September 2003 Famous Quotes of the Month - People are in greater need of your praise when they try and fail than when they try and succeed. (Bob Mowad) - Misers aren't fun to live with, but they make wonderful ancestors. (David Brenner) - The weak can never forgive. Forgiveness is an attribute of the strong. (Mahatma Ghandi) - Some have been thought to be brave because they were afraid to run away. (Thomas Fuller) - A wise man knows everything; a shrewd one, everybody. (Anonymous) BASF To Reorganize North American Operations BASF will restructure its North American operations to achieve annual savings of $250 million. The company will cut 1000 service function jobs by the end of 2003 to reduce costs by $100 million per year. A second phase of restructuring involving the consolidation of North American production and the elimination of poorly performing product lines will bring an additional $150 million in annual savings by 2006. Eastman Looking To Improve Selected Businesses Eastman Chemical Company is considering several options including restructuring, divestiture and consolidation to improve the performance of its coatings, adhesives, specialty polymers and inks businesses. The company plans to improve the unit's earnings by $50 million in 2004 with a future annual earnings increase of $75 million to $100 million. J.P. Morgan has been hired to evaluate alternative actions, and some steps are expected to be implemented before the end of 2003. GenTek's Reorganization Plan Opposed by Honeywell According to an objection filed by Honeywell, Gentek's bankruptcy plan does not include necessary information on how general unsecured claims will be handled. Honeywell holds such unsecured claims against the General Chemical Group, a subsidiary of GenTek. The claims revolve around environmental liabilities at several General Chemical sites previously owned by Honeywell. In a separate action, both Honeywell and Sunoco filed objections regarding the proposed closure of a GenTek sulfuric acid plant at Claymont, DE. The two companies state that the closure would result in a breach of their contracts with GenTek. PCB Cases Settled Solutia, Inc., Monsanto and Pfizer agreed to pay the Abernathy and Tolbert plaintiffs in Alabama $600 million in cash to settle claims against the three companies regarding polychlorinated biphenyls (PCBs). Monsanto, which spun off Solutia in 1997, will be responsible for contributing $390 million, and Solutia will pay $50 million over 10 years. Commercial insurance from Solutia, Monsanto and Pfizer will provide another $160 million. Pfizer will also initiate community health projects for low income residents of Anniston and Calhoun Counties in Alabama. Pfizer is involved because of its recent acquisition of Pharmacia Corp., which purchased pharmaceutical assets from Monsanto in 2000. Solutia will be able to reorganize its finances and avoid bankruptcy now that this deal has been reached. Chairman of SK Global Resigns But Remains on Board of SK Corp Son Kil-seung has resigned as chairman of SK Global in order to allow for the appointment of a new board of directors for the company. Son and nine other SK Global board members were convicted of accounting irregularities. Son has not indicated that he will resign from the board of directors of SK Corp., South Korea's major refiner and petrochemical manufacturer. The largest shareholder of SK Corp. has demanded the resignation of Son, SK Corp. chairman Chey Tae-won and SK Corp. president Kim Chang-keun from the board of directors. Minority shareholders have filed a legal challenge to prevent SK Corp's involvement in the bailout of SK Global following the scandals. French Chemical Industry to Receive Compensation for Limiting Power Use Very hot weather in France this summer limited the availability of cooling water for the country's nuclear power plants. The French chemical industry, and others, voluntarily cut back power consumption to reduce any possible environmental damage and to allow for greater consumer usage of air conditioning. The national energy group Electricite de France (EdF) provides compensation to companies for loss in production caused by reduced availability of power. Most chemical companies cut back power consumption 20 to 25 percent this summer German Chemical Industry Association VCI Sees Brighter End to 2003 According to the German chemical industry association VCI, the recession in the German chemical industry appears to have reached bottom in May. VCI credits increasing consumer confidence in the U.S. and continued economic growth in Asia for the turnaround. Potential growth in central and Eastern Europe could add to the positive upswing for the German chemical industry. The European Union economy remains soft however, and this fact, combined with increasing crude oil prices, has kept VCI from modifying its forecast of 0.5% production