Asian Chemical Connections

Perfect subject if you've got the post-weekend blues....

A very irate and tired and emotional chemicals trader was moaning last week about the imposition of a new knowledge-management system by his company.

"Our bosses never listen to us and they assume that if they come with a new software solution that we have had no role in developing we will just do as we are told and use it. The system just doesn't work - it's totally inappropriate for our business. It makes people less likely to share rather than more likely. It takes time away from our core job roles, is inefficient and is slow but nobody can say anything because it was the top boss's idea who sold it the board. His career is riding on it."

Let me know if your boss listens to you - in confidence, of course, in this world of precarious job security.

And have a listen to this short video from David Gurteen that sums this up beautifully. It's the first one in a series of six (all worth listening to) and entitled "How do you make people share?"

David spent 30 years working high tech industries and is now an independent knowledge educator and coach.

Back in the 1980s, before Japan's "Lost Decade" of stagnant growth, management gurus lined up to praise the country's collective spirit as the basis of a sustainable economic miracle.

Since then, of course, the West has been consistently espoused as the best.

And even the Japanese wish they could break free of their consensus shackles, according to this week's issue of The Economist -- hence, the huge popularity of management hero Kosaku Shima of conglomerate Hatsubishi Goya Holdings.

He thinks outside the box, acts decisely, is not scared of telling people what he thinks and has been successful even though he has always sat outside political factions within his company.

And in June, Shima (see picture above) truly broke the mould when he was promoted to shacho (president) of his company at the tender age of just 60 - very young by Japanese standards.

There is one slight problem: he is a manga or cartoon character.

"Shima is influential - business people want to be like him but can't," says Yuko Kawamoto, management professor at Waseda Uniiversity in Tokyo.

"Maybe there is hope for Japanese society. We want to change, but do not have the courage."

The grim reality for the average salaryman, according to The Economist, remains a life of drudgery and of stifled opinions because of the dreaded fear of causing a superior to lose face. As a result, bad decisions go unchallenged and become ingrained policy.

Japan's chemical companies have often broken the mould through innovative technologies - and were talkiing about and acting on energy efficiency long before the current oil and environmental crises.

Sumitomo Chemical is also about to start-up a huge petrochemical complex in Saudi Arabia - along with Saudi Aramco - and is talking about a major second wave of investment at the same site. This also involves breaking the mould as it's the first occasion that a Japanese chemicals company has invested on its own in a big overseas cracker project.

But the perception remains, fair or otherwise, that the chemicals industry could and should have undergone more restructuring.

Fair or unfair?

A consultant once told me a wonderful story - so wonderful I don't even care whether it's true or not - about how the monthly European benzene price in the 1950s was calculated based on the US price once the latest issue of Chemical Market Reporter had arrived in Rotterdam by boat.

Are we now wasting time and money on dealing with market volatility that's the result of how we gather and process information?

Nicholas Carr of The Atlantic.com argues that the Google age is making us think and behave differently.

The furious linking between one site and the next, the feeling of never knowing enough, of never being entirely up-to-date, might have turned us into what the playwright Richard Foreman calls "pancake people". In other words we have a broad range of knowledge thanks to all that surfing - but have an inability to read more than a couple of pages of text at any one time and to take a break from information-trawling long enough to consider what we have read. We have, as a result, lost our intellectual depth.

As our attention spans ever-shorten with the volume of information and information-solutions out there, are we making energy and chemical markets more volatile?

Are we no longer able to take a deep breath and stand back and contemplate what is really going on?

The financial players and the physical traders contribute to erratic price movements because they have an interest in volatility, but to what extent?

Could it be that the way we gather and process information plays a bigger role in erratic price movements than the speculators?

Fundamentals still play the biggest role. For example, oil supply is so stretched that the slightest disruption to production - or even only rumours of a disruption - can have a big effect on pricing.

But the speed with which information is flashed around the globe and how we react to that information might be increasing volatility in tight markets such as crude.

Quantifying the impact of the way the Internet is shaping the way pricing markets behave could be a job for the nueroeconomists who I wrote about earlier this month.

Perhaps the good old days were better, when CMR arrived by boat and a few wise old men with leather patches on their jackets puffed on their pipes and came up with a benzene price that was more stable and less damaging to both buyers and sellers. Or is this just rose-tinted and ill-informed nonsense?

James Burke (see picture above) has so far been proved wrong about the information technology revolution giving us the ability to be free, to create our own realities and to not be dictated to by governments, companies or other institutions.

In this clip from his wonderful series, Connections, he envisages such an era because knowledge will be freely available.

This is the great democratisation of knowledge written about by Chris Anderson in The Long Tail.

Sadly, the reverse has happened. We have become a slave to our machines - from our mobile phones, to our Blackberries to our PCs - and a slave to markets that we are nowhere close to predicting or controlling.

