October 2003 How Do You Like Our Newsletter? This is the 5th monthly issue of our ChemicalInformer newsletter which began in June 2003. We have received many "thank yous" and compliments from our subscribers who have told us that a monthly news summary encompassing the important news events in the worldwide chemical industry is extremely valuable. We have tried to make it entertaining as well as informative. In the July issue, we added a "Famous Quotes" category which contains a handful of motivational quotes which are dug up by our editor each month. In this issue, we are adding another entertaining category called "Imponderables." This months "Imponderable" is entitled, "Do Penguins Have Knees?" We think you'll enjoy some Imponderables planned for future months such as "Why don't you feel a mosquito bite until it itches", "Why is steam rising from the streets of NY", "Why are nonsweet wines called dry", etc. We hope that you continue to enjoy the ChemicalInformer both as a source of news as well as a source of entertainment. And as always, please let us know what you think.   Do Penguins Have Knees? Penguins do have knees but they are hidden under their feathers. Penguin legs are divided into three segments. The middle segment, equivalent to our shinbone, is quite short in penguins. Birds that appear to have long legs, like flamingos, have a knee that is turned backwards. This does not function the same way a human knee does. Penguins however, have knees that function much the way ours do. Since their element is mainly water, their legs help them swim as their feet act like rudders . So even though you can't see them, penguins do have knees. Famous Quotes of the Month - If a word is misspelled in the dictionary, how would anyone know? (Anonymous) - Adversity introduces a man to himself. (Anonymous) - A wise man's questions contain half the answer. (Gabrirol) - Advice is what we ask for when we already know the answer but wish we didn't. (Erica Jong) - Learning is discovering that something is possible. (Fritz Perls) 3M is Reorganizing its R&D Structure 3M is moving nearly half of its corporate R&D employees into the research and development groups within its seven individual business units in order to strengthen its commercialization efforts. No reductions in headcount or the company's annual $1 billion plus R&D budget will accompany the shift in personnel. According to 3M chairman and CEO W. James McNerney, the movement of technical people will enable the company to more efficiently and effectively transform pipeline projects into products that meet the needs of its customers. Akzo to Divest Three Chemical Businesses Akzo Nobel will sell its catalyst, resins and phosphorus chemicals businesses to raise nearly $1.1 billion (Euro 1 billion). The businesses had 2002 sales of Euro 375 million, Euro 414 million and Euro 200 million, respectively. The funds will be used to decrease debt and make acquisitions in the pharmaceuticals and coatings sectors. These three businesses comprise 22 percent of the company's chemical sales, and the announcement has led to speculation about Akzo Nobel's commitment to the chemicals industry. According to a company spokesperson, Akzo Nobel hopes to gain consistency in its profitability and enhanced synergies between its pharmaceuticals, coatings and chemicals businesses. Bayer Pays $477 Million to Settle Baycol Cases Bayer has settled a total of 1,342 cases out of court associated with its anti-cholesterol drug Baycol, which was recalled in August 2001 after being connected to approximately 100 deaths. In addition, a U.S. federal court denied certification of a class action suit filed against Bayer AG over Baycol. Bayer opposed the certification because it believes the nature of the individual claims is too varied. The company plans to continue its review of individual cases and attempt to agree on "fair compensation" for the parties involved. There are nearly 11,200 cases remaining to be resolved. Baycol was sold under the trade name Lipobay outside of the U.S. Eastman in Reduction Mode In order to reduce labor costs which are expected to rise 8-10 percent in 2004, Eastman Chemical is planning to reduce its workforce. These job cuts are in addition to plans that Eastman previously announced to divest, consolidate or restructure several business units that employee a total of 2400. According to chief executive Brian Ferguson, the company is "in a reduction mode" and that "hundreds of jobs will be reduced." Kerr-McGee to Make Job Reductions In order to achieve cost savings of $45 million per year, Kerr-McGee will cut 7 to 9 percent of its nonunion workforce. The 200 to 250 jobs will be eliminated by the end of 2003 and the company will take a $40 million after-tax-charge in the fourth quarter to cover severance and other costs. Norwegian Shipper to Pay Fine for Price Fixing Odfjell Seachem, part of the Norwegian shipping group Odfjell ASA pleaded guilty to a single count violation of the U.S. Sherman Antitrust Act for "allocating customers and thereby fixing prices on certain contracts of affreightment from 1998 to 2002" and accepted a $42.5 million (Euro 37 million) fine from the U.S. Department of Justice (DoJ). Bjorn Sjaastad, Odfjell ASA president and chief executive, and vice president Erik Nilsen also pleaded guilty to single count violations. Sjaastad was fined $250,000 and will serve a 4 month sentence, while Nilsen will pay $25,000 and be jailed for three months. Rhodia to Invest in Advanced Research Facility Rhodia announced that it will construct a "laboratory of the future" in Pessac, Bordeaux, France that will operate in partnership with the French National Center for Scientific Research (CNRS). Teams of experts in computer science, electronics, nanotechnology, automatic systems, physical chemistry and chemistry will take a "radical conceptual, methodological