“Wind of change”
Competition intensifies in the plastics industry

The chemical industry is by far the major supplier to the expanding plastics sector and for many years the status quo of the big players
had appeared to be set in stone. Yet the world ist changing.
Anke Geipel-Kern
Once again the K 2008 in Düsseldorf/Germany was the meeting place for everybody who is anybody in the plastics sector, and anyone sizing up the stands of the big players in the industry in Hall 6 could almost suppose that all was still well in the world. Yet there is a stirring in the sector. For decades the status quo in the plastics industry had appeared to be set in stone. BASF and Bayer were the dominant players in the market, closely followed by Dow Chemical and Dupont. But now there are some dark horses playing along in the premier league.

Attracted by the thriving plastics market boasting annual growth rates of five percent, petrochemical groups from the Middle East are pushing their way to the front, enjoying access to the oil wells of their homelands. The most prominent example is the Saudi Arabian company Sabic. The partially state-controlled group has only recently bought the plastics division of General Electrics and has introduced specialties like thermoplastic polymers and engineering plastics (ABS, ASA, PPE, PC/ABC, PBT, PET) to complement its standard range of polypropylene and polyethylene. This is just the beginning, according to Dr. John Feldmann, BASF executive responsible for plastics, oil and gas, who observed that “the oil and gas firms with access to oil resources will see stronger growth in the market and squeeze out other suppliers.”

Asia pushes forward

New players are lining up in Asia too, with Formosa Plastics of Taiwan and Sinopec of the People’s Republic of China leading the field. The Middle Kingdom has shaken off its reputation as nothing more than an interesting market and is now regarded as a competitor. Indeed, more and more Asian groups are putting out feelers towards Europe or the USA, like Formosa Plastics with branches in the USA. All the more important then, as emphasized by the new chief executive of Bayer MaterialScience (BMS), Patrick Thomas, for foreign concerns “to have market presence with new state-of-the-art technology”.

The outcome of such considerations will be on view by 2009 in the Chemical Industry Park in Shanghai when the BMS executive board intends to showcase new world-scale polyurethane and polycarbonate manufacturing facilities — an investment amounting to some $ 1.8 billion. A new joint venture between Dupont and Sinopec also underlines once again how important it is for international corporate groups to have one foot in the door. The aim of the undertaking is to join forces to produce ethylene vinyl acetate in Peking and from there to supply the Asian market with this special elastomer.

Information about capital spending plans in China is liberally disseminated but when it comes to anticipated or actual profits those in the know are more inclined to maintain a low profile. Despite the optimistic numbers games propagated by the market research analysts it would be more accurate at present to show how much is riding on the principle of hope and the mantra circulated by Thomas: “It’s being there that counts.”

Especially given the growth in consumer demand. “There is a move away from generic me-too products in Asia,” said Feldmann, “giving way to an increasing demand for market-specific plastics products.” Current plastics consumption per capita among Asians is running at 15 kilograms, with experts forecasting a rise to 24 kilograms by the year 2010. Standard plastics still figure most prominently but demand is growing for engineering plastics for the aspiring automotive industry, drive technology and the packaging industry.

As such there is now also a profitable market for manufacturers of special-purpose plastics who are currently expanding their local market presence. Ticona intends to capture the Asian market from China. Building work is underway in Shanghai on a development center for custom applications, and Lyndon Cole, President of Ticona, recently gave the go-ahead for the construction of a GUR line (high molecular weight polyethylene) and a Celstran line in Nanjing, both expected to come on stream in 2008. Local compounding plants are also currently in the pipeline, as are production facilities for the Vectra and Hostaform brands within the next three to five years.

Degussa (Evonik Industries) is investing too, with its high-performance polymers division shelling out a seven-figure sum to build a polymerization and compounding plant for the production of special-purpose polyamides. The end of 2008 is already earmarked for the supply of the first Asian customers.

Portfolios in flux

Like the chemicals industry, the plastics market is also split, with trade in mass-produced plastics like polyethylene, polypropylene and polyvinyl chloride being extremely quote-driven and the cost of raw materials having an immediate effect on margins — cost-effective production being the only way to survive in the long term. There is real money to be made, however, with specialties. These include engineering plastics and custom polyurethane-based designs for special applications in car manufacture or the electronics industry. It stands to reason, therefore, that many suppliers of raw materials are changing their product range and seeking to move away from commodities to specialties where the product features are the determining factor in the market.