But give Mr Burke a break. His programme was broadcast in the 1970s, was way ahead of its time and perhaps so far ahead that one day his prophesies will come true.

For us lesser mortals further down the slippery career pole, it is easy to stare up with envy and contempt at the CEOs of our own companies and other companies.

Many us at times feel (myself included) that we could do a great deal better than our bosses.

I plan to develop a CEO board game with online and "hard copy" versions complete with chance cards such as "You get caught price-fixing at a major industry event. Do not pass Go and do not collect $2,000. Go straight to jail". The reference to Monopoly wasn't meant to be a dreadful pun.

We could then put our supposed superior skills into practice and prove whether we are really cut out for life at the top. And maybe if the game was accurate enough, it could be used to help assess real applicants for the top jobs. Watch this space for a prototype.

In the meantime, management consultants, as you well know, make a fortune from offering all kinds of advice to companies and their CEOs about how to make it big.

This is not always money well spent, according to Victor Newman - former chief learning officer at Pfizer - who is now what he calls an independent Knowledge Activist.

In his excellent video, 4 Faces of CEO, he talks of how one particular consultancy charged several million dollars for 3-4 months work, only to produce findings that he says could have been reached in a couple of hours through internal discussion.

I digress. This is not meant to be a dig at management consultants whose work I admire and whose salaries I envy almost as much as my CEO's.

It must be lonely and tough at the top, although a massive salary and the guarantee of a huge pay-off even if you turn out to be a load of rubbish are considerable compensations.

Newman's video is the opening to a CEO workshop where he tries to tackle the loneliness attached to making big decisions.

He highlights something we can all relate to no matter what our rank: the feeling of powerlessness to achieve what we want to achieve because we lack the necessary skills, resources or simply the time to get to the "ideal world" (in my case, a CEO board game developed within the next six months which becomes a huge commercial success enabling me to retire, save the world and ban caravans from the roads).

He has developed a diagnostic approach where business leaders identify where they want to get to and measure this against how far away they are from their objectives. Results of these evaluations are then shared in what he admits can be a painful exercise, followed with discussion on how each of the CEOs can get closer to their ideals.

Sounds great stuf not only for CEOs but for anybody who cares about progressing in their job.

And what's fascinating is the reason for the 4 Faces of a CEO title of his video.

These four faces are:

*Creators who don't care about money because they are "intrinsically motivated". In other words there is no point in just waving the big salary cheque, the luxury new car and country club membership at these people. The buzz they get is from new ideas and only new ideas. They find implementing ideas boring because they want to move on to the next thing

*Stabilisers who are loathed by the creators. These are the nerdy spreadsheet and process people who love setting up systems and would rather not take risks than risk failure

*Implementers. They can dress in jeans and bizzarely designed T-shirts - just like the creators - and share with these space cases thoughts about the intellectual beauty and complexity of this world. They are just as comfortable mixing with the stabilisers as they can be equally passionate about the latest delivery of paper clips.

*Newton says that only recently he identified a fourth category of business leader - navigators. These are the people who ask all the right questions of the three types of CEO listed above, can pull these types together, are great communicators both internally and externally and can see the big picture.

Other than having no interest in bizarre T-shirts (my sales manager more than compensates for me in this crucial aspect of innovation) I am too much of a creator. I hate loathe, detest and despise process (but begrudgingly now admit it's occassionally useful), which has got me into a lot of trouble over the years.

The ideal CEO might well be the navigator - the person with the great people skills, the zest for entrepeneurship, the huge capacity for detail and the ability to make processes work for people rather than the other way round.

And so - using these above categorie -, let's all indulge in the spectator sport of assessing how chemical CEOS fit in with Newman's categories.

Watch this space!

Globalisation is an attitude of mind as what might now be a slightly descredited economic doctrine.

Many companies are international but few - from talking to friends and contacts - are truly global in the sense that they recruit senior managers from all regions (not just the country in which their head office is located) and display a consistent bottom-up sensitivity to cultural differences.

I mean by this a recognition that business practices vary hugely country by country and culture by culture.

At every level of a company from administration support right up to the CEO, there should be an awareness that "one size fits all" approaches don't always work.

As the world economy implodes, addressing such issues for companies that have fallen behind in efforts to become truly global will be of far less immediate importance than survlval.

Survival might only be possible for those companies that already genuinely think and act globally.

I'll give you an example. One European-located trading company launched a major polymer additives sales push in Indonesia the week before Hari Raya Aidilfitri. Pouring money down the drain in this fashion is the last thing anyone can afford to do in the current climate.

Talking the walk is one thing which Lenova clearly does in this article from The Economist where the Chinese computer manufacturer makes all the right noises about being genuinely global.