and technological break with previous methods" and utilize novel high throughput techniques and advanced data analysis capabilities. Air Products Appoints Two New Business Leaders John McGlade, vice president of the chemicals group division, will succeed the retiring Andrew Cummins as group vice president of chemicals at Air Products. Mark Bye, president of Air Products' Asian operations, will replace Robert Gadomski, who is also retiring, as executive vice president of gases and equipment. McGlade will be responsible for global chemical operations including the performance materials and industrial chemicals divisions. Bye will manage the energy and process industries, North America gases, healthcare, equipment and manufacturing, and engineering businesses. DuPont Dow Elastomers Gets New CEO Dupont Dow Elastomers, a 50-50 joint venture between DuPont and Dow Chemical, has appointed John Lewis as president and CEO. Lewis recently held the position of vice president, Asia growth initiatives, DuPont Performance Coatings. He replaces Theo Krappels, who has retired. Lundbeck Gets New CEO Effective November 1, Claus Braestrup will replace the retiring Erik Sprunk-Jansen as chief executive of the Danish pharmaceuticals firm Lundbeck. Braestrup joined Lundbeck as executive vice president for research and development in 1998 after holding previous positions with Schering and Novo Nordisk. Other changes include the appointment of Anders Gersel Pedersen as senior vice president of development and Peter Honggaard Andersen as vice president of research. Argentina's Chemical Industry Has Successful 2003 According to Argentina's Chemical and Petrochemical Industry's Chamber of Commerce (Cipyq), the country's chemical industry will experience 10 percent growth in 2003 and is operating at full capacity. The domestic economy has improved and Argentina's petrochemical producers have been able to increase exports as well. Many chemical companies are waiting to make further investments in Argentina, though, until the country becomes more stable. A recent agreement with the International Monetary Fund (IMF) is a first step. (image source: CIA World Factbook 1999) Biorefinery Research Program Initiated by Genencor and Cargill Dow Genencor International and Cargill Dow have formed an 18 month alliance to develop a biorefinery for fuels and chemicals production. The project will use corn stalks and other agricultural materials as a source of renewable carbon for the production of Lactic acid and biologically derived plastics. Genencor will provide expertise in enzyme technology developed in a three year biomass-to-ethanol project. The Department of Energy has provided a grant for the alliance. Both companies hope to develop an economic way to convert large quantities of renewable biomass into fuels, power, chemicals and other products and reduce dependence on fossil carbon sources. Brazilian Chemical Industry Has New Source of Natgas The Petrobras discovery of natural gas off the coast of Sao Paolo in the Santos Basin will lead to the use of this feedstock for petrochemical production. Currently the Brazilian chemical industry relies on naphtha as a feedstock. The fertilizer industry is also expected to invest in more nitrogen production as natural gas is the main raw material for production of these products. Analysts expect it will be about four years before the natural gas is available to the industry. Central American Markets Might Open for U.S. Chemicals Soon Trade pact negotiations between the U.S. and Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua may lead to the opening of markets in the Central American region for American chemical companies. According to the American Chemistry Council, current U.S. exports to the region total less than $1 billion annually (Euro 854 million), mainly because the economies of these countries still remain largely agriculturally based. It is believed that improved trade agreements would lead to an increase in investment in industry, and as a result eventually lead to increased exports to the region. Chemical Company Stocks Reach New 52-Week Highs Many companies saw their stocks approach or reach new 52-week highs during the summer months of 2003. Historically, most chemical company stocks have reached their lows between June and September. This increase in value has been attributed to the anticipation of an economic recovery. Analysts warn that many companies are still not experiencing a significant pickup in business yet and the rally could end fairly soon. Dow Chemical, DuPont, Rohm and Haas, Hercules, Cytec Industries, Valspar, Arch, Engelhard and Lubrizol are some of the companies that have posted increased stock prices. Chemical Exports on the Rise in Brazil Slow domestic sales and a stabilization of the real against the dollar have resulted in increased exports for Brazil. The country's trade deficit will decrease approximately 3 percent in 2003 to $6.6 billion (Euro 5.7 billion), according to Tendencias Consultoria. Exports of chemicals are predicted to rise 20 percent to $3.9 billion while imports will experience 5 percent growth to $10.5 billion. The Brazilian government has made the growth of chemical exports a priority and believes it will provide more security for the Brazilian economy. Chemical Industry Hesitant About Positive Economic Indicators in Japan Despite a recent rally in the Nikkei index and positive economic indicators, chemical companies remain hesitant about the chances for a sustained economic recovery in Japan. Declining consumer prices, weak consumer demand, an unemployment rate of 5.3 percent and massive national debt are all problems that must be addressed. Japanese chemical companies are responding to the current economic situation by participating in informal alliances involving agreements to close plants or produce only certain grades of