HOUSTON (ICIS)--Hexion is adopting internal growth as a second plank to move the company's portfolio towards specialty products that are not exposed to the ups and downs of the business cycle, the CEO of the thermoset resins producer said on Friday.
Right now, about 40% of the company's products are in cyclical markets, with the rest being in specialties such as adhesives, said Craig Rogerson, CEO. He made his comments in an interview with ICIS.
Hexion is not considering divestments, because Rogerson wants to preserve the company's scale.
That leaves growth, and Hexion plans to pursue that through mergers and acquisitions (M&A) as well as through organic growth, Rogerson said. "New product development is a big part of that."
Fire-resistant wrap for utility poles could be a big opportunity for Hexion because of the wildfires in the US state of California, he said. The product could give the company's earnings a boost as early as 2021.
Hexion recently developed some formaldehyde-based products that could replace poly methylene diphenyl diisocycanate (PMDI) in the core of oriented strand board (OSB).
Such a technology has long proven elusive.
"We think we've got something now," Rogerson said. "It's running in very broad, long trials out in the marketplace. We're confident that's going to be a contributor in 2021."
There had been concerns of urea-formaldehyde resins emitting formaldehyde from OSB.
Rogerson said the emissions are no longer an issue. Hexion has been able to cut the emissions down to levels that can hardly be detected. "At this point, we are at such low levels now that they are non-issues."
For Hexion's composites business, it continues to work on getting its products qualified for use in automobiles.
Vehicle producers are under increasing pressure to lower the weight of their automobiles, whether they use internal combustion engines or lithium-ion batteries.
Lighter-weight vehicles travel farther on a tank of fuel, allowing them release fewer emissions of carbon dioxide (CO2).
Lighter electric vehicles (EVs) can go longer between charges.
Auto makers have been replacing heavier metal components with ones made of plastics and composites to improve the efficiency of their vehicles.
But even without substitution, Rogerson expects demand will grow for Hexion's composites.
Many auto-parts makers want a second supplier for their composites. While Huntsman has been a key player in the automotive-composites market, Hexion is gaining ground as a second source.
"That is a real opportunity," Rogerson said. "Most of the producers are looking for a second supplier."
To improve its prospects in China's growing EV market, Hexion opened a new application development centre in Shanghai. The centre will focus on speeding up growth in waterborne coatings and composites used in wind turbines and automobiles.
Electric vehicles are growing a lot faster in China than in Europe and the US, and it generally takes less time to get materials qualified there, Rogerson said. "We're using a lot of the experience that we are gaining in China to work with companies like BMW or Ford in Europe and the US."
Composites are also used in airplanes to help them burn less jet fuel. The aerospace industry suffered from the decline in travel caused by the coronavirus pandemic.
Rogerson does not expect the industry will struggle through a four-year lull as some forecasters are predicting. But it may not be until 2022 or even 2023 before aerospace sufficiently recovers.
Hexion's adhesives business has been benefitting from the recovery in US homebuilding. Housing starts in the country hit a milestone in September when they were higher than the long-term average, something that hasn't happened in more than a decade, Rogerson said.
That trend is continuing, and he attributes that in part to demographics, pent-up demand and low mortgage rates. House construction could even be getting a boost from the coronavirus. As more people work from home, they're buying larger homes.
Brazil's construction industry has recovered to the point where Hexion felt comfortable enough to restart both portions of its facility in Montenegro, Rio Grande do Sul state, Rogerson said.
The facility makes formaldehyde and formaldehyde-based resins.
Hexion had never shut down the entire complex, but portions had been down because of Brazil's weak construction market, Rogerson said.
The industry lagged behind others when Brazil started its slow recovery from its recession in 2015-2016.
Parts of the complex had been idled for the past three to five years, he said.
Both sides of the plant are now running now, and Rogerson expects it will contribute significantly to the company's earnings in 2021.
Hexion has another plant in Curitiba, Parana state. Based on the contracts that the company has, Rogerson expects both plants can run relatively full. "At this point we are relatively optimistic."
In Europe, the predominant form of construction is block instead of wood frame, so any recovery in home construction would mainly benefit Hexion's coatings business, he said. European house construction is improving, but at a slower pace than that in the US.
Interview article by Al Greenwood