growth for the full year 2003. Imports to European Union Rise in First Five Months While Exports Remain Flat According to a report released by the European Union's statistical office Eurostat, EU chemical exports remained flat at Euro64.2 billion ($72.3 billion) in the first five months of 2003 compared with the same period last year. Chemical imports were up 2 percent at Euro34.8 billion, and the trade balance fell to Euro29.3 billion from Euro30.2 billion. Online Chemical Sales On the Increase The American Chemistry Council reports that online sales grow 42 percent from $16 billion in 2001 to $23 billion in 2002. Basic chemicals accounted for 48 percent of e-business transactions. According to AMR Research, ChemConnect is the leading online chemical industry exchange, followed by industry consortium Elemica. Many companies also conduct e-business through their own private portals. South Korea Deals With Strike Demanding a 30 percent rise in cargo fees for cement bulk trailers and containers and an exemption from having to pay toll fees, approximately 30,000 truckers went on strike at South Korean ports in late August. Major chemical companies felt they could withstand several days of a strike before feeling a strong impact. According to the Ministry of Maritime Affairs and Fisheries (Momaf), many truckers returned to work after one week despite the continued strike, and the two major ports of Busan and Gwangyang were operating close to normal capacity. US Chemical Industry Faced With High Gas Prices Gas industry officials are warning the chemical industry that this winter will bring shortages and high prices for natural gas. The Natural Gas Supply Association has requested that Congress streamline the permit process for exploration and drilling on Federal lands in the Rocky Mountains, but sees no immediate correction of the situation. FDA Approves Bayer's Gamunex The FDA approved Bayer Biological Products' Gamunex for the treatment of hereditary immune disorders. Gamunex will replace Gamimune, one of the top five drugs marketed by Bayer. Gamimune has experienced declining sales due to competition from Baxter International's Gammagard. Gamunex is expected to be available within the next two months, and Bayer has indicated it will eventually phase out all Gamimune production once Gamunex has received approval worldwide. FDA Approves CRESTOR The FDA approved AstraZeneca's cholesterol lowering drug CRESTOR (rosuvastatin calcium) for the treatment of lipid disorders. A member of the new statin (HMG-CoA reductase inhibitors) class of drugs, CRESTOR has been shown to lower LDL (low-density lipoprotein)-cholesterol by up to 63 percent while increasing HDL (high-density lipoprotein) significantly. The value of the worldwide statin market has been valued at $20 billion with an annual growth rate of approximately 13 percent. FDA Approves Levitra for Treatment of Impotence The FDA approved the new drug Levitra for treatment of erectile dysfunction. Levitra, marketed by Bayer and GlaxoSmithKline, is an oral PDE-5 inhibitor and competes directly with Pfizer's Viagra. The new drug has the potential to be a blockbuster, with sales predicted to surpass $1.13 billion (Euro1 billion). Drug Companies Invest Heavily in Pharmaceutical Market Research Average spending by pharma companies totals bout $7.1 million for market research that supports a developing drug, and some go as high as $26 million per candidate, according to a recent report from Cutting Edge Information. Only 28 percent of spending is during the pre-launch phase. The report suggests that companies who invest more in early market research can strategically position their products and grow the market before the drug is even launched. Novartis Introduces Generic Prilosec to U.S. Market Novartis has launched through its generics subsidiary Sandoz a generic version of AstraZeneca's ulcer drug Prilosec (omeprazole) in the U.S. AstraZeneca is responding with legal action to protect its patent position. Novartis has stated that it is not infringing on any existing patents. AstraZeneca recently sued Mylan Laboratories for selling a generic version of Prilosec in the U.S., and has successfully blocked the marketing of omeprazole in the U.S. by three other companies. Sales of Prilosec in the U.S. reached $2.85 billion (Euro2.53 billion) in 2002 and approximately $607 million in the first six months of 2003. WTO Reached Accord On Generics Developing nations that cannot manufacture critical drugs for the treatment of Aids, malaria and tuberculosis will be able to get cheaper generic versions of these drugs as the result of an agreement reached by the World Trade Organization (WTO). Certain patent rights held by Western drug manufacturers will be waived so that generic drug companies can export cheaper versions of the drugs to poor countries that are fighting epidemics of these