different products. The network of alliances is impacting the structure of the industry while allowing companies to continue to operate individually and maintain their corporate image. In the past, Japanese chemical companies often forged single product mergers with one another in order to reduce overcapacity and replace aging plants with world-class facilities. These agreements often resulted in difficulties because the companies were rivals in other product areas. Corporate Profitability Up According to a report by JP Morgan, U.S. corporate profitability has returned to high levels despite a minimal economic recovery. The study indicates that aggressive cost cutting moves and the rapid adoption of productivity-enhancing technologies contributed to the rise in profitability. The majority of the profits were driven by domestic sales. JP Morgan suggests that this return to corporate profitability is a positive indicator for an economic recovery in 2004. Europe Looking for Recovery in 2004 Several positive signs are pointing to an economic recovery in Europe in 2004, according to many key executives in the chemical industry. Improvements in the U.S. economy, including increasing consumer confidence, a rising gross domestic product (GDP) and a better performing stock market all bode well for other economies around the world. Many companies are expecting to see improved results in the fourth quarter of this year with growth continuing into 2004. Cefic, the European chemical industry association, expects that growth for the chemical industry in the European Union will nearly triple from its 0.7 percent level in 2003 to 3.6 percent in 2004. European Transport Regulations Will Impact Chemical Industry The European Union Working Time Directive, which will cut working hours for drivers and crew of vehicles in operations subject to EU drivers' hours rules, will be effective in March 2005. Hours will be reduced to an average of 48 per week over a four-month period, with a 60-hour maximum in any one week. The UK chemical industry will be hardest hit, where transportation represents 10 percent of the manufacturing cost for specialties and 30-40 percent for commodities, and drivers' wages account for 25 percent of all transport costs. The regulation is expected to result in the need for more drivers in an industry that is already suffering from a shortage of experienced personnel. Free Trade Agreements Will Hurt Brazilian Chemical Industry Economists from Campinas State University report that a free trade agreement with Europe or the U.S. would hurt the Brazilian petrochemicals and plastics industries, with exports remaining flat and imports increasing. The study, conducted at the request of Brazil's Ministry of Development, Industry and Foreign Trade (MDIC), found that a system of progressive tariff reductions for these areas would be best until the industries can be strengthened and prepared for free trade. Many Asian Companies Improved Their Performance in 2002 A recovery in some petrochemical markets and strong cost cutting measures enabled several Asian companies to improve profits and sales in 2002. Companies that did very well in 2002 include Mitsubishi, Nan Ya Plastics, Formosa Chemicals & Fiber Corp., Formosa Plastics Corp. and LG Chem. Nine out of the top ten chemical companies in Asia are Japanese, with Sinopec of China being the only non-Japanese firm at the top. Despite SARS and the Iraq war, many analysts are predicting that 2003 will be an even better year. OPEC Production Cuts Cause for Concern OPEC unexpectedly announced that it will cut oil output by 900,000 bbl per day beginning in November in order to address overstocking in the first quarter of 2004. The expected shortness in supply will arrive just as demand is increasing for the winter season and could negatively impact chances for an economic recovery in the U.S. and Europe. U.S. Chemical Industry Disappointed with WTO U.S. Chemical companies were hoping the World Trade Organization would consider a broad reduction of industrial tariffs at its biennial ministerial meeting in Cancun, Mexico so that the chemical industry could work to establish specific tariff measures that benefit chemical trade. U.S. companies were looking to gain greater access to developing nations, which continue to maintain higher tariffs on chemical imports but have the greatest potential for market growth. The collapse of the WTO talks, however, will likely lead to further bilateral trade agreements that will make it difficult for the global chemical industry to conduct business. The U.S. will now pursue individual trade agreements and take steps to support U.S. manufacturers in the global marketplace. Western European Chemical Companies Struggle with Uncertainty in Market High feedstock prices, high raw material costs, concerns associated with the war in Iraq and reduced sales due to the SARS outbreak in Asia all contributed to a volatile petrochemicals market in Western Europe in 2003. Crude prices fluctuated tremendously in the first half of the year, making it difficult to establish contract pricing for petrochemicals, and the situation is not expected to stabilize until 2004. Prices, while strong in January, softened in the second quarter, making it difficult for manufacturers to maintain margins as raw material prices rose. Analysts predict the difficult market will remain until next year, but are only "cautiously optimistic" because unforeseen events could easily have a negative impact on a recovery. Alpharma's Generic Epilepsy Drug Approved The FDA approved Alpharma's generic version of Pfizer's epilepsy drug Neurontin (Gabapentin), giving the company a six month market exclusivity on capsules. However, patent litigation continues between the two companies. Alpharma does not have any plans to launch the drug in the market at this time. In addition, the market