August 2003 BASF Acquires Callery Chemical BASF has acquired the Callery Chemical division of Mine Safety Appliances (MSA), which is exiting the chemicals business to focus on its core safety equipment business. The transaction is valued at $65 million (Euro58 million). The purchase expands BASF's inorganic chemicals product line and will enable the company to rapidly grow its sales of inorganic products to the pharmaceuticals, agrochemicals and fine chemicals markets.   Famous Quotes of the Month - We can often do more for the other man by trying to correct our own faults than by trying to correct theirs. (Francois Fenelon) - Winning isn't everything, but wanting to win is. (Vince Lombardi) - Whoever said "It's only a game", wasn't winning. (Tom Greve) - Obstacles are those frightful things you see when you take your eyes off the goal. (Hannah More) - Every year it takes less time to fly across the Atlantic, and more time to drive to the office. (Unknown) - When you get to the end of your rope, tie a knot and hang on. (Franklin D. Roosevelt) Givaudan Gets New Fragrances Head Givaudan announced that as of January 1, 2004, Michael Carlos will replace retiring Errol Stafford as head of its fragrance division. Carlos joined the company in 1984 and has most recently served as the global head of Givaudan's consumer products unit. (picture shows Michael Carlos and Dr. Jürg Witmer; source: Givaudan) Millennium Chemicals Gets New CEO Executive vice president Robert Lee has replaced chief executive officer (CEO) William Landuyt as Millennium Chemicals' president and CEO following Landuyt's resignation. Worley Clark, the company's lead director, has been appointed board chairman. Millennium also announced it will cut 175 jobs, suspend its dividend and move its headquarters from New Jersey to Maryland as cost cutting measures. The company expects a net loss of 25-30 cents in the second quarter of 2003. New President Announced for Johnson Matthey Current board member for catalysts and precious metals Neil Carson will assume the position of CEO for Johnson Matthey in July 2004 when present CEO Chris Clark retires. On August 1, 2003, Pelham Hawker, director/environmental catalysts and technologies, and Larry Pentz, director/process catalysts and technologies, will join the JM board. ACC Sees Signs of Improved Economy, But Chemical Industry Still Struggling For the first time since March, the American Chemistry Council (ACC) has stated that there is reason to be optimistic about the economy and that the turning point may have been reached. However, in the chemical industry, high energy costs and decreased demand must still be overcome. Chemicals Industry in UK Expects Lower Prices According to a survey conducted by the Confederation of British Industries (CBI), 36 UK chemical companies expect prices from domestic sales to fall during the next three months. Respondents were divided over production output expectations, with half expecting a rise in production and half a decrease. Fifty percent of respondents indicated that their orders are below normal at this time. European Chemical Industry Struggling with Higher Feedstock Costs and Stronger Euro Earnings reports for European chemical companies are expected to be weak as a result of higher feedstock costs, the destocking of inventory and the rising Euro. Economic conditions have remained more difficult than expected, resulting in volatile earnings for specialty chemical companies. Overcapacity plagues the fine chemicals market and pricing pressures are beginning to impact the food ingredients sector. European Imports Outpace Exports in First Part of 2003 According to a report released by the European Union's statistical office Eurostat, EU chemical exports grew 1 percent to Euro51.1 billion ($57.3 billion) in the first four months of 2003 compared with the same period last year. Chemical imports were up 3 percent at Euro27.8 billion, and the trade balance fell to Euro23.3 billion from Euro23.7 billion. Latin American Chemical Industry Looking to Improve Through Logistics Changes The Latin American chemical industry is focusing on the improvement of logistics and transportation infrastructure and integration in order to aid its competitiveness. Alliances have been formed between chemical companies, transportation providers and distribution organizations, but there are still significant regional and economic differences that must be addressed. The Asociacion Quimica y Petroquimica Latinoamericana (APLA) believes that a network of local associations will be the most effective way to develop the necessary infrastructure. Trade agreements are also seen as having a positive impact on the development of more uniform logistics capabilities. Brazil is in the lead and is following the logistics approach used by the European Council for the Chemical Industry (Cefic), while the government is working to privatize ports, railroads and railways. Clariant Reorganizes to Improve Profitability Clariant plans to increase its pre-tax return on invested capital (ROIC) from 7 percent to at least 12 percent over the next three years with a comprehensive restructuring program. The company expects to raise greater than SF1.5 billion through the sale of its cellulose ethers, electronic materials and