Any Lenovo employees out there who would like to comment about how genuine these comments are?

And what about other companies?

"Nobody can see until the end of the month - never mind into the third quarter," commented an olefins trader recently.

"The reason is that very senior managers are too busy micro-managing everything, from getting involved in trying to track commodity chemical price direction to insisting on signing off every expenditure over a few hundred dollars.

"The problem with these senior guys when they track markets is that they are so out-of-the-loop - assuming that they have ever actually been in the loop - that they don't know what they are doing."

I heard of one big company where the CEO has even insisted on signing off travel authorisation to next week's APIC conference in South Korea.

In these days of tight credit and collapsed sales, it's understandable that much tighter control on spending is essential.

And during the boom years, can we all honestly say that every single trip we made was entirely commercially justified - and that we were always sufficiently foused on the bottom line to get maximum value out of each trip? Look back at your old expenses forms and count up the number of genuine "drinks with Mr Kim" entries.

It will be interesting to see how the lessons being learnt today will be remembered when the economy has fully recovered.

But from a HR perspective, a tough sign-off regime needs to be well-communicated.

So does the senior guys tracking shifts in chemicals pricing - whether competently or incompetently - otherwise the workers on the ground are likely to become demoralised.

They are unlikely to be able to leave in this current climate, but will surely perform far worse if they feel their opinions are being ignored for no good and well-explained reasons.

Off-the-record, of course, how does your company measure up?

And did you fiddle your expenses during the good times?

Source: The Guardian newspaper

Apologies for letting this bog slip again. I am on leave, but still pondering where on earth we are heading. This makes a welcome relief from staring up at the grey skies and thinking "summer? What summer?" Yes, I am on leave in the UK and Wimbledon is about to start. I would recommend moving the tournament to drought-affected areas of the world, maybe on an annual rotation basis, to guarantee rainfall.

Anyway, back to the business of oil prices.

If you succeed in making acrylic acid from enzymes and microbes, as the company Novozymes is attempting to do, then maybe you can worry slightly less about the long-term likelihood of very high crude prices.

But as oil hits $70/bbl again, the old concern about boom and bust cycles driven by energy costs has to be very much in the forefront of everyone's minds - whether or not they are trying to break the direct link between oil and chemicals.

As the excellent Buttonwood column in The Economist points out, we are back in a commodities supercycle.

The 45 cents a gallon rise in gasoline prices over the last month is costing the American consumer an extra $60 billion.

As confidence in the economic recovery increases, might we soon be back to square one?

What are the solutions for the chemicals industry?

"Bob, I think I we should give this up as I can't get a wireless connection and I couldn't be bothered to talk to anyone."
Source of Picture: Faculty.SMU.Edu

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......and the effect on the quality of data and analysis is one of my big concerns - particularly at a time like this when petrochemical markets are becoming harder to fathom (many thanks to Andrew Keen and his excellent book, The Cult Of The Amateur).

The overwhelming volume of information on the Internet has led to the emergence of a new breed of journalist/company researcher/data gatherer.

No longer is it necessary to speak to people on the telephone and/or to interview them face-to-face.

Instead it is possible for the clever writer/researcher to compile an article from an Internet search. You can cobble together a convincing story (on the surface at least) by lifting data, analysis - and even quotes - without checking the accuracy for yourself.

The benefit of direct contact with multiple sources is that with experience and over time you get to work out who is reliable and who isn't from your assessment of character and motives etc; in other words, intuition.

There is no substitute for getting out of your comfy chair and travelling through the Chinese hinterland in search of the Holy Grail - real inventory levels (that's unless, of course, you are frightened of someone finding out that you are fraud with very little sincere knowledge of and interest in what you do).

Yahoo Messenger etc have further eroded the need for direct contact - again, taking away the human interaction which I believe is essential to get good quality information.

Now we have a generation of journalists/researchers who are spoilt - and I am sure overwhelmed also - by all the free information out there. Because you've never had to get off your proverbial rear end to tell a convincing story to your boss, you quite probably don't even know how to.

And more recently we have seen the emergence of an army of amateur and totally untrained citizen journalists, researchers and "experts" who can witness the riots in Burma from the comfort of their armchairs and nobody will be able to tell the difference (in other words, they make it up).

I was talking to a corporate relations officer of a certain International Oil Company the other week. He told me how one of his senior executives was so disgusted by the banality of the questions being asked that he gave the interviewer his business card back and said, "I think you should recycle this."

I once suggested to someone that while the Internet was of course essential (who would want to go back to parchment after William Caxton came along?), an experiment should be tried with young journalists/researchers/analysts etc.

I suggested that we should switch off the Internet, give them only a telephone, a travel budget and a list of contacts, along with some hard-copy resources, and assess whether they were able to assemble original and accurate information.