exclusivity is being challenged by Torpharm Inc. in the U.S. Court of Appeals for the District of Columbia. Neurontin capsules and tablets currently have annual sales over $2 billion. FDA Advisory Panel Recommends Approval of Raptiva An FDA Advisory Panel has recommended approval of the biologics license application (BLA) for the psoriasis drug Raptiva. The drug was developed by Genentech and Xoma. The positive recommendation suggests that Raptiva will be approved before the end of 2003. Approximately 4.5 million Americans suffer from psoriasis. FDA Approves Generic Serzone The FDA has approved Teva's generic anti-depression drug Nefazodone hydrochloride. The product will compete with Bristol Myers Squibb's Serzone, which, according to Teva, has annual sales of approximately $220 million (Euro 195 million). The company will begin shipping the drug in tablet form immediately. Generic Paxil Under Attack From GlaxoSmithKline Canadian firm Apotex launched a generic version of GlaxoSmithKline's (GSK) antidepressant Paxil (Paroxetine hydrochloride). GSK filed a suit against Apotex and other generics companies before the Canadian drug maker ever launched its product. Currently GSK is waiting to receive a hearing date in order to appeal a decision by the US District Court for the Northern District of Illinois stating that Apotex' hemihydrate version of Paxil does not infringe GSK's patents. GSK is also supplying its U.S. generics partner Par Pharmaceuticals with its own Paroxetine hydrochloride immediate-release tablets. New Drug Approvals Decline Despite Heavy R&D Investment The number of new drug approvals declined from 53 in 1996 to 26 in 2002, while spending on R&D dramatically increased from $17 million to $32 million during the same period, according to Cutting Edge Information. Leading pharmaceuticals companies are now focusing on developing approaches that link their R&D and commercialization efforts more closely in order to reverse this trend. (photo source: Akzo Nobel) Rx Depot Sued by U.S. for Canadian Drug Imports Rx Depot Inc. has been sued by the U.S. Justice Department for illegally importing discounted drugs from Canada. The Justice Department requested an injunction against Rx Depot Inc., Rx Canada, Rx Depot President Carl Moore and Secretary David Peoples. The government claims that drugs imported from foreign countries pose a safety threat to American consumers. Rx Depot is located in Tulsa, Oklahoma and has stores nationwide. Rx Canada is a separate U.S. company run by Moore's son. Moore indicated that he anticipated the lawsuit and that his company will fight it. Serono's Luveris Similar to Placebo According to FDA FDA's Office of Biostatistics in the Center for Drug Evaluation and Research evaluated clinical trial results on Serono's fertility drug Luveris 75 and found that the recombinant human luteinizing hormone drug "is only marginally statistically different from placebo." The desired indication for the drug is ovulation induction in women who otherwise cannot ovulate. Wyeth Wins Case Over Generic Premarin Natural Biologics and its partners have been prohibited by the Minnesota District Court from using extraction technology developed by Wyeth for obtaining the key ingredient in the hormone replacement therapy Premarin. The court determined that Natural Biologics misappropriated trade secrets. Barr Laboratories filed in June for FDA approval of a generic version of Premarin based on material from Natural Biologics. If the ruling holds, Barr will not be able to use the material. Analysts predict the court decision will prevent a generic version of Premarin from being introduced to the market for three to four years. Cabot Faces Lawsuit From Farmers The Boyertown, PA plant of Cabot Supermetals is facing a lawsuit from two Gilbertsville, PA farmers who claim that metal fluoride emissions from the facility caused their cows to become ill. The lawsuit also claims that Cabot operated without a permit and proper emission controls for many years. The plaintiffs' lawyers stated that they have evidence that Cabot was aware of the contaminated vegetation but failed to warn farmers. Cabot declined to make any statement regarding the matter. Celanese Sells Acrylics Business to Dow Celanese has agreed to sell its acrylics business to the Dow Chemical Company. The sale includes its product line (crude Acrylic acid, Glacial acrylic acid, Ethyl acrylate, Butyl acrylate, Methyl acrylate and 2- Ethylhexyl acrylate), intellectual property, inventory, technology and production assets at its Clear Lake, Texas site. With the acquisition, Dow will be able to offer a complete, integrated acrylic acid chain and establish itself as a leader in high value downstream acrylics markets. The sale allows Celanese to maintain a reliable source of supply for its emulsions business in Europe and enables the company to fulfill its strategic commitment to a more focused portfolio. Chem2U Launched by Ciba and Dolder Swiss chemicals firms Ciba Specialty Chemicals and Dolder launched Chem2U, a trading company offering spot prices on chemical additives, antioxidants, light stabilizers and related blends through promotions targeted at individual resin producers and plastics processors. A website, www.chem2u.com, will be used for customer service, but transactions will take place offline. Initially only Ciba products will be sold, and the business will target European customers. The two companies expect to expand into Asian markets early in 2004 and also hope to add products from other suppliers. DSM Gets U.S. Approval for Roche Acquisition, Creates New Business and Appoints CEO DSM received approval from the U.S. Federal Trade Commission for its $2.0 billion (Euro 1.75 billion) purchase of Roche's vitamins and fine chemicals business. The European Commission gave its approval in July. Both agencies required DSM to end its