BASF has been pursuing this competitive strategy since 2003 and has already sold its polyethylene and polypropylene segment where the accumulated raw material costs account for almost 80 percent of the total costs. Feldmann is also looking for buyers for part of the styrene business (polystyrene, ABS, SBS). The partial sell-off is intended to bring a further decrease in the dependence on commodities. The number of polystyrene products has already been reduced from 1000 to 40. Feldmann calls it “decomplexifying”, a strategy adopted internally conforming to the lean/reliable basic supplier model. The stated aim announced by corporate headquarters is to increase the proportion of customized products in the plastics segment from 25 to 40 percent by the year 2010.

Lanxess too has now discovered the specialized chemical business. Its most recent coup was the sale of the Lustran arm to Ineos, a hangover from the Bayer group split. The ABS plastics (ABS stands for acrylonitrile, butadiene and styrene) have been causing headaches for the Leverkusen-based firm for some time because this division has been afflicted for years with rising raw material costs and competition which is centered solely on price. “Our position is that of a specialty chemical group at the core of the chemical industry,” announced chief executive Axel C. Heitmann at a recent press conference in London. Now that Lanxess has shed its bulk plastics arm the 13 business units have been organized into three segments with effect from October of this year. The plastics segment will henceforth trade under the name of Performance Polymers while the other two segments are called Advanced Intermediates and Performance Chemicals.

Cost reductions

Like the other aromatic compounds used to make petroleum-based plastics, naphtha is the most expensive and the least controllable factor in the mass production of plastics, therefore the strategies adopted by the established manufacturers in their bid to score points include world-scale facilities, backward integration and the development of intelligent processes.

“The focus is on reducing the cost of raw materials and energy,” asserted Peter Vannacker, Head of the Polyurethanes Business Unit at BMS. The company is therefore pushing such processes as gas phase phosgenation to make the polyurethane component TDI (toluylene diisocyanate), a process which economizes on solvents and allows more compact plants by cutting out distillation steps.

BASF is taking another route in polyurethane manufacture. The group is planning to join forces with Dow in the shape of a second world-scale plant to make propylene oxide with an annual capacity of 390 000 tons. Propylene oxide is the most important source material for the manufacture of polyetherols which in turn are a key component of polyurethane. Map Ta Phut in Thailand is the location earmarked for the plant and HPPO the envisaged technology. The special thing about the process developed jointly by Dow and BASF is that propylene and hydrogen peroxide are the only materials required and the only by-product is water. The plants are therefore environmentally friendly and the location immaterial. Indeed, conventional PO plants need to be integrated into large chemical complexes with facilities for reusing the by-products of styrene and propylene dichloride.

Customer proximity

The chemical industry faces a particular challenge in terms of specialization and customization. As a supplier of raw materials it is at the beginning of the value-added chain, effacing its contribution for the subcontractors and the systems suppliers, also referred to as tier one customers. Therefore differentiation and strong customer focus were the watchwords at the K for the major players in the industry.

One example of this is Ticona’s integrated approach where the customer is involved right at the beginning of the development. BMS is promoting its new systems vendor concept, a worldwide network of centers of excellence intended to forge dialog with the customers and push new products.

The main driving forces for the industry are the electronics and automotive sectors. At BASF alone 70 percent of the annual plastics production is channeled into the automotive supply industry. BMS is particularly keen to pick up points with its Exasis car concept. The current result of its joint development work with the Swiss-born CEO of Rinspeed, Frank M. Rinderknecht, is a vehicle made entirely of plastic which was on display at the K stand. All the major players in the industry now have corporation-wide teams which maintain contact with the design engineers in the automotive industry, e.g. the Autocreative team at BMS.

BASF even employs a team with a brief to optimize the humble car seat. A pilot project with sports car seat manufacturer Recaro aims to develop a prototype seat consisting of BASF plastics from the shell and lining right through to the foamed polymers. n