We could then offer training for those who fell below the mark. He accused me of being an "Old Fart".

But I am not sure how much of this was motivated by the fear of telling the Emperor he really had no clothes as opposed to a genuine belief that I was wrong.

Patrick Thomas

Source of picture: Bayer Material Science

By John Richardson

SUCCESS in chemicals - whether you are into commodities or specialities - is largely about eking out maximum value from every single molecule in all the important markets.

The almost obsessive focus on China and other emerging markets might give the impression that "all the important markets" relegates the economically ailing West to the second or third division.

But any truly global chemicals company worth its salt needs to balance investment across each of the big consuming regions.

And so, after all the fanfare of last month's announcements by Bayer Material Science (BMS) of a further $1bn of capital spending in China, the company has also been keen to stress what it is doing in Germany and the US.

The chemicals major plans to invest a total of €3.5bn ($4.5bn) in these three countries over the next five years. This will involve commercialising a new technology, upgrading existing plants, building new production facilities and a lot more work on research and development (R&D).

"Our further expansion plans in Germany include growing our coatings facility in Leverkusen that produces aliphatic isocyanate, hexamethylene di-isocyanate (HDI) and isophorone di-isocyanate (IPDI) coatings," said the company's chief executive officer, Patrick Thomas, in an interview.

"This investment should be sanctioned by the board in the next 12 months and completed in two years."

Next he detailed an example of molecule-value stretching: plans to build a commercial-scale demonstration plant that will use the company's oxygen depolarised-cathode technology for producing chlorine. Start-up is scheduled for later in 2011 or the beginning of 2012.

This will involve the conversion of BMS's last remaining mercury cell chlor-alkali process unit in the world, which is located at Uerdingen in Germany, and result in big savings on electricity costs and reduced CO2 emissions.

In effect, hydrogen fuel cells are integrated in the chlorine cell as part of this new process, lowering electricity consumption (the main cost component in chlor-alkali production) by 50% compared with mercury or diaphragm cells.

Thirty per cent less electricity is required when facilities are converted from the membrane technologies.

The company will eventually convert all of its plants to this new breakthrough process, Thomas added.

And he said: "We have signed a memorandum of understanding (MOU) with China BlueStar (the mainly state-owned Chinese speciality chemicals giant).

"BlueStar, which is the technology supplier and builder of just about all the chlor-alkali units in China, plans to use our new technology across the country. The first step is to build a pilot unit in Caojing."

BMS will also invest in Baytown, which is near Houston, Texas, and the site of company's largest US production facility.

Polycarbonate, methyl di p-phenylene isocyanate (MDI) and toluene di-isocyanate (TDI) facilities will be upgraded at the site, involving debottlenecking and technical improvements to boost reliability.

Work will also be carried out on improving logistics, such as building a chlorine pipeline from feedstock supplier Oxyvinyl, which is 20km away. This will take chlorine transportation off roads and railways.

"These investments in both the US and Germany illustrate that they are still very important markets for us," said Thomas.

In volume terms, the US and Germany remain as big as China for BMS - even if they are eclipsed in terms of percentage growth-rates.

So, of course, because growth is booming in China, the big investments in new plants are taking place in that country.

Thomas provided a great deal more detail about what BMS wants to build at its big production site in Caojing, Shanghai, compared with what was reported last month.

"Our plan for MDI is to reach 1m tonne/year of capacity between now and 2016," he said
"This will involve a debottlenecking of our existing plant to 500,000 tonne/year from 350,000 tonne/year and building a new unit of 500,000 tonne/year."

The new polycarbonate plant being evaluated for Caojing will be an "economic copy paste" of the existing 200,000 tonne/year facility at the same site.

So it will initially also be 200,000 tonne/year and then the company wants to debottleneck both the old and new plants by 50,000 tonne/year to get to a total capacity at the site of 500,000 tonne/year.

"Capital equipment for the new plant has already been pre-ordered and our target is to bring the new plant on-stream in 2013. The debottleneckings will then take place 12-18 months after that."

Thomas stressed that the decision to move the BMS polycarbonate global headquarters to Shanghai from Germany would not mean any redundancies.

The company also wants to build a new coatings plant in Shanghai. Like the coatings investment in Germany, this new facility will produce solvent-free, water-based aliphatic coatings.

Capacity of this new plant would be 50,000 tonne/year with start-up scheduled for 2013-2014.

The existing 30,000 tonne/.year plant at Caojing is to also be debottlenecked.
"All our projects at Caojing have reached the Memorandum of Cooperation (MOC) phase," said Thomas.

"The MOC phase is a step along from an MOU and means that the local Shanghai authorities will now move on to studying our proposals.

BMS is to begin environmental impact assessments and feasibility studies as part of a local approvals process that involves about 20 different steps.