feed enzymes alliance with BASF. DSM became full owner beginning on October 1, renaming the business DSM Nutritional Products (DNP) and appointing Feike Sijbesma as chairman and chief executive. Sijbesma replaces Roche's Markus Altwegg, who is retiring. Bob Hartmayer, former business group director at DSM Food Specialties, will be chief operating officer and Frans Pistorius, a former director at DSM Limburg BV and DSM Industrial Services, will fill the position of chief financial officer. Indian Government to Sell Stake in ICI India The Indian Government has invited bids for its 9.2 percent stake in ICI India Ltd. ICI Plc of the UK holds a stake just shy of the 51 percent necessary to give ICI India subsidiary status and is expected to bid for the entire amount. The value of the shares up for bid is currently Rs653.74 million ($14.0 million /Euro 12.1 million). Registrations must be received by October 7th. Joint Ventures Between Sasol and Mitsubishi OK'd by EC South Africa's Sasol and Japan's Mitsubishi received approval from the European Commission (EC) to form two joint ventures (JVs) in acrylics. The first JV will produce Acrylic acid, Glacial acrylic acid, and Butyl and Ethyl acrylates in a newly constructed plant in Sasolburg, South Africa. The second JV will focus on the global marketing of the acrylates produced by the first alliance. Kemira Buys Rhodia's Pulp and Paper Chemicals Business Kemira Oy has purchased from Rhodia S.A.'s textile and paper chemicals business located at Sausheim in Alsace, France. The business, which had 2002 sales of $15 million (Euro 14 million), includes industrial additives used in the European textile, paper and polymerization markets plus defoamers and textile sizing agents. With the sale, Rhodia furthers its strategy to divest non-strategic assets, and Kemira increases its product and service offering in Europe. MG to Sell Dynamit Nobel MG Technologies announced plans to sell its Dynamit Nobel chemicals business to become a company solely focused on engineering. A review of business operations identified the greatest opportunities for growth for the company in process technology and equipment. Dynamit Nobel includes Chemetall, Sachtleben, CeramTec and Dynamit Nobel Kunststoffe, and offers surface treatment; pigment, and plastics processing chemicals; ceramics; and custom synthesis services. The chemicals operations have annual sales of approximately Euro 2.5 billion. Nutrinova on the Block Celanese has decided to place Nutrinova, its sweeteners and food additives business, up for sale. Nutrinova had sales of Euro 161 million in 2002. Celanese indicated that acquisitions, necessary for growth of the business, are too expensive in this market sector. The sale will allow the company will to continue its strategy of focusing on its Acetyls and engineering plastics business and certain specialty chemicals. Personal Care Market Attractive to Contract Manufacturers Contract manufacturers of fine chemicals are looking to the personal care market to fill unused capacity and generate needed income. Within the cosmetics and personal care industry, leading players are focusing their efforts on R&D and marketing and increasing their outsourcing of manufacturing. Margins tend to reach as high as 25 percent, which is very similar to the pharma industry. Suppliers of specialty raw materials to the personal care industry must be careful, though, that the industry does not follow the same path as the pharmaceutical sector and end up with significant excess capacity that would drive those margins down. Reilly Industries Gets Degussa's Vitamin B3 Business Reilly Industries has purchased the Vitamin B3 business of Degussa for an undisclosed sum. Until government approval is received, Degussa will exclusively toll manufacture all Vitamin B3 products for Reilly. Once approval of the deal has been obtained, which could take up to six months, Reilly will own the assets completely. With the purchase, Reilly will become the largest food grade and second largest animal feed grade manufacturer of Vitamin B3 and one of only a few companies back-integrated in beta-picoline, the key raw material for Vitamin B3 production. Degussa, through the sale, is implementing its plan to focus on amino acid based products for the animal feed market. Russia is Leading Growth Market for Flexible Packaging Film Consumption of flexible packaging film (plastic film, aluminum foil and paper) in Europe grew just 2.2 percent to Euro 10.4 billion in 2002. The slow growth was due to the highly competitive market in Western Europe. Russia has seen demand for flexible packaging film rise 14 percent per year and is the fastest growing market, according to PCI Films Consulting. Turkey ranks second with an annual growth rate of 8 percent. Other Eastern European countries have also experienced increasing demand. Success in Specialty Chemicals Requires R&D Investment Specialty chemical companies have faced difficult times over the past few years, facing rising raw materials costs and decreasing margins. In order to remain a successful specialty chemical producer, a manufacturer must increase its investment in R&D to at least 5.5 percent of sales, according to Richard E. Claar, founding partner of the Martec Group Inc. Hot technology areas to invest in include biopolymers, bioprocessing, energy storage (fuel cells), drug delivery, enzymes, optoelectronics, nutraceuticals, composites, smart materials, catalysts and nanotechnology. Companies must maintain a consistent strategy, be willing to kill undesirable projects early on, and make sure they continue to understand the needs of the ultimate end users as well as their customers throughout the value chain. Surfactants Key Specialty Chemical for Growing Cosmetics and Toiletries Market The North American cosmetics and toiletries market was valued at $29.8 billion and is