diseases. The U.S. trade association Pharmaceutical Research and Manufacturers of America (PhRMA) praised the agreement, indicating that patent rights for developing medicines will be protected while the needs of poor countries will be met. Relief organizations disagree and suggest that the agreement still sets up many legal, economic and political barriers for getting medicines to developing nations. China Textile Industry Booming But Still Has Issues China is currently estimated to handle 25 percent of global fiber processing and be responsible for one seventh of global textile and apparel exports. These numbers are expected to grow after 2005, when textile quotas are removed as part of the free trade promised to China when it joined the World Trade Organization (WTO). Industry experts predict China will quickly gain 65 to 75 percent of the U.S. apparel market alone. The Chinese industry is currently dealing with modernization of a highly fragmented industry, overcapacity that is driving prices downward, a shortage of raw materials and the need to produce high-end products rather than just lower quality goods. In addition, many countries including the U.S., may take action to limit imports of Chinese products despite the country's status as a member of the WTO. Implementation of safeguard actions, requirement of higher standards, and/or stressing qualification of suppliers (to eliminate companies that employ child labor or provide unhealthy working environments) are all possible courses of action. Custom Manufacturing Market for Pharma Undergoing Transition Arthur D. Little reports that the pharma custom manufacturing market remains sluggish and has experienced significant declines in both earnings and profitability. In addition, the slight recovery initially anticipated for 2003 is unlikely to occur. Current market conditions include overcapacity, decreasing demand and increasing price competition, and it appears that the pharma custom synthesis market has become more of a commodity business. Many companies are responding by streamlining their cost structures (reducing headcount and shutting down excess and antiquated capacity), reducing capital expenditures (focusing on upgrading existing equipment rather than expanding) and looking for new customers in other fine and specialty chemicals sectors. Growth in Surfactants Driven by Increasing Applications in Household Products The North American market for surfactants used in consumer products reached a value of $3.6 billion dollars and a volume of 4.375 billion pounds (lb) in 2002 and will grow at 3 percent per year through 2001 2010, according to Colin A. Houston & Associates (CAHA). Increasing demand for "ultra" laundry detergents, which have much higher concentrations of surfactants, will drive the growth. Surfactant use in personal care is declining as consumers switch from traditional soap bars to other alternatives. (Photo courtesy of Procter & Gamble) Holding Company Buys Hickson & Welch from Arch Chemicals The U.K. based private equity firm Dunedin Capital Partners Ltd. has purchased fine chemicals and custom manufacturer Hickson & Welch Ltd. from Arch Chemicals for $18 million (£11 million). With the sale Arch completes its plan to divest all non-strategic assets gained in its acquisition of Hickson International PLC in 2000. Hickson & Welch posted 2002 sales of $64 million (£40 million) in 2002. Honeywell Attempt to Block Electronics Deal Between Air Products and Ashland Denied The Delaware State Chancery Court denied Honeywell's request for an injunction to stop Air Product's acquisition of Ashland's electronic chemicals business. Air Products expected to complete the $300 million (Euro272 million) acquisition by the end of August. Honeywell responded by reaffirming that Air Products must comply with the requirements of its strategic alliance with Honeywell and indicated that the judge wants a trial to be held in the near future on the merits of Honeywell's lawsuit. Honeywell claims that the strategic alliance prohibits Air Products from selling Ashland's products instead of Honeywell's. Nanomaterials Market Poised for Growth The U.S. nanotechnology market is currently valued at $385 million and is predicted to reach $3.5 billion by 2008 and $20 billion by 2013, according to Consulting Resources Corporation (CRC). Most activity in nanotechnology is taking place within smaller companies, many of whom have formed alliances with major chemical firms such as Honeywell, DuPont, BASF, GE, Bayer, Rohm and Haas, DSM and Mitsubishi. Some companies like Degussa have their own active programs. Metal oxides, nanoclays and carbon nanotubes are the leading classes of nanomaterials already commercialized or in advanced development. Applications for nanomaterials include sunscreens, electrically conducting coatings and plastic composites. Future markets include