"Once these steps have been completed, some aspects of our overall plan for Shanghai will need to be submitted to the central government's National Development and Reform Commission (NDRC) for final approval.

"Other elements of the expansions can go ahead with only local government backing."
Further product development work in China includes building a large-scale PC automobile-glass demonstration hall in Shanghai.

R&D development work in the auto and appliances industries mainly occurs in China, as does manufacturing.

But the electronics industry is slightly different.

"The know-how is in the US, Japan, South Korea and Taiwan with the manufacturing - because of the low labour costs - in China," said Thomas.

This is why BMS opened a functional films research centre in Singapore in June last year as the city state is "an international hub for the development of technology, drawing on expertise for the whole region".

The functional films centre focuses on research into coated high-tech films and nanotechnology for electronics.

Stand still in this business and you end up being overtaken, and, quite probably, kicked off the running track altogether.

The opportunities are huge, but as the BMS announcements indicate, so are the difficulties in making sure you both keep pace with competitors in China while not losing focus on all the important markets.

By John Richardson

"Just when you think it is the right time to make an investment case to a board of directors, the particular opportunity you have been studying has an annoying habit of disappearing," said a business development manager for a global polyolefins producer.

His comments reflect the increasingly complex world in which we live. Interactions between environmental pressures, shifts in government policy and changes in consumer behaviour are just some of the factors that can rapidly result in an opportunity becoming yesterday's news.

A product might very simply also get too expensive, resulting in demand destruction.

A classic case in point about how opportunities can suddenly vanish is the ban by India's Supreme Court from 1 March this year on gutkha - a mix of tobacco, betel and other ingredients - when it is packaged in single-serve polyethylene (PE) pouches.

This sector accounts for about 50,000 tonnes/year of PE demand in India.

The moral case for pushing sales of gutkha, a chewing tobacco, is pretty dubious to say the least.

"Apart from the obvious health risks, what is really sad is that very low-paid workers chew this stuff in order to suppress their appetites. It is cheaper than food," added the business development manager.

So the idea behind banning plastic packaging is to reduce the nationwide scale of the industry, making supply more local and therefore harder to access, he said. PE is used to preserve the shelf-life of the tobacco, increasing availability across the country.

One might think that this is an opportunity well worth losing for the wider good.

The danger now, though, is that the tobacco test case could be used by local non-governmental organisations (NGOs) to attack more defensible areas of India's plastic-pouch industry.

"Today it is gutkha. But there are hundreds of products packed in pouches. Tomorrow an NGO can give reference to this case and say shampoos should not be packed in pouches," said an India-based industry source.

Pouches or sachets have grown to overtake other forms of packaging in many product segments.

Market research firm AC Nielsen estimates that sachets accounted for 74.5% of the 104,000-kilolitre Indian shampoo market in 2008, up from 71% in 2006 and 73% in 2007.

India faces a huge plastic waste-management problem, hence the concern that the NGOs will go after the wider industry.

"True, there is a big waste issue. But these sachets cost just a few cents each and with incomes still very low for most Indians, this pushes a little luxury into hundreds of millions of lives," said a second India-based industry source.

"For the women factory workers who cannot even afford a whole bottle of shampoo, the odd sachet at the weekend with a picture of a Bollywood star on the sleeve makes them feel a little bit like that Bollywood star for a few seconds."

If this is tugging at your heart strings, also think about the economic potential: giving India's vast army of low earners a taste of being middle class raises aspirations, encouraging consumption growth for all manner of products made from chemicals and polymers.

India's polyolefins industry will therefore need to battle hard and battle smart to protect the segment.

This is a good example of how rising public awareness about chemicals and polymers in general makes engagement with governments and NGOs ever-more important.

At a much more prosaic level, a product can quickly become too expensive before an investment opportunity can be pursued.

Low density PE (LDPE) is a case in point, where demand in the Indian market fell by 6% last year due its high cost, according to a local industry estimate.

The cost has soared because of lack of investment in LDPE capacity, once seen as a sunset product because of the development of linear low density PE (LLDPE) - a substitute for film applications.

LDPE has remained popular because it can be very easily processed on what is often very far from state-of-the-art machinery in Asia.

Boosting extrusion- or coatings-grade LDPE consumption has been seen in the growth in the plastic pouches we have just been talking about.

Pouches for food and non-food items are often made from multi-layer structures, including LDPE, LLDPE, metallocene LLDPE and metallised polyethylene terephthalate (PET) film.

Despite this strong source of demand, many LDPE producers have switched their plants to ethylene vinyl acetate (EVA) production, where margins have been better. A booming end-use sector for EVA is to make encapsulants for solar panels.

"Another problem is that you can only make extrusion- or coatings-grade LDPE via the autoclave process," the business development manager added.

"The autoclave process is expensive in energy costs and is difficult to operate. Nobody, as a result, has invested in autoclave capacity for many years."

