January 2005 Lyondell Acquisition of Millennium Finalized Lyondell completed its acquisition of Millennium Chemicals effective December 1, 2004. Millennium and Equistar Chemicals are now wholly owned subsidiaries of Lyondell. The new company has revenues of approximately $11.4 billion.   Famous Quotes of the Month - I think the next best thing to solving a problem is finding some humor in it. (Frank A. Clark) - I don't design clothes. I design dreams. (Ralph Lauren) - A billion dollars here and a billion dollars there. Pretty soon you're talking about a lot of money. (Everitt Dirksen) - The problems that exist in the world today cannot be solved by the level of thinking that created them. (Albert Einstein) - Creativity is allowing yourself to make mistakes. Art is knowing which ones to keep. (Scott Adams) Why Does Shampoo Lather So Much Better on the Second Application? Even if our hands and hair are already wet, we can't seem to get a good, healthy lather on the first try when we shampoo our hair. But after we rinse, the shampoo foams up like crazy? Why is lather more luxuriant the second time around? Evidently, it's because we have greasy hair. A spokesperson at Clairol says, "In the first shampoo application, the lather is suppressed by the oils in the hair. When the oils are rinsed off the first time, the shampoo lathers much better on the second application." Arch Expands in South America Arch Quimica (Bogota) is the new Arch headquarters for Arch Water Treatment Products in the Andean Pact countries of Venezuela, Peru, and Ecuador. Arch recently assumed responsibility from Arkema for distribution of Arch swimming pool, spa and water treatment products in Colombia as well. The company is also looking to grow its industrial biocides and personal care ingredients businesses in the region. BASF to Reorganize German Operations BASF announced a two year reorganization plan for its German Ludwigshafen complex that involves reduction of its workforce by 10 percent (3200 jobs) and is designed to improve international competitiveness. Most of the job cuts will take place through natural attrition and the employment level will then remain stable through 2010, according to the company. Henkel recently announce job cuts of 3000, with most expected in Germany. Symrise is also cutting 580 positions, 60 percent of which will be in Germany. Colgate-Palmolive to Restructure Colgate-Palmolive announced a four year restructuring plan that will include closure of approximately 1/3 of its production facilities and the loss of 4400 jobs (about 12 percent of its workforce). The plan is designed to increase profits, generate savings, accelerate innovation and new product introduction and maximize effectiveness of advertising on a global basis. The cost of implementing the program, which is already underway, is estimated by the company to be $550-$650 million (Euro 409-484 million) after taxes. Finished products will be sourced from global and regional state-of-the-art manufacturing facilities, and organization resources will also be reallocated to serve emerging markets such as Eastern Europe, Russia, China and parts of Latin America and Asia. Indictment for Regulatory Violations Expected by Grace Both current and former high level employees involved with W.R. Grace's construction products business have been named as targets of an investigation into possible obstruction of federal agency proceedings, violations of federal environmental laws, and conspiring with others to violate federal environmental laws relating to former vermiculite mining and processing activities at Grace's Libby, MT facility. The company itself is also a target of the investigation. At this time Grace does not know how the investigation may impact its financial position or bankruptcy proceedings. Johnson Matthey Expands Polymer Catalysts Unit Johnson Matthey completed a $4.8 million (Euro 3.6 million) expansion of its Billingham, Teesside, UK Polymer Catalyst business unit, increasing capacity for production of its Vertec catalyst line of specialty organic titanates. No details on capacity increases were provided, but according to the company the investment will enable Johnson Matthey to develop new products and increase its catalyst product offerings. LG-Caltex to Become GS-Caltex As of March 31, 2005, LG-Caltex of South Korea will become GS-Caltex, reflecting its new place in the GS Group. LG Chem and LG Petrochemical, which remain as part of the LG group, will not change their names. LG-Caltex became part of the GS Group in July, 2004. The company produces oil products, Benzene, Toluene, mixed Xylenes, Methyl tertiary-butyl ether, Polypropylene and other products. Restructuring Efforts Paying off for Akzo Nobel According to CEO Hans Wijers, Akzo Nobel is "gradually returning to growth" after two years of declining sales. The company has five drugs that it plans to submit for approval in 2006 which are expected to counteract the loss of sales attributed to the expiration of its patent for the antidepressant Remeron. Akzo is also investing in biotech, with an R&D center in Cambridge, MA to open in 2005. The Organon and Diosynth pharma units