electronics, food packaging, industrial processing and others, reports CRC. Outsourcing of Pharma Dosage Manufacturing and Packaging Remains Robust While contract manufacturing of active pharma ingredients and intermediates has declined, the secondary contract manufacturing market continues to expand. Increased demand for sterile manufacturing services is driving the double-digit growth. According to PharmaSource Information Services Inc., the phama outsourcing market was valued at $30 billion in 2002, and secondary manufacturing services, including dosage manufacturing and packaging, accounted for 28 percent. Leading players include Abbott Laboratories, Baxter Pharmaceutical Products, Ben Venue, Cardinal Health, DSM and Patheon. (Photo courtesy of Akzo Nobel) Vaccine Against West Nile Virus to be Developed UK drug firm Acambis and Canadian biotech company Cangene will collaborate to develop a vaccine for the prevention and treatment of West Nile virus. The vaccine is a hyperimmune globulin which is a highly purified antibody produced from human plasma. Acambis will provide its ChimeriVax-West Nile vaccine to Cangene, who will generate the hyperimmune globulin by inoculating its plasma donors. Monsanto GM Soy Prohibition Suspended in Brazil Monsanto can now legally sell its genetically modified (GM) soy in Brazil after a federal judge overturned a decision made in 2000 prohibited the company from doing so. Several Brazilian soy farmers planted the GM soy illegally in 2003 because of the lower costs and higher production associated with the product. A draft bill to regulate the sale and production of GM products is under review by the Brazilian Congress. (Photo courtesy of Monsanto) New Industrial Chemicals Park Opened in Singapore The Economic Development Board (EDB) and landlords JTC Corp launched a new, S$45 million ($25.8 million/Euro23.6 million) integrated chemical logistics park named Banyan LogisPark on Jurong Island in Singapore. The park offers storage tanks, chemical warehouses, waste treatment facilities, tank filling, cleaning maintenance and drumming services. The park has marine facilities, is linked to chemical facilities through a common pipeline service, and can handle bulk liquid and solid chemicals as well as hazardous materials. Polymer Imports to China Rise Dramatically Imports to China of low and high density polyethylene and polypropylene increased significantly in June as compared to May of 2003, according to Mazlan Razak of DeWitt. Linear low density polyethylene (lldPE) and low density PE experienced a 46 percent increase month over month, while high density PE (hdPE) imports grew 22 percent and polypropylene imports rose 26 percent over the same period. Recovery from the affects of severe acute respiratory syndrome (Sars) and lower prices are believed to be the drivers of the growth in demand. Polyolefins Market Struggling in 2003 Polyolefins manufacturers continue to face reduced margins due to declining prices and higher feedstock costs. Dow Chemical will shut down 400,000 tonnes of polyethylene capacity (PE) in response to the current market conditions. Major players including Basell (BASF/Shell joint venture), Nova Chemicals, and Equistar have all reported lower earnings and don't see any signs of improvement in the near term. Romanian Petrochems to be Privatized Three Romanian chemical companies are up for privatization. A one third stake in the Romanian oil and petrochemicals group Petrom will be privatized by the government. Bids must be received by September 19 and bidders must have generated oil and gas sales over $1 billion (Euro921 million) each year for the last three years. The Romanian government currently owns 93 percent of Petrom. Pesticide and plastics manufacturer Oltchim will separate its chemical operations and privatize them by the end of 2003. The privatization agency APAPS owns the majority of shares with 56.02 percent. APAPS will also relaunch privatization of inorganic chemicals producer Bicapa Tarnaveni after a deal to sell its 96.52 percent stake in the company fell through. Bidders have until September 15th to submit their offers and must be able to prove that they have not worsened the financial position of any company in which they have held a major stake. Market Growing for High Oleic Vegetable Oils Demand for high oleic (HO) vegetable oils such as safflower, HO sunflower, HO canola and olive oil is growing as consumers look for healthier vegetable oils in response to concerns over saturated fats and trans fats in traditional edible oils. New requirements for labeling of trans fats that will take effect in 2006 are causing many food manufacturers to seek alternative oils. HO oils are also being considered as feedstocks for production of oleochemical derivatives. Challenges facing the market right now include high cost of production, supply chain management (crop