anticipated to grow at 15 percent per year to 34.3 billion by 2007, according to Impact Marketing Consultants Inc. Hair care was the largest segment, with 20 percent of the market, followed closely by color cosmetics, with a 17 percent share. Surfactants are the largest class of specialty chemicals utilized in cosmetics and toiletries products and were valued at $1.05 billion in 2002 and projected to rise to $1.185 billion by 2007. Anionic surfactants accounted for $765 million of surfactant sales. Major manufacturers include Akzo Chemical, BASF, Clariant, Croda, Hampton Chemical, Lonza, Pilot Chemical, Rhodia, Stepan Chemical and Uniqema. U.S. Demand for Disinfectants and Antimicrobials Healthy The Freedonia Group reports that the U.S. market for disinfectants and antimicrobials will increase at 6 percent per year to reach $735 million in 2007. Paints and coatings are the largest market segment with 29 percent ($211 million), followed by plastics at 24 percent ($185 million) and health care at 10 percent ($76 million). Demand for plastics is growing the fastest at 6.6 percent per year, followed by paints and coatings at 5.8 percent and health care at 4.8 percent. Bayer CropScience Sets Goal to Surpass Syngenta as Number One Bayer CropScience CEO Jochen Wulff says that the company will overtake Syngenta as the leading agrochemicals producer by 2006. This goal will be achieved with the launch of 14 new active ingredients by 2005; by increasing its earnings before interest, taxes, depreciation, and amortization margin from 13.1 percent in 2002 to 29 percent by 2006; and via acquisitions of smaller specialty businesses that can be directly integrated into its existing structure. With sales of $6.5 billion (Euro 5.9 billion) and a 20 percent share of the market, Bayer is presently number one in conventional crop protection, which includes fungicides, herbicides, insecticides, and seed treatment. Brazil Government Issues Decree on Genetically Modified Soybean After federal judges in Brazil reinstated the ban on the planting and sale of genetically modified (GM) soybean, vice president Jose Alencar issued a decree to lift the ban in time for Brazil's October planting season. Brazil's Green Party (PV) filed a petition with the Supreme Court to challenge the decision, stating that the executive order violates the constitution principal of precaution and contradicts a 1999 judgment that requires environmental impact studies. Monsanto claims it has fulfilled all requirements of the Technical Commission on Biosecurity. The executive decree must be approved by Congress within 45 days. Brazil is the second largest exporter of soybean in the world and could surpass the U.S. in the near future. It is estimated that about 30 percent of Brazil's soybean crops are already planted with GM seeds. According to Monsanto, growers have not been paying the licensing fee for the illegally planted seeds, and the company has once again issued warning statements to Brazilian farmers that it will start charging royalties on its Roundup Ready GM soy found in future harvests. (image source: CIA World Factbook 1999) Asia Leading Consumer of Polyethylene According to Philip Townsend Associates, the Asia/Pacific region has surpassed the U.S. as the largest consumer of Polyethylene (PE), with demand increasing over 60 percent since 1998 to more than 16 million tonnes in 2002. Over the same period, the North American PE market grew 7 percent to 15 million tonnes in 2002. With a growth rate of 7.5 percent per year, the Asia/Pacific region is expected to remain the leading consumer of PE over the next five years. China May Take Number One Spot in Soda Ash According to Tecnon OrbiChem, China could surpass the U.S. and claim the largest share of the Soda ash market by the end of 2003. U.S. production is estimated to be 10 million tonnes in 2003, while Chinese production is pegged at 11.5 million tonnes for the year. Chinese consumption, though, far exceeds its production. The U.S. is a major exporter of Soda ash to China, with quantities nearly doubling in the first six months of 2003 as compared to the same period in 2002. Dow and PIC to Expand Relationship Dow Chemical and Petrochemical Industries Co (PIC) announced that they are in negotiations to expand their existing relationship. The two companies have already established Equate Petrochemical, the only cracker in Kuwait. They are planning to build a second cracker unit (Equate II) in Shuaiba and form a separate joint venture for a 300,000 tonne per year Styrene facility which will utilize Ethylene feedstock from Equate II. The Styrene plant would be combined with an aromatics project and would produce 670,000 tonne per year of p-Xylene and 240,000 tonne per year of Benzene. Petroquimica to Expand Production Mexico's Petroquimica is investing $250 million to $300 million (Euro 217 million to Euro 261 million) to expand its production of various products. Approximately $120 million will be used for the construction of a new 300,000 tonne per year Polyethylene (PE) plant at Cangrejera that is scheduled to startup in October of 2005. Other expenditures will expand Ethylene oxide (EO) at the company's Morellos facility from 200,000 tonne per year to 300,000 tonne per year and Styrene monomer (SM) capacity at Cangrejera from 150,000 tonne per year to 225,000 tonne per year. The increased output is targeted for domestic consumption. SABIC Plans Large Investment in European Petrochemicals Business Although the timing has not been determined, Saudi petrochemicals company SABIC plans to invest close to $1 billion in the European petrochemicals business it acquired from DSM in 2002 for $2.81 billion. The plans include addition of a third Ethylene plant costing $563 million that will produce 550,000 tonnes per year of product at its Geleen, Netherlands site, and two Polyethylene and Polypropylene