ICIS Chemical Business | Editor’s comment

SPECIAL GUEST: CHRIS JAHN, PRESIDENT, NACD (NATIONAL ASSOCIATION OF CHEMICAL DISTRIBUTORS)

THE US Chemical and Water Security Act of 2009 is an environmental regulation masquerading as a homeland security bill. It is supported by environmental organizations that have no background in security. The inherently safer technology (IST) provisions in the bill fulfill their agenda of eliminating chemicals from commerce that have not been banned under current law.

But IST is a process safety discipline - not a strategy for warding off terrorists. It shifts risks, but can't eliminate them. Implementation required under the bill would cost millions of dollars and kill jobs. The Department of Homeland Security does not have the resources or expertise to implement an IST requirement.

NACD supports the existing Chemical Facility Anti-Terrorism Standards (CFATS). In fact, we were the first chemical trade association to approve new security measures, as part of our Responsible Distribution Process.

We should not let environmentalists dictate our nation's homeland security policy. Chemicals management policy should be addressed by reforming the outdated Toxic Substances Control Act (TSCA). The IST argument is a diversion from implementing the current CFATS. Congress should focus on security - not political agendas.

 

Photo: NACD

"Making money is art and working is art, and good business is the best art," once said the acclaimed pop artist Andy Warhol.

And unveiled on October 14 at The Andy Warhol Muesum in Pittsburgh, Pennsylvania, US, was a sculpture celebrating 100 years of synthetic rubber use since its invention in 1909 by Fritz Hofmann.

Called "Wheel of Fortune" and commissioned by German specialty chemical and synthetic rubber producer LANXESS - the sculpture is a three-dimensional timeline depicting the expansion in the worldwide production of synthetic rubber through the years.

LANXESS, with the help of the museum, reached out to 15 global artists and asked them how they would interpret the 100th anniversary of synthetic rubber while using LANXESS synthetic rubber as a medium.

The Wheel of Fortune by Ryan Alexiev, Loren Madsen and Hank Willis Thomas was selected as the winner.

The amazing growth of synthetic rubber would not be possible without a continual process of innovation, shaping and altering its characteristics to suit specialized needs - from high-performance car tires that hug the curb at high speeds, to strong and flexible bungee ropes, to gaskets, garden hoses and shoe soles.

"This is a perfect venue for this event. When you think of Warhol, you think of innovation, out-of-the-box thinking, risk-taking and an entrepreneurial spirit," said Randy Dearth, CEO of the the company's North American arm LANXESS Corp., at its "Unnatural Rubber" celebration. "We believe all these traits helped us become a success five years after our spinoff."

In September, LANXESS was selected as the ICIS Company of the Year for outstanding financial performance in 2008.

"I make my living in the chemical industry with a focus on innovation and science," said Dearth. "However, I have always believed there was an art to science and conversely a science to art."

The art of innovation is truly what keeps the tires rolling in the fast-track evolution of business.

Video and photo credits: ICIS

With all the world's attention focused on Asia and its booming economic growth driven by China and India, Latin America tends to get overlooked. But that would be a big mistake, as the region is making significant strides towards becoming an industrial powerhouse.

The Latin American chemical industry has taken its lumps in the global recession, but will emerge even stronger if the right investment opportunities are pursued.

The region is rich in natural resources, from oil and gas, iron ore and lithium to an agricultural bounty that can provide the basis for a burgeoning biofuels industry. Relative political stability over the years has provided a firm platform for economic growth.

This opportunity cannot be squandered - the time to invest is now! On the chemical front, Brazil is leading the way with several large petrochemical expansions by state-operated energy and chemical giant Petrobras, and chemical firms Braskem and Quattor (who are also studying a strategic alliance or merger).

Mexico, which is hosting the Latin American Petrochemical and Chemical Association's (APLA) 29th annual meeting in its capital from November 7-10, has the opportunity to finally get a major petrochemical project off the ground with its Ethylene XXI venture.

We eagerly await news from the meeting. Look for the November 2 issue of ICIS Chemical Business featuring Latin America.

 

Image: 3FL

Few have been hit harder by the global financial and economic crisis than Japan. Its export-based economy heavily exposed to automotive and electronic goods came under severe pressure and challenges persist.

However, this economic tsunami will put a charge into the pace of structural reform - it is already happening in Japan's chemical industry with massive restructuring involving plant shutdowns, and a flurry of joint ventures and alliances.

Mergers and acquisitions, while likely to continue on a limited scale, are not the answer to the Japanese chemical industry's structural issues. Rather Japan is ready to begin a new era of strategic alliances to access feedstocks and leverage technologies.

Japanese chemical M&A activity has slowed considerably in recent years, with 10 deals over $25m in size involving a Japanese buyer or seller completed in 2006, four in 2008 and one in the first half of 2009, according to New York-based investment bank Young & Partners.

However, joint ventures and alliances are picking up. In August, Mitsubishi Rayon signed a $1bn JV deal with Saudi Arabia's SABIC to produce methyl methacrylate (MMA) and polymethyl methacrylate (PMMA) in Saudi Arabia for the automotive and electronics industries.