This might logically lead to full-scale and costly research into new production processes for LDPE extrusion grade - or into other polymers that can do the same job.

But the danger is that an overall ban on plastic pouches in India drives a 500-tonne freight train through demand growth.

Such uncertainties could make incremental changes in technologies and product mixes, rather than any major research and development initiatives, the way forward.

In this ever-more complex and changing world, you would then run the risk of losing the biggest opportunities of all.

 DSM's Dyneema replaces steel in offshore ropes

Source of picture: offshore-technology.com

By John Richardson

THE polyethylene (PE) shopping bags that get thrown away in their millions every day are some considerable distance down the value chain from DSM's Dyneema ultra-high molecular weight PE (UHMWPE for short).

Applications for Dyneema® include stopping bullets (it is used to make bullet-proof vests and protective panels for military vehicles, for example), and manufacturing ropes that moor oil tankers.

Understandably, therefore, the Dutch life sciences and material sciences company is keen to stress the amount of research and development and technical service that goes into Dyneema®, as attempts are made to both grow existing markets and develop new applications.

"It is 15 times stronger than quality steel, and 40% stronger than aramid fibres, on a weight-by-weight basis," said Marco Kleuters, vice president, DSM Dyneema Life Protection, APAC.

Other qualities highlighted by Kleuters include its cost effectiveness compared with steel and synthetic rope, its chemical resistance and, despite Dyneema's strength, the fact that it is light in weight.

How exactly it is manufactured is obviously a closely-guarded secret, given the high value nature of its applications.

Manufacturing involves a proprietary gel-spinning process.

Dyneema® is produced by DSM Dyneema at three locations, namely Heerlen, the Netherlands; Greenville, North Carolina, United States and Flaach, Switzerland. It is also produced in Japan under a joint venture with Toyobo.

DSM Dyneema's production base was recently extended to China following its successful completion, on 30 September, of the acquisition of a 91.75% in Shandong ICD High Performance Fiber Co. Ltd. (ICD), based in Laiwu, Shandong province, China. The takeover was first announced in February.

ICD produces a high-performance fibre for the local Chinese market.

Where the discussion gets more revealing is the development of the existing and new uses for Dyneema® that will take place at DSM's APAC Technical Centre in Singapore. The company announced plans to invest in the centre in early October. It will become fully operational in the fourth quarter of next year.

"The centre will house Singapore's first independent ballistic firing ranges (i.e. not part of a military facility)," added Kleuters.

The technical centre's 2,500 squares meters of floor space includes two ballistic testing ranges, as well as high tech equipment and testing laboratories. This will enable comprehensive testing to be carried out on the full range of Dyneema's personal and vehicle protection applications.

The centre will also be involved in R&D work into fibre applications for Dyneeema® (personal and vehicle protection applications involve UHMWPE tape woven into sheet structures), and fibre solutions in general.

Fibre applications include those in the renewable energy sector - for example, wind propulsion systems for the marine industry, which are based on large, automated towing kites.

DSM Venturing - DSM's corporate venturing unit - made an investment in the German-based manufacturer of these towing kites, SkySails GmbH & Co, in January of this year. The size of the investment wasn't disclosed.

"Under optimal wind conditions, fuel consumption on ships can be reduced by 50% through using these towing kites," Kleuters added.

Other applications for Dyneema® include:

*High Protective Textiles: Lightweight safety gloves and garments containing Dyneema® offer higher levels of cut protection, flexibility and comfort. With high abrasion resistance, gloves and garments can be washed and re-used several times, increasing their shelf-life

*Sports: Dyneema® gives yachting lines, sail cloth and rigging the same strength but up to half the weight of traditional materials such as polyester and aramid fibers. Fishing lines are easier to cast and retain their original shape. Kite lines made with Dyneema® have a higher stiffness combined with low elongation make steering easier.

PE has clearly come an awful long way from the 1930's, when the former UK company ICI brought the first-ever commercial-scale plant on-stream, primarily for only one application area - wire and cable.

And for a thermoplastic that is often derided as "throwaway rubbish" and bad for the environment, DSM can justifiably argue that this is a gross over-simplification.

A lot more than just the standard Model T.,,,

Source of picture: cCSU Archv/Everett/Rex Features

By John Richardson

THE question on my exam paper this Monday morning is what this outstanding article by the author, Charles Fishman, in The Atlantic magazine, means for the petrochemical industry.

We have all become used to the idea of the constant "hollowing out" of manufacturing in the Western world - a theme that the blog has discussed on many occasions during ICIS training's Petrochemicals I - An In-depth Introduction course.

Our slides are being adapted. What's clear from Fishman's article, and from plenty of earlier evidence about the recovery in US manufacturing, is that the old outsourcing model is changing.