plants at its Geleen and Gelsenkirchen, Germany locations. Sale of Turkish Refinery Could Lead to Closing of Industrial Complex Privatization of the Turkish government's 65.76 percent stake in Tupras, the Turkish Petroleum Refineries Corp., will most likely lead to closure of Tupras's Yarimca, Turkey petrochemical complex. The complex consists of facilities producing butadiene, butadiene rubber, carbon black, polystyrene, and styrene butadiene rubber and employs about 1,000. Approximately 20 companies have submitted bids. Separately, Turkey's High Privatization Council has requested bids for the state's 88.86 percent stake in Petkim. SK Global Saga Continues According to Hana Bank, the leading domestic creditor for SK Networks (previously SK Global), 98 percent of foreign creditors have accepted a proposal to sell their SK Global receivables, valued at approximately $738 million (Euro 645 million, Won 830 billion), at a 57% discount. Paris-based Union de Banques Arabes et Francaises (UBAF), which holds about 2% of the SK Global's overseas debt, is the only holdout. Meanwhile, Chey Tae-won, the chairman of SK Corp, was released from prison after posting bail. He was sentenced to three years in jail for accounting fraud and illegal stock trading. It is not known whether he will return to his position with SK Corp. SK Corp's single largest shareholder with 14.99 percent, Sovereign Asset Management of Monaco has repeatedly asked for the resignations of Chey, SK Group chairman Son Kil-seung and SK Corp president Kim Chang-keun from SK Corp's board of directors. Sovereign has considered calling an extraordinary general meeting (EGM) of SK Corp shareholders as well as several other methods in order to force a change in SK Corp's management. Analysts expect that Sovereign and other investors will challenge the current board at the next shareholders meeting if not sooner. Solvay Expands Soda Ash and Reorganizes U.S. Businesses Solvay increased its Soda ash production capacity by 900,000 tons/year to 3.3 million tonnes per year with the acquisition of American Soda, a 60-40 joint venture between Williams and American Alkali. The purchase also adds Nahcolite, a naturally occurring form of Sodium bicarbonate, to Solvay's product mix. The company is in the process of combining its U.S. Soda ash and Hydrogen peroxide chemicals operations into one business to maximize efficiency. David Birney, currently president and CEO of Solvay America, will be president of the new Solvay Chemicals company. The fluoride chemicals business will remain a wholly owned subsidiary. Stake in Ukrainian Fertilizer Business Up for Bids The Ukrainian government has received three bids so far for its 54 percent stake in Rivneazot of Rivne, Ukraine. This offering is the second time the fertilizer producer has been up for privatization. An earlier deal with Gazprom in Moscow fell through. Supply Demand Imbalance in Commodity Chemicals Overcapacity and high raw material costs have hurt the commodity chemicals industry over the past three years. Operating rates for many commodities are lower now than in 1991 when the industry experienced its last low. Temporary shutdowns have improved the situation slightly, but further plant closures are necessary to reestablish a proper supply/demand balance. Typhoon Hits South Korean Chemical Industry Adding to its economic woes, South Korea now must deal with damages caused by Typhoon Maemi, which left 110 people dead or missing in the southern and eastern parts of the country when it struck on September 12th. Tongsuh Petrochemical, Taekwang Industrial, SK Corp and Yeochun NCC are just some of the petrochemical companies that lost production due to power outages and physical plant damage. Overall, Busan port suffered damages totaling $48.3 million (Won 57.2 billion) and the loss is expected to reduce South Korea's GDP (gross domestic product) by about 0.3 percent. Southeast Asian Paints and Coatings Market Experiencing Moderate Growth The paints and coatings market in Southeast Asia will grow at a rate of 5.6 percent per year from $1.44 billion (Euro 1.26 billion) in 2002 to $1.69 billion in 2005, according to Frost & Sullivan. Drivers for the growth include economic recovery in the region, increased demand from the automotive sector and the impact of the Asian Free Trade Area (AFTA) agreement. Water-based paints are the largest segment, accounting for 54.4 percent of the market. To maintain this growth, key players will need to consolidate in order to become competitive regional players, invest in e-commerce and customer relationship management tools and look to specialty products such as anti-bacterial coatings. (image sourceL Akzo Nobel) Romanian Government Sells Stake in Two Chemical Companies The Romanian privatization agency APAPS sold its 50.9 percent stake in Moldosin Vaslui and its 84.3 percent holding in Polirom Roman. Local company Contactoare Buzau purchased the shares in polyester yarns and derivative products manufacturer Moldosin Vaslui for approximately $1.8 million (Euro1.6 million). Local businessman Mihai Nasture acquired the stake in polymers and polyamide fibers producer Polirom Roman for about $1.88 million (Euro 1.64 million). China Experiencing Growth in Water Treatment Chemicals The market for water treatment chemicals in China will grow at a rate of 14.4 percent per year from $364.5 million (Euro 321.2 million) in 2002 to $920 million in 2009, according to Frost & Sullivan. Improvement in the economy, which is leading to increased demand for water treatment infrastructure, and the introduction of new water protection legislation are key drivers for the growth of this market. Corrosion and scale inhibitors, a high value segment of the water treatment industry, are seeing significant growth as more recycling of boiler and cooling water occurs. Suez Lyonnaise Unloads Ondeo Nalco