Mitsubishi Rayon also in September formed an alliance with US-based Cytec industries to develop carbon fiber composites for the next generation of aircraft.

But there could be some interesting M&A deals to come. Mitsubishi Rayon, which completed its $1.6bn acquisition of UK-based MMA producer Lucite International, may itself be the target of an acquirer. Rumors abounded this past summer that the company was in talks to be acquired by Japan's chemical leader Mitsubishi Chemical for up to $2bn.

With all the exciting changes in this industry, we are delighted to present the October 26 special issue of ICIS Chemical Business with our esteemed partner, The Chemical Daily, of Japan, whose editors provide invaluable insight into this market.

 

Photo credit: Syntagma Media

BY SPECIAL GUEST COLUMNIST ALBERT HEUSER, PRESIDENT OF BASF'S PETROCHEMICALS DIVISION

The global economic crisis continues to cause a difficult business environment. The petrochemical industry is coping with this crisis in a very agile and flexible way, and indications are that the situation is stabilizing at a low level. But there are still many unresolved issues.

To manage challenges in the long run, it is important to invest in optimization as well as in innovation. Strengthened cooperation between companies as well as efficient Verbund structures within each firm are as important as optimization of logistics and infrastructure.

The key to future success is new technologies and products. New eco-efficient products can lead to significant energy savings as well as mitigate CO2 and other greenhouse gases. The chemical industry is clearly part of the solution to climate change.

Therefore, the primary objective of relevant EU policies should be to safeguard industry competitiveness. We need a global climate policy with fair burden sharing that results in a harmonized global carbon framework with one single price for carbon for all. The EU Emissions Trading Scheme (ETS) must not lead to global market distortions.

If we follow consequent strategies and the relevant policies frame the necessary legal conditions, I am confident that the European petrochemical industry will stay very competitive. This is important for our benefit as well as our strong and innovative customer base.

Many across the global chemical industry are pinning their hopes on China as a driver for recovery in demand for chemicals. Indeed, in recent months, we have been encouraged by some startlingly good import and export figures from the country.
High-density polyethylene (HDPE) imports nearly doubled in the first half of the year, while low and linear low density polyethylene (LDPE and LLDPE) jumped by around a half. Domestic chemical demand also appears to have rocketed.
This week, we analyze the causes of this apparent recovery and ask if it signifies a real turnaround.
Realizing that export markets were collapsing, the Chinese government has put in place enormous stimulus plans. The automotive programs, for example, resulted in sales of locally made cars rocketing 36% year on year in June. Huge amounts of cheap credit have also fueled growth. The question remains, though - how strong is real, underlying domestic demand?
China is pushing hard into specialties as it tries to diversify its economy. This will provide raw materials for products to satisfy the nation's burgeoning middle class. The figures are startling: between 2005 and 2020, China will add around 500m consumers who have an annual income of at least $10,000 (€6,800). That market is an opportunity not to be missed.

Once again, we are pleased to present the ICIS Top 100 Chemical Companies, ranked by 2008 sales. The results, spanning the global chemical industry, reflect a strong start to the year, followed by a collapse in the third and fourth quarters, triggered by the widespread financial and economic crisis that began in the US.

German major BASF led the pack, as it did in 2007, with $87.8bn in sales in 2008, while US-based ExxonMobil eclipsed Dow Chemical for the number two spot with $58.1bn in sales versus Dow's $57.5bn - third in the rankings.

The crisis certainly made its mark on the 2008 figures, most notably on net profit. For the sake of comparison, this time we included both 2008 and 2007 stats for both operating and net profit rather than percentage changes - just because there were so many companies in the red.

Out of the ICIS Top 100 Companies, 23 posted net losses in 2008. Overall profits tumbled 53% year on year for the group.

The crisis continues to hit the chemical market, and 2009 will likely show further earnings declines.

But the last throes of the M&A upcycle with multibillion dollar deals announced in 2008 that closed in 2009 will propel Dow Chemical upwards again, following its acquisition of US specialty chemicals giant Rohm and Haas. BASF will further pad its leading spot with its buyout of Swiss specialty firm Ciba.

While big deals like this have been put on ice, an M&A recovery could well be in the making as confidence returns and the financing market slowly recovers.

A big thanks to Lara McNamee and the ICIS data & analytics team led by Paul Ray for putting together the ICIS Top 100 rankings.

You can download a PDF of the ICIS Top 100 table on ICIS connect at http://www.icis.com/icisconnect/groups/icis-top-100-chemical-companies/default.aspx

We are also delighted to launch the ICIS Education & Recruitment Campaign. Led by Andy Brice, this campaign is aimed at highlighting the challenges as well as the industry's efforts in fostering interest in joining the chemical industry among students.