other businesses, and save an additional SF100 million per year by 2004 with short tern cost reduction measures. The company will be focusing on businesses where it can combine strong customer service capabilities with its leading-edge surface and color technology such as masterbatches, performance & process chemicals, textile chemicals and coatings. Four custom synthesis plants that produce intermediates for agrochemicals will be closed and the life sciences division will be reorganized. Clorox to Buy Back Shares From Henkel During the next two years, Clorox will buy back up to $255 million of its shares currently held by Henkel, which owns approximately 29 percent of Clorox's outstanding stock. During 2003 Clorox can purchase up to $50 million of the shares. Mitsubishi Chemical Restructures Mitsubishi Chemical has restructured into four distinct operating units with control of subsidiaries resting within each segment, unlike in the previous organization. The four units are petrochemicals, health care, functional materials and performance products. The company will also be reducing staff levels and looking for other ways to improve productivity, building and consolidating the four business segments, looking for investment opportunities in Asia and reducing its debt levels. Repsol to Make Significant Investment in Chemicals The Spanish oil and chemicals group Repsol plans to invest Euro1.20 billion ($1.35 billion) in its chemicals business through 2007 as part of a Euro17.5bn capital expenditure plan. The investment will target the company's petrochemicals, polyolefins and propylene oxide activities as with some monies going to its derivatives and rubber franchises in the Mediterranean basin, Latin America and Europe. Shell Adopts New Sustainable Development Strategy for Its Chemicals Business Shell has introduced five new performance goals aimed at bringing sustainable development thinking in to its day-to-day operations. The goals include raising overall energy efficiency by 7.5 percent, cutting critical air emissions per unit of production by 25 percent, relative to 2002, and spills by 50 percent, relative to the previous five-year average. The company also plans to have basic hazard data on all of its high production volume chemicals by 2004 with the aim of completing initial risk assessments by 2007. Shell will work toward receiving more reviews in local community surveys. SK Corp/SK Global Saga Continues Even though domestic creditors have voted to place South Korea's SK Global into court receivership, SK Corp still plans on bailing out the trading company by converting Won850 billion ($720.6 million /Euro627.6 million) of receivables owed by SK Global to new equity in the trading firm. This move by domestic creditors is seen as a way to induce foreign creditors to reduce their demands for repayment, since a court controlled SK Global bailout will lengthen the time creditors would be repaid. Foreign investors led by Monaco-based Sovereign Asset Management have been asking for a change in SK Corp's board of directors. During the past several months, foreign investment has increased from 32.17 percent to more than 45 percent. It has been suggested that other foreign investment funds have decided to cooperate with Sovereign Asset Management, which holds a 14.99 percent stake. The voting rights of SK Group units and SK Corp directors currently total 13.46 percent. DSM Announces Further Job Cuts in Restructuring Plan DSM announced that it will be cutting 500 jobs in its pharmaceuticals chemicals unit in addition to the 100 jobs it previously planned for in April 2003. The restructuring will also include the temporary or permanent shutdown of DSM production capacity in its pharmaceuticals and elastomers business units. AstraZeneca Faces Charges from EC on Misuse of Patent System The European Commission (EC) has launched an antitrust investigation of the European anti-ulcer market and claims that AstraZeneca has misused the patent system to prevent generic competition for its ulcer drug Losec (omeprazole). AstraZeneca denies that it "made misrepresentations before national patent offices or that it misused the rules and procedures applied by national medicines agencies." The investigation could last several years. FDA Approves Enbrel for Another Arthritis Therapy The FDA has approved the drug Enbrel for the expanded use as a treatment for ankylosing spondylitis, a form of arthritis that largely affects the lower back and joints. The drug is comarketed by Amgen and Wyeth Pharmaceuticals and already has applications in rheumatology and dermatology. Amgen predicts sales of Enbrel to reach $1.2 billion to $1.4 billion in 2003. FDA Approves Zavesca The FDA approved Actelion's new drug Zavesca for treatment of type 1 Gaucher disease in adults with mild to moderate cases for whom enzyme replacement therapy is not appropriate. Actelion, located in Switzerland, licensed Zavesca from Oxford GlycoSciences (OGS - England) and is developing the drug with Celltech, which currently owns OGS. The European Commission approved the drug in 2002. (Picture source: Actelion) Rankings for Top Pharma Based on 2002 pharma revenues, Pfizer is the top drug company (sales of $28,288 million). Other companies in the top five include GlaxoSmithKline ($27,060 million), Merck ($20,130 million), AstraZeneca ($17,841 million) and Johnson & Johnson ($17,151 million). When ranked by R&D expenditures, four of the top five revenue generators also appear in the top five. Pfizer once again leads with an R&D investment of $5,176 million in 2002. GlaxoSmithKline is again second ($4,108 million) followed by Johnson & Johnson ($3,957 million), AstraZeneca ($3,069 million) and Aventis ($3,235 million). Report Shows European Pharma Industry Still Strong According to a recently released Standard & Poor's report, the European pharmaceutical industry remains strong despite a decline in the growth rate from double digits down to 8 percent per year. The report cites better-balanced portfolios, promising early stage candidates, and growth above gross domestic product (GDP) growth rates for many projects. Increased spending on healthcare and healthcare reforms in the United States will also help the European pharma industry. Negative issues that must be dealt with include cost control measures by various governments, increasing regulatory burdens, patent expiries and generic competition. Roche Announces New Class of Drugs for Treatment of Diabetes Roche researches have reported in Science magazine that they have discovered a new class of drugs, glucokinase activators (GKAs), that increases the efficiency of an enzyme critical to maintaining the body's normal glucose balance. The drugs, if effective, could be a significant advancement in the treatment of type 2 diabetes. (picture - Roche research site; source: Roche) Suit Filed Against Solvay's Estratest Prescription Access Litigation project (PAL), a Boston-based consumer advocacy group, is suing Solvay Pharmaceuticals on behalf of the Congress of California Seniors and the California Public Interest Research Group (CALPIRG) for marketing and selling its hormone replacement therapy (HRT) Estrates without FDA approval. PAL is requesting that the court require Solvay to immediately remove Estratest from the market, compensate consumers and relinquish all profits. In 2002, sales of Estratest reached $233 million. The FDA is currently evaluating the effectiveness of estrogen/androgen combination products like Estratest to treat hot flashes. EC Approves DSM Purchase of Roche Vitamins & Fine Chemicals, Purchase Price Drops Again DSM has received approval from the European Commission (EC) for its acquisition of Roche's vitamins and fine chemicals business. The EC had been concerned about competition in the phytase (enzyme in animal feeds) market as alliances between DSM and BASF and Roche and Novozymes operated as the major suppliers. DSM has offered to end its alliance with BASF for the production and distribution of feed enzymes and will sell the business to a third party approved by the EC. The US Federal Trade Commission (FTC) is reviewing the deal between DSM and Roche. Meanwhile, DSM announced that the purchase price for Roche's vitamins and fine chemicals business has been reduced by $224 million, the second reduction since the deal was announced in September 2002. The price decrease, plus several other changes, was made due to the poor financial performance of the business and the current weak economic conditions. Fire Retardant Chemicals Experience Growth Stronger regulations in both North America and Europe and the introduction of fire regulations in Asia are creating robust global growth of 3 to 4 percent for fire retardant chemicals. According to a Rapra Technology report, stricter fire-safety levels in Europe and North America and harmonization of fire protection requirements for European construction products and railway rolling stock are key drivers for the growth. The adoption of fire regulations in Asian countries with increased technological capabilities, particularly China, is also a key contributor. Honeywell Files Suit to Stop Ashland and Air Products Deal Air Products' $300 million (Euro267.9 million) purchase of Ashland's electronic chemicals business may not be completed if the lawsuit filed by Honeywell International and GEM Microelectronic Materials is successful. According to Honeywell, a contract among Honeywell, GEM and Air Products that is in effect through 2008 prohibits Air Products from acquiring Ashland's electronic chemicals business and selling Ashland's products instead of GEM's and Honeywell's. Nanotechnology Has Bright Future According to the Freedonia Group, the U.S. market for nanomaterials will surpass the $1 billion mark in 2007 and reach $35 billion by 2020. Application for nanomaterials can be found throughout the manufacturing sector. Over the long term the best opportunities will be in the healthcare and electronics markets. Conventional nanomaterials, or products that are smaller versions of commercially available materials, will see strong growth, but it is new, yet-to-be commercialized technologies and products that will see the largest growth. Vitamins Market Remains Flat Business Communications Company reports that the $2.2 billion global vitamins market will remain stagnant from 2002 through 2007. Demand for vitamins remains strong, but price erosion will cause the value of the market to remain unchanged. Lower margins have resulted in cost cutting measures and development of more