will also be combined. Divestment of its coatings resins businesses will be finalized by the end of 2004, and Akzo will then focus on growing its coatings business, particularly in emerging markets, both organically and through acquisitions. The chemicals business is now "performing above the cost of capital," but is undergoing an additional review in order to identify areas for further improvement. SK Corp. Receives Support from Other South Korean Firms Samsung Electronics and Hankook Trust recently purchased shares in SK Corp. as part of a possible effort to block the hostile takeover attempt of the company by Sovereign Asset Management, its largest shareholder with a 14.9 percent stake. Whether or not the new shareholders will vote in favor of SK Corp. is not known, but it is probable that they will provide support. It is also possible that more South Korean companies will be purchasing SK Corp. shares in the near future. Sovereign wants to pass amendments to SK Corp's articles of incorporation in order to remove Chairman Chey Tae-won who was found guilty of accounting fraud and illegal share transfers in 2003. Recently the Seoul Central Court rejected Sovereign's request for an extraordinary general meeting (EGM) of shareholders. Solutia, Monsanto Resolving Dispute? Solutia and Monsanto might be making progress on resolving their dispute regarding environmental and post-retirement liabilities left to Solutia when it was spun off from Monsanto in 1997. Solutia declared bankruptcy in December 2003 claiming inability to service these liabilities. A reliable source indicated that a proposal to resolve the issue has been put forth, but a final deal is still not expected in the immediate future. The deal could include assumption of some of Solutia's liabilities in exchange for unsecured debt or even new equity, according to some analysts. Yukos Files for Bankruptcy in Attempt to Avoid Auction On December 14, 2004, Yukos filed for Chapter 11 under the U.S. bankruptcy code and also sought to obtain a preliminary injunction to halt the planned auction of its core business, Yuganskneftegaz on December 19. The company believes that the sale of Yuganskneftegaz will permanently damage it and hoped that international banks would adhere to the ruling and not lend money to any potential bidders. Yukos owes approximately $14.23 billion in back tax claims for 2000, 2001 and 2002, money the government hopes to reclaim through the sale. The Russian government proceeded with the auction, selling off a 76.79 percent stake in Yuganskneftegaz to Russian financial firm Baikal Finance Group for $9.28 billion (Euro 7.02 billion) despite a temporary injunction issued by a U.S. bankruptcy judge. Lawyers for Yukos' major shareholder Group Menatep suggested there were irregularities with the auction. Group Menatep also believes there is an ownership link between Gazprom, which controls about one sixth of the Russian petrochemicals sector, and Baikal. If it can prove the link, Menatep's legal firm Greenberg Traurig could initiate legal action aimed at seizing Gazprom exports outside Russia. Indicating that the auction of Yuganskneftegaz was a violation of U.S. bankruptcy law, Yukos announced that it will take legal action to recover damages in excess of $20 billion (Euro 14.6 billion), the amount by which it estimates the company will be harmed by the sale. Grace to get New CEO W.R. Grace CEO Paul Norris announced that he will resign his position effective May 31, 2005, after the company emerges from bankruptcy. Norris is leaving so that the transition of responsibility to current COO Fred Festa, initiated a year ago, can be completed. Norris will remain on the board as non-executive chairman and will focus on the company's bankruptcy reorganization. Lubrizol Gets New Chairman President and CEO James Hambrick took on the additional position of chairman of the Lubrizol Corporation effective January 3, 2005, replacing the retiring William Bares. Hambrick joined Lubrizol in 1978 and gained experience in operations and technology, commercial, business management and international market expansion positions. He became vice president for the Asia Pacific region and an officer of the board in 2000, and was elected president in 2003 and CEO in 2004. New Joint Venture OPIC to be Led by Bill Ray Oman Petrochemicals Industries Company (OPIC), a new joint venture formed in November, 2004 between the Government of the Sultanate of Oman, Oman Oil Company (OOC) and Dow Europe Holding, appointed Dow's global business director for Dow's Synthetic Rubber division Bill Ray as CEO. OPIC will build and operate a petrochemical complex in the Sohar Industrial Port Area, Oman. Construction of the facility, which will include feedstock production capability, a gas cracker, and three Polyethylene production plants, will begin in 2005. Capacity Utilization at Peak in Canada According to the Canadian government, capacity utilization for the Canadian chemical industry reached 93.9 percent in the third quarter of 2004, up 13 percent from the same period in 2003 and a record for the country. Producers expect the high utilization rates to continue in the fourