogerson said.

Chemtura's fourth product line, organometallics, are used to produce high-brightness light-emitting diodes (LEDs). These are replacing fluorescent and incandescent lights, and demand for them should increase as the construction industry recovers, Rogerson said.

Chemtura's organometallics are also used to produce catalysts used in polyolefin plants. This gives Chemtura a chance to benefit from the advent of shale gas in the US. Chemical producers are expanding ethylene and polyethylene (PE) capacity to take advantage of growing supplies of low-cost ethane.

Organometallics and Chemtura's other three business lines could benefit in a number of ways from the company's sales announcements, including a closer focus on a narrower portfolio, Rogerson said.

A substantial amount of the sales proceeds will also likely be returned to shareholders, Chemtura said, as well as to pay down debt and grow the four product lines. These lines received majority of Chemtura's capital expenditure budget during the past couple of years, Rogerson said.

"We've spent the money and positioned ourselves to grow strongly," he said.

The size of the divestment windfall will depend on whether Chemtura proceeds with the sale of its AgroSolutions business. If Chemtura does sell the business, the rationale would be quite different for that justifying the Consumer Products deal.

While Consumer Products is a profitable business, Rogerson said it has a relatively low potential for growth.

"It was not a strong strategic fit," he said. "I have been talking about that for the last couple of years."

Chemtura AgroSolutions, however, does have a high potential for growth, Rogerson said. Like other agrochemical companies, it is benefitting from a global population that is rising faster than arable land.

"We very, very much value our Chemtura AgroSolutions business," he said. "It is a key part of our portfolio."

However, other agrochemical businesses have fetched large prices in the market, Rogerson said. "If someone is going to pay us for that now, we can use that money to return value to our shareholders and continue to even more closely focus on a narrower portfolio where we have some winning strategies and winning products that should create value going forward."

In other words, any possible sale of Chemtura AgroSolutions would be an opportunistic deal, justified by the business's price tag, Rogerson said. "If we can't get the right value, I would be very, very happy to keep it."

($1 = €0.73)

By: Al Greenwood
+1 713 525 2645

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