efficient production methods, particularly fermentation. These market conditions will spur further consolidation within the industry. (picture source: Roche) Japan New Source of Partnerships for Biotech Consolidation within major pharma and the need to reduce logistics difficulties has led the biotech industry to consider developing sales and marketing relationships with one global partner instead of working with multiple regional organizations. Japanese firms are becoming attractive because they can offer better financial flexibility, a more enduring relationship and a stronger basis for growth. Japanese pharma companies are looking to maintain a dominant position in the domestic market and increase their presence in international markets and therefore may provide significant opportunities for partnerships with biotech firms. Lonza and Celltech Form Alliance Lonza Biotec will supply Celltech with antibody fragments produced using a proprietary fermentation technology developed by Celltech. The agreement is in effect from 2004 through 2010. Lonza Biotec will reserve an unspecified amount of fixed annual capacity and also provide with technology transfer, scale-up, cGMP manufacturing and quality control testing services for the fermentation system. (Picture - Lonza Slough, UK site; source: Lonza) Rise in Investment in U.S. Biotech According to the financial market research firm Liiper (New York), investment in U.S. health and biotech funds increased 18 percent in the second quarter. The company also notes that the five leading funds experienced an average annualized growth of 35% in the second quarter. EU Council Bans Antibiotics in Animal Feed Extending its existing ban on growth promoters based on antibiotics used in human medicine, the European Union has adopted a comprehensive ban on antibiotic growth promoters in animal feed. The ban will prohibit the use of the substances monensin sodium, salinomycin sodium, avilamycin and flavophospholipol. In addition, all types of feed additives to be marketed, used or processed in the European Union must be pre-approved, which will require companies to prove that the additive has a positive effect for the animal and does not pose a threat to human health. All feed additives on the market must be re-approved or withdrawn within seven years. Asian Polymers Sees Return of Traditional Buying Patterns Buyers of Asian polymers have begun demonstrating more typical purchasing patterns, with some building up inventories in advance of demand and future price increases. Companies are cautious, however, and are not returning to their excessive buying patterns of earlier this year, when the impending Iraq War led to large scale stockpiling. The lack of severe interruption in Middle Eastern supply, combined with the difficult market conditions resulting from SARS, resulted in decreased prices and high inventories, which buyers have recently dwindled. Brazil's Petrochemical Industry To Reach High Levels in 2005 The Brazilian bank Unibanco predicts that the petrochemicals market will reach a peak in 2005 despite the current slowdown in economic conditions. Chemical analysts at the bank note that the poor results indicate a "yellow alert" and recognize that the second and third quarters of 2003 are showing weak figures but still expect a turnaround in the next two years. The bank points to slow growth in petrochemical supplies compared with demand as a driving factor in combination with recovery from temporary difficulties such as SARS and the deceleration of principal economies. Chinese Market Attracts New Polyolefins Capacity Chinese demand for polyolefins has increase beyond the capacity of its domestic producers. According to a report by Nexant Chem Systems and Sinodata Consulting, major European petrochemical firms are responding by investing in new capacity located near the growing Chinese market, such as in the Middle East. Chinese demand for polyolefins is expected to grow from 15 million tonnes/year (tpy) in 2002 to over 28 million tpy in 2010, while domestic production will only double its current 4 million tpy to 8 million tpy in the same timeframe. Czech Unipetrol Set to Privatize Czech oil and petrochemical group Unipetrol received approval of its governmental adviser, a consortium of financial consultants including McKinsey & Company, West LB bank and local firm EEIP, for privatization from the Czech cabinet. The consortium is expected to launch a tender for the state's 63 percent of Unipetrol in October, with privatization finalized by March, 2004. Bids are anticipated from companies in Hungary, Slovakia, Poland, Austria and Russia. Analysts predict the government will gain more than Koruna 10 billion ($360million) if conditions of the sale are reasonable. The advisory group has indicated that it will place minimum requirements on the bidders and encourage the formation of consortia. Iraq Looking For Investors to Restart Chemical Industry The Iraqi Reconstruction Group says that Iraq needs $4-5 billion in investments and two years to rebuild its petrochemical industry. Currently the country possesses two petrochemical complexes, one in Basra and one in Musayyib, occupied by five different companies. To date the U.S. government has given $500 million for rebuilding the