Innovation in finished products will enable US companies to re-discover the lost skills of constantly improving the design of products made impossible by the tyranny of geographic distance - a big fault with outsourcing.

It will also become much easier to create niche products to serve ever-smaller groups of customers, as a result of the absence of long supply chains and the advent of 3D manufacturing.

For components suppliers, such as plastic processors, this will require an equal amount of innovation.

They, too, will take increasing advantage of 3D manufacturing to help with constantly improving the design of products, and to make much-smaller batches of products to suit niche groups of customers.

If the mass-manufacturing model for plastic processing is now under threat, what does this mean for petrochemical producers in the US?

Will they also need to also re-consider the current model of building huge million tonne-plus petrochemical complexes to serve homogenous "plain villa" manufacturing industries?

The enticement for all the cracker projects in the US - which is also helping to drive the overall recovery in the country's manufacturing industry - is of course the shale-gas boom.

But will building big, based on cheap feedstock, be of less importance in this new environment than providing speciality grades of polymers in order to serve constant innovation in manufacturing? By their nature, the profitability of such grades is driven as much, if not more, by technology rather than feedstock advantage.

Or are we oversimplifying this? Perhaps we shouldn't get too carried away into thinking that the revival of US manufacturing signals an end to the whole outsourcing model.

Low-value manufactured goods will likely continue to be made in the developing world, increasingly maybe in South America, even if China has become too expensive. The US manufacturing revival will probably only be in mid and high-level products where labour costs are less of an important element of overall costs.

Thus, there could be plenty of room for lots of feedstock-advantaged new US crackers that can export their surpluses of basic polyethylene (PE) around the world, while making a few speciality grades to serve local markets.

But what about the total demand picture? We still worry about demographics and what this means for the US, and many other economies. We are concerned that there will simply not be enough demand to absorb all of these new crackers.

And further - the Chinese might build a lot more capacity than some people think, in order to boost their self-sufficiency in petrochemicals, and take advantage of their own cheap feedstocks. The Middle East could also find a great deal more ethane.

Where will the US place of all it surplus perrochemicals? 

Let's finish on a really positive note, though: The return to innovation in local manufacturing in the US could help make all the products that don't even exist today, that will be needed by the Babyboomers as they get older.

This should also provide lots of meaningful work for young people in manufacturing industry.

Please let us know our grade for our answer to this morning's exam question.

 Source of picture: http://whyfiles.org/ 

By John Richardson

MY colleague Nigel Davis has written an excellent Insight article which highlights how some chemicals companies are seeking to respond to changing patterns.

As we have discussed before, Bayer Material Science is adapting its portfolio of products in response to the megatrends - demographics, energy conservation, climate change and the challenges of providing enough food and water to sustain emerging-markets growth.

"There are many ways you can grow in chemicals but achieving anything like the growth rates of the past has become increasingly difficult," writes Nigel.

"In the short term {and in the long term, we think], chemical companies face the prospect of slower demand from China, lacklustre growth in the US and extreme weakness in Europe."

He uses the example of BASF and how the Germany-headquartered chemicals giant is 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.

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.

Such creative spirits will only prosper in companies that have top-line executives who both understand that the "rising tide lifts all boats" growth model of the past is over for good, and crucially, are prepared to act on that understanding.

Close collaboration with countries and local companies, as growth models evolve, is essential if companies are to adapt to the New Normal - as, of course, is the willingness to invest in R&D that will not always reap immediate share-market and quarterly profits-boosting results.

Carefully nurtured relationships with customers will also be a key ingredient for success.

"I have watched my customers grow for more than 10 years now, and as a result, have been able to grow with them," said a source with a global polyolefins producer.

"Many of my customers in China have gone from being commodity converters of standard-grade polyethylene (PE) to highly sophisticated producers of value-added film with, for example, high moisture protection."

If you haven't done the groundwork already, it is going be extremely difficult to play catch-up.

BASF, for instance, is already collaborating with 600 research institutions.

There is no more time left to lose.

Source of picture: Luxepost.com 

By John Richardson

CHINA'S industrial output has had the weakest start to a year since 2009 and retail sales growth has slowed, according to this article from Bloomberg.

New local-currency loans for February were also lower than the estimates of 27 out of 28 analysts in a Bloomberg News survey.

China's leaders are trying to undo the damage of 2012 by reducing liquidity in the financial system - hence, last month's lower-than-expected new lending.

Industrial output is likely down because credit is tighter - and because demand has been weakened by rising inflationary pressures.

And as for weaker retail sales growth this, of course, also reflects higher inflation.

Standard Chartered estimates inflation will average 4% this year, above the government's target of 3.5%. This suggests that more credit tightening is on the way, with an interest rate rise now expected in Q4 (we think possibly earlier).