It is a critical issue vital to the future of our industry, and we truly appreciate the public support of so many distinguished industry organizations, including the American Chemistry Council (ACC), Society of Chemical Manufacturers & Affiliates (SOCMA), European Association of Chemical Distributors (FECC), National Association of Chemical Distributors (NACD), Chemical Heritage Foundation (CHF), Chemical Educational Foundation (CEF), National Skills Academy, Chemical Business Association (CBA), Association of Petrochemicals Producers in Europe (APPE), Societe de Chimie Industrielle and Singapore Chemical Industry Council (SCIC).

We welcome you to check out the ICIS Education & Recruitment Blog and send us your comments!

   BY SPECIAL GUEST COLUMNIST ARTURO GARCIA

Is there a real future for Mexico's petrochemical industry? We still have no answer, or at least we keep trying to justify that "with no answer" we still have an opportunity. But when will this opportunity materialize?

Because of its great economic impact downstream, we need to battle the enemy before us - that is, the lack of political will. There is a critical decision at hand to allow private companies to access ethane feedstock at a competitive price in a long-term supply contract.

It is one that is under President Calderon's decision-making faculties, and must be made with a long-term view that appreciates the enormous benefits that arise in Mexico from an economic standpoint.

The Phoenix Project, Mexico's planned multibillion-dollar joint venture cracker and derivatives complex, failed even with the full support of former President Vicente Fox, just because there was an alternative value for ethane as a fuel.

The issue of whether to sell ethane at a competitive price in a long-term supply contract to partners in the Phoenix project versus selling it as a fuel became a dogmatic struggle between economists, entrepreneurs, and politicians.

Unfortunately, short term vision and the lack of recognition of the great benefits that projects like this would bring to Mexican economy, prevailed.

Today we again have an opportunity, as low natural gas prices, at least in the3 medium-term, provide a great deal of competitiveness.

Yes, NAFTA region and its ethane-based crackers, are becoming competitive again - even enough to consider expansions or new crackers such as the one being planned in Mexico.

Mexico's Ethylene XXI Project aims to build a 1m tonne/year grassroots cracker wholly-owned by private companies. Hopefully this time, our government will make the right decision to promote projects like this, finally recognizing that we have the obligation to create value through petrochemicals for the benefit of Mexican citizens.

Arturo Garcia (pictured above), based in Mexico City, is CEO of Mexican plastics distributor Resinas TB and former executive director of Mexico's Phoenix project.

In today's age of restructuring, companies are seeking cost savings and synergies left and right. A global and more competitive chemical industry dictates calls for a well-oiled organization that can compete on a cost and technical basis to serve demanding customer needs.

However, simply mashing disparate businesses together into operating units does not generate any real value.

This is especially true for specialty chemical companies, which tend to serve a variety of end markets.

Craig Rogerson, chairman and CEO of US-based specialty chemical firm Chemtura, drove the point home in an interview last week at our New York office.

Rogerson is striving to take the company out of Chapter 11 bankruptcy by March 2010 - a year after its filing.

"In the past, a lot of time was spent force-feeding a common strategy for all the businesses. But the fact is, there isn't one," he said. "There is no one strategy that covers crop protection, petroleum additives, urethanes and pool and spa."

And that's OK, he said. The businesses can make decisions separately, as well as take advantage of certain shared services such as IT (information technology) systems.

Chemtura has submitted a 5-year long-range business plan to the unsecured creditors committee and set an October 30 deadline for all claims against it - the first steps in valuing the company's assets and liabilities so it can emerge from bankruptcy.

The plan recognizes the differences between Chemtura's many businesses. The strategies in the plan are business-specific and driven by the analysis of each one's competitive advantages, he said.

If employees are force-fed a strategy that doesn't apply, there is inevitably going to be that lack of belief that the strategy can be executed.

Photo credit: Sculptors.com

The timing of a special issue devoted to chemical sites and clusters (17 August 2009 issue) could not have come at a more opportune ­moment. Seldom has the concept been tested more ­severely than in the current economic environment.

Many chemical companies, which announced temporary capacity reductions last year or in the early months of 2009, are now taking the decision to make them permanent. And all over the world the industry is taking a hard look at its manufacturing strategy with a view to rationalization.

Companies operating at chemical sites and clusters tend to rely heavily on each other for the supply of raw materials, sale of finished products, as well as benefitting from the reduced cost of sharing services such as power, steam and waste water treatment.

This makes it all the more difficult when one player pulls out. As we are seeing at the Wilton, Teesside, UK site, there is an danger that a domino effect may kick in, with one closure leading to another, undermining the ­viability of petrochemical manufacture there.

There is a good argument for state intervention during these unprecedented times. In the case of Wilton, the government needs to act now if it is serious about retaining a vibrant industrial base in the UK. Chemicals may not be as glamorous as the automotive industry, but they are the essential building blocks of a prosperous economy.

Large chemical sites and clusters which are well connected by pipeline can adapt to changes in production by the players there as they have a wide choice of other potential customers or feedstock providers. For this reason, US chemical clusters have fared better during this downturn as most are based around the Gulf coast with an excellent pipeline network.