upstream and downstream processing of oil and gas reserves and has announced it will provide an additional $1.8 billion. Iraq believes that participation by foreign oil companies is necessary because they have the finances, technology and market presence. Philippines Petrochemical Companies Seek Economic Zone Status for Bataan Petrochemical companies in the Phillipines have requested that the Philippine National Oil Corp's (PNOC's) petrochemical park in Bataan be declared an economic zone to be run by the Philippine Economic Zone Authority. Companies in an economic zone can import capital equipment and raw materials without paying any duty and often receive tax holidays but are also required to export a certain percentage of their products. The central government has given its approval, but infrastructure within the park must be improved. Saudi Arabia Once Again Welcomes Foreign Investment A natural gas exploration joint venture among the Saudi government, Shell and Total will operate in the Rub Al-Khaki region of southeastern Saudi Arabia. After splitting up its previously cancelled "Core Venture" gas and petrochemical projects, the government relaunched the exploration segment of CV3. Shell has a 40 percent stake, while Total and Saudi Aramco each have 30 percent. The Saudi government is also meeting with multinationals to discuss their participation in the remaining segments of the Core Venture projects.(picture - Shell Deer Park plant; source: Shell) Food Industry Responds to Trans Fat Labeling Effective January 1, 2006, Nutrition Facts panel of foods and some dietary supplements must include a listing of trans fatty acid, or trans fat, as required by a new FDA regulation. Some companies are looking at the new labeling rule as an opportunity to offer alternative products to consumers. Others fear that the labeling will cause a negative response from consumers when they see the amounts of trans fat in their products. According to the Institute of Shortening and Edible Oils (ISEO), consumers will ultimately pay for the added cost of new technologies and production processes necessary for developing alternatives to products containing trans fat. European Plastics Stable for Now, but Price Hikes Expected Soon Strong demand resulting from pre-buying in the latter part of July brought stabilization to the European commodity plastics market. Decreases in production earlier in the year, however, are now providing for some tightness in supply. In addition, producers plan to introduce price hikes in August and September to recover lost margins. DuPont Canada Shareholders Approve Buyout by U.S. DuPont DuPont's plans to set up DuPont Textiles & Interiors (DTI) as a separate organization can move forward with the approval of its acquisition of the remaining shares of DuPont Canada by that company's shareholders. The $1.4 billion (?1.2 billion) deal was approved overwhelmingly, with 99.9 percent of shares voted in favor of the acquisition. DuPont plans to separate DTI by the end of the year and integrate DuPont Canada into the new entity. Huntsman Plans to Withdraw From ACC Huntsman will resign from the American Chemistry Council at the end of 2003 due to ACC's "inability to deal effectively with its diverse membership," thereby making it "extremely difficult, if not impossible" to reach consensus on issues, according to Huntsman CEO Peter Huntsman. At this point the company feels it can achieve more on its own and through other trade groups with the resources previously sent to the ACC. Huntsman will reconsider its decision to leave the organization if considerable changes are made, but it thinks the chance of this happening is minimal. Russia Says No to Kyoto Protocol Citing a lack of economic incentives, the Russian government has delayed indefinitely its plans for ratifying the Kyoto Protocol on climate change. The Protocol cannot go into effect until countries accounting for 55 percent of 1990 greenhouse gas emissions have ratified it. When the U.S., which accounts for 21 percent of 1990 emissions, pulled out of the agreement in 2001, Russian participation (17 percent of 1990 emissions) became necessary for the Protocol to take effect. United States and Japan Respond to European REACH Regulations U.S. and Japanese companies have responded to the proposed European registration, evaluation and authorization of chemicals (REACH) proposals with similar complaints to their European counterparts. The U.S. chemical industry is particularly concerned about the impact on global trade, which could affect most U.S. goods exported to the European Union, worth $143 billion in 2002. The U.S. industry is also concerned that REACH disregards attempts at harmonization of international chemical regulations. The Japan Chemical Industries Association believes that REACH discriminates against chemicals imported from outside the European Union and is not workable with regard to practical implementation of the requirement of the proposals. In This Issue Featured Article Famous Quotes Personnel Business/Finance Companies Pharma Fine & Specialty Chemicals Biotech Agrochemicals Commodity Chemicals Fats and Oils Plastics Specialty Polymers General Corporate HQ: 9101 LBJ Frwy., Suite 310 Dallas, TX 75243 USA Tel: (214) 349-6200 Fax: (214) 349-6286