Weaker retail sales growth is also probably the result of a dip in demand for luxury goods.

Luxury goods sales are down because China's new leadership is anxious to show that it is serious about dealing with government officials showing-off their ill-gotten wealth.

One wonders how many sales-growth estimates have been based on the assumption that China's elite would be able to carry on buying huge volumes of luxury handbags and Kweichow Moutai Co (600519) white spirit etc.

We think that that the clampdown on corruption - part of which is the pressure on government officials to cut back on "bling" - is here to stay.

Why? Because it will help make the majority of Chinese who still earn less than $10 a day a little happier.

Plus, it gives the new Politburo Standing Committee a chance to visibly take on the "vested interests" who are keen to maintain the old growth model, as these have been the people benefiting from graft whilst stocking-up on luxury goods.

Equally likely is that the air around major cities, such as Beijing and Shanghai, will be cleaned-up by closing-down highly-polluting chemicals and other factories (perhaps this is already also a factor in lower industrial output?) and limiting the growth in car ownership.

A healthier environment will help make China's middle-income netizens more content.

The renewed battle against inflation, the corruption crackdown and efforts to deal with air pollution are just three of the many reasons why 2013 will play out very much like 2012: Another year where the commodity end of the chemicals industry will have to deal with demand growth lower than during the previous decade's "economic miracle".

But innovative chemicals companies are a different matter entirely. They could see growth rates at healthy multiples over increases in GDP as they help China deal with water shortages, wasteful use of energy and pollution.

Being part of China's solution is infinitely better than being part of its problem.

By John Richardson

CHINA has to improve innovation if it is to avoid the middle-income trap.

Some people assume that success is a given because of China's great achievement of lifting hundreds of millions of people out of absolute poverty over the last two decades.

But rapid industrialisation and infrastructure spending, which were the methods of achieving the above, are perfectly suited to a heavily-controlled political system. Resources can be easily mobilised on a huge scale when the state controls both finance (the state-owned banks), and, to quote Marx, "the means of production" (the state-owned enterprises).

Now the challenge is to foster the right degree of creativity essential for innovation within what some people warn are the "confines" of the political system.

One of Xi Jinping's tasks is to ensure that the system is flexible enough to allow small, start-up companies to spring from nowhere and become producers of world-beating brands, while  ensuring that reforms don't undermine the political system.

South Korea became a democracy before successfully escaping the middle-income trap, as we discussed in chapter 10 or our e-book, Boom, Gloom & The New Normal.

Bill Dodson, author of China Fast Forward: The Technologies, Green Industries and Innovations Driving The Mainland's Future*, provides a bleak analysis of China's current innovation environment.

"As Thomas Kuhn wrote in his seminal study of the work of scientists, 'The Structure of Scientific Revolutions', most often discoveries are resisted by peers who have vested interests, yet eventually 'the community of scientists adapts - typically in nonviolent ways - as the discovery becomes a fact that expands on previous understanding," he wrote.

"The scientific method is supposed to weed out wrong or misleading results and researchers to contribute to a base of standing knowledge upon which others may continue to build. The court systems in a civil society function similarly, with judgments passed based on a body of evidence that is indisputable in its objectivity and certainty.

"Both science and society in China are based on patronage, though. Patrons are typically political appointees with ties to the Chinese Communist Party. They are made department heads, school directors and research presidents.

"Often, political appointees have little or no experience in the fields they are charged to manage. Subsequently, patrons themselves dole out positions of responsibility to scientists, funding for projects, even living quarters for the families of researchers. Consequently, researchers learn not to 'bite the hand that feeds' if one wants to advance his or her career."

This "network of patronage" means that China is ill-equipped to develop the innovation necessary to deal with its huge environmental problems, said Dodson. 

China's economy has become increasingly dominated by the state-owned enterprises, which, according to Dodson, is bad news for innovation.

"The larger the enterprise and more closely aligned with national industrial policy, the fewer degrees of freedom of research & development interests and commercial viability the entity has," he added,

Yigong Shi and Yi Rao, deans of Life Sciences at Tsinghua and Peking Universities said in an editorial in Sciences Magazine: "It is an open secret that doing good research is not as important as schmoozing with powerful bureaucrats and their favourite experts. China's current research culture wastes resources, corrupts the spirit, and stymies innovation."

The Chinese themselves, according to a survey by the design agency, frog, think it will take some time for China to catch-up on innovation.

"Companies like Apple, Microsoft, Google and Samsung were regarded as more innovative than local businesses such as HTC, Huawei, Tencent and ZTE," wrote the marketing news and analysis service, Warc, in its report on the frog study.

"A third of respondents thought it would take more than ten years for Chinese companies to become as innovative as those in the West, while a further 25% felt it would take between six and ten years."

Is it, though, just a question of time?