Speciality Chemicals Consolidation and Asia Cause Concern Among Specialty Chemical Industry
The specialty chemicals business is bucking all the trends and is still highly profitable. Some companies are currently earning so much they’re in the mood for a shopping spree.
Life in the specialty chemicals sector is like playing in a soccer game — victory can follow closely on defeat and vice versa, and the players who were on poor form one day might be at the top of their game the next day. Clariant is clearly on the winning side at the moment. After fitness problems in recent years CEO Dr. Hariolf Kottmann was able to produce evidence at the analyst conference in June that Clariant is back in the international running. The group achieved growth of some 18 percent last year in almost all its business divisions, exceeding rival figures (13.9 percent).
The self-imposed 2008 restructuring program is evidently bearing fruit and the company has now scored a first-leg victory with the takeover of the catalyst specialist Süd-Chemie. The Swiss company shelled out 2.4 billion US dollars for the privilege, rearranging the rankings at the top of the table again.
It remains to be seen whether the acquisition will bring Clariant the entry it has dreamed of into the profitable catalyst business with environmentally-friendly processes and renewables. In any event, however, it is symptomatic of a sector in which the coffers are currently full and which is experiencing one takeover announcement after another.
Firms Engaged in Buyout Frenzy
In 2010 BASF kicked things off with Cognis, then followed Ashland, which bought International Specialty Products for US$ 3.2 billion, while DSM struck a deal with fatty acid specialist Martek and is on the lookout for further candidates. And the latest love match to be announced is the friendly takeover of Rhodia by Solvay.
“The chemicals industry is a cyclical sector and is therefore benefiting greatly from the upturn. This is encouraging takeover transactions”, said Lanxess board member Dr. Werner Breuers, analyzing the situation when interviewed by PROCESS. Lanxess is also busy dabbling and recently acquired the elastomer arm of DSM for € 310 million. The Technical Rubber Products business unit stands to benefit most of all from this deal, which will give it access to the synthetic rubber produced under the Keltan brand name. Analysts put a figure of € 380 million on the underlying volume of sales. And to all the rating agencies which see Lanxess itself as a takeover candidate, Breuers reveals that they are examining larger acquisitions in the € 500 million to one billion turnover range.
Lanxess generates almost half of its earnings from synthetic rubber, making it something of an exception in the heavily diversified specialty chemicals business. Indeed, the term specialty chemicals may suggest a standardized sector — yet the specialty chemicals enterprise as such does not exist. There are niche players like Air Products, or Sachtleben with its white pigments, but the chemical giants BASF, Dow Chemical and DuPont are also increasingly moving away from mass chemicals to the higher-margin specialty products. The spectrum of chemicals subsumed under the term is correspondingly broad, ranging from polymer compounds, textile fibers, chemicals for construction, pigments, and additives for the oil industry right through to emulsifying agents for skin creams. Clariant alone accommodates 12 business units under the group umbrella, with the biggest two, Performance Chemicals and Industrial & Consumer Specialties, accounting for only 16 and 18 percent of sales respectively.
Spreading the Risk
This allows the turnover risk to be pooled across several branches of the economy — a strategy which pays off, especially in cyclical industries like the semiconductor sector. On the other hand, the complexity increases, not only in terms of production processes and capacity planning but also in terms of the need to constantly review the portfolio, because every industry ticks differently and in recent years there have been dramatic shifts, especially in sectors where the competition is guided solely by the price. Textile chemicals are a prime example. Ever since the textile industry outsourced the manufacture of clothing to Asia, not only have the prices of the required fibers collapsed, but the production lines have also migrated over there. Not only did Clariant, for instance, transfer 500 products to Pakistan, but the Textile Chemicals business unit will also relocate from Muttenz to Singapore in order to be based nearer to the market and to the emerging indigenous producers there. “Our Asian competitors are growing and are fast becoming serious rivals”, said the head of the business unit, Dr. Mathias Lütgendorf. Indeed, in addition to the Dystar/Kiri joint venture, the voices of companies like Long Chen and CHT are now also being heard and are carrying weight in the global market.
Nevertheless, letters of intent and investment budgets indicate that there is as yet no end in sight to the Asian interest in specialty chemicals. BASF, for example, is currently working on a feasibility study in order to decide how much money the group wants to spend in Malaysia. It has plans for the production of special chemicals for industrial cleaning agents, scouring agents and detergents which would then be supplied direct to Asian customers. Head of Asian operations Dr. Martin Brudermüller aims to generate some 70 percent of the Asian turnover locally by 2020 as opposed to its current level of 60 percent. This was born out of the realization that there are no tricks to be made in the specialty business in the long term without a well thought-out local strategy and integration in the value added chains.
Evonik is looking to guarantee local presence with a worldwide network of production facilities in Europe, America and Asia. In 2009, for example, the Shanghai Chemical Industry Park saw € 250 million invested in a methyl methacrylate technology platform (MMA) which turns out 100,000 tons every year and has the equipment for an advanced form of the C4 process.
Focus on Energy and Resources
Raw material usage and energy input are cost factors in the manufacture of special chemicals too, hence the current plurality of process developments, such as the Aveneer process pioneered by Evonik. As with the previous ACH sulfonation process, methyl methacrylate (MMA) is formed from methane, ammonia, acetone and methanol. The cost-intensive processing of the sulfuric acid is completely dispensed with, however, as the new process works without the acid.
And Clariant is pointing the way with a renewables project, taking the direction in which its competitors have been going for some time. Under pressure from major customers, the company is keen to rely more on renewable primary products for consumer requirements — entirely in the interests of sustainable development.