production) and intellectual property and patent issues. Olestra No Longer Requires Warning Label The FDA announced that Procter & Gamble's fat replacer olestra (trade name Olean), which is made from sucrose and edible fats and oils, no longer requires a warning label informing consumers that the product may cause abdominal cramping and loose stools in some individuals. The agency stated that post-market studies demonstrate that the warning is no longer necessary. Sales of olestra are expected to increase as a result of the decision. Industry experts value the U.S. fat replacer market at approximately $400 million. (Image courtesy of Procter & Gamble) Flavors and Fragrances Market Facing Difficult Times Flavor and fragrance manufacturers are finding it difficult to achieve growth amidst the current tough market conditions. Consolidation and restructuring will occur as companies maneuver to retain market share and maintain a reasonable profit margin. Major players are also investing in new product development in hopes of attracting and retaining customers. Major players in the flavors and fragrances market include International Flavors and Fragrances, Givaudan, ICI, Firmenich, and the new Symrise, which was created from the merger of Dragoco and Haarman and Reimer. (Photo courtesy of Symrise) Tejin and Zeon Joint Venture Approved by EC Japanese firms Zeon and Teijin have received approval from the European Commission (EC) for the creation of a plastic and plastic molding joint venture that combines the global dicyclopentadiene reaction injection molding (DCPD RIM) formulations and DCPD moldings activities of the two companies. Tejin must sell its direct and indirect interests in Metton America Inc (MAI), which is active in the DCPD RIM sector, to an independent and viable third party. The Japanese Fair Trade Commission approved the joint venture in April 2003. Paints and Coatings Market Looking Up Despite mixed earnings in the second quarter, the paints and coatings market shows signs of improvement. Increases in architectural coatings sales have been reported as weather conditions have improved. Sales of industrial coatings and consumer paints are also on the rise in the latter part of the summer. (Photo courtesy of Akzo Nobel) Canadian Chemical Companies Deal With Unstable Energy Supplies Following Blackout Following the blackout that hit the Eastern seaboard on Thursday August 14th, Canadian chemical companies in Ontario remained offline until the power supply could be stabilized. According to the Canadian Chemical Producers Association (CCPA), the length of the shutdown would be the main factor in determining the cost to the industry. Most companies elected to remain closed during the week following the blackout in response to the request by Ontario's provincial government to cut power consumption while the affected power plants were brought back online. New Air Pollution Control Rules From EPA The EPA issued new Clean Air Act rules recently. New Source Review (NSR) requirements for existing facilities have been updated. Industry-specific Maximum Achievable Control Technology (MACT) requirements for reducing toxic emissions have also been modified. According to the American Chemistry Council (ACC), the EPA took into consideration industry concerns about cost and flexibility when developing these new rules. The ACC added that the new rules provide clarity and specific guidance that will enable its members to consider alternative choices for pollution control while feeling more secure about meeting the requirements of the new regulations. Reach Regulations Pose Many Problems According to Asian Chemical Industry The Japanese Chemical Industry Association, the China Chamber of Commerce of Metals, Minerals & Chemicals Importers & Exporters and the Philippines Chemical Industry Association have all requested that the European Union (EU) revise its Reach regulations. The trade groups point to increased costs of exporting to the EU and maintain that the regulations are unfair to countries that export into the EU. The associations also believe the regulations are unclear and will lead to confusion Utah Governor Mike Leavitt Appointed as New EPA Head President Bush has nominated Utah Governor Mike Leavitt for the position of administrator of the EPA. As governor of Utah, Leavitt has served as co-chairman of the Western Regional Air Partnership, an organization comprised of 13 states and several environmental groups working to improve air quality in the west. The Senate is expected to consider the nomination in September. In This Issue Famous Quotes Companies Personnel Business/Finance Pharma Fine & Specialty Chemicals Biotech Agrochemicals Commodity Chemicals Fats and Oils Flavor & Fragrance Plastics Paints & Coatings General Corporate HQ: 9101 LBJ Frwy., Suite 310 Dallas, TX 75243 USA Tel: (214) 349-6200 Fax: (214) 349-6286