for $4.35 Billion A consortium of private equity buyers including Blackstone Group, Apollo Management LP and Goldman Sachs Capital Partners purchased Ondeo Nalco from Suez Lyonnaise for $4.35 billion, plus the assumption of approximately $150 million in leases. The deal will be funded with $3.2 billion in debt and $1 billion in equity split equally among the three members of the consortium. Suez sold the water treatment company in order to pay down about $3.8 billion in debt and improve its profitability. European Chemical Industry Not Big On e-Business A recent -Business W@tch survey from the European Commission (EC) reports that just 8 percent of chemical companies (also includes manufacturers of pharmaceuticals, plastics and rubber) in the five largest European Union (EU) countries rely on e-commerce as an integral part of their business. Most of those companies are large firms with the necessary resources and technical capabilities to implement e-business solutions. These companies often are using e-commerce to improve business processes and not so much for developing new customers and sales. Smaller chemical companies, however, often don't make wide use of even basic e-mail and Internet services, not to mention e-business and e-commerce. Liquified Natural Gas Looking Good Again Liquified Natural Gas (LNG) is once again receiving interest as a fuel source for the U.S. chemical industry. LNG, which is natural gas that has been cooled to approximately minus 260 degrees Fahrenheit for shipment or storage as a liquid, was used in the 1970's but soon forgotten when energy prices declined. New developments in technology for liquefaction and regassification have lowered the costs associated with LNG. In addition, many owners of stranded sources of natural gas, such as Qatar, are looking for ways to receive compensation for those resources, and LNG provides a mechanism. Many analysts predict that the shortage of traditional supplies of natural gas, combined with these factors, will result in LNG becoming a permanent part of the U.S. energy supply. Approximately 20 LNG projects have been initiated to date. In the future, the use of LNG could reduce natural gas prices for the U.S. by up to 30 percent. North America Must Address Natural Gas Supply The supply/demand ratio for natural gas in North American has shifted out of balance according to the National Petroleum Council (NPC), and the chemical industry in the region could find itself out of business if new sources are not identified. According to the NPC, demand continues to grow while existing gas basins have plateaued with production declining 25 to 30 percent each year. In order to address the imbalance, the U.S. must increase energy efficiency and conservation, create alternative energy sources for industry, drill new wells in difficult-to-reach locations (Rocky Mountains and off-shore), increase imports of liquefied natural gas (LNG) and generate gas from the Arctic. Revised REACH Regulations Respond to Industry Concerns, But Don't Go Far Enough The revised Reach (registration, evaluation and authorization of chemicals) proposals issued by the European Commission (EC) include many changes that reflect the concerns of governments and industry. A separate centralized agency, the European Chemicals Agency (ECA), will manage the implementation and control of the Reach regulations. Polymers will be exempted, and certain intermediates will only require limited registration. Commercial confidentiality for certain information has also been included. In addition, safety evaluations will not be required for low volume chemicals, and downstream users will only have to conduct limited assessments. The European Chemical Industry Council (Cefic) approves of these changes but believes that the regulations remain far too complex to be workable. Further simplification is needed, according to the association, if the European chemical industry is to maintain its competitiveness. Safety Records On Time to Meti but Some are Lacking The Ministry of Economy, Trade and Industry (Meti) in Japan reported that all 48 petrochemical companies and refineries that were required to submit safety inspection records did so by the deadline. Some of the companies involved include Mitsui Chemical, Tosoh Corporation, Showa Denko, Idemitsu, Sumitomo Chemical, Japan Polychem, Teijin and Nippon Shukobai. Several manufacturers failed to satisfy Meti and will be investigated, with the possible shutdown of facilities during inspections. The agency would not say which or how many companies were involved. Web Services Enable Collaborative Commerce According to Gartner Group, $1 trillion worth of e-business transactions take place annually using collaborative commerce, and that value is growing 20 to 30 percent per year. Companies that are early adopters of collaborative commerce are working with suppliers and customers to set up integrated systems today and will reap tremendous rewards in the near future. Web services, or the standards that enable communication between different applications, are still in their infancy but are developing fast. These services can cut down the cost of integration among different systems significantly, allowing for a much more cost effective implementation of collaborative commerce. Web services will also enhance five critical supply chain processes - business process management, visibility, business activity monitoring, analytics and optimization - making it possible for companies to provide value to customers at a dramatically improved rate. In This Issue Featured Article Imponderables Famous Quotes Companies Personnel Business/Finance Pharma Fine & Specialty Chemicals Agrochemicals Commodity Chemicals Paints & Coatings Specialty Polymers Water Treatment General Corporate HQ: 9101 LBJ Frwy., Suite 310 Dallas, TX 75243 USA Tel: (214) 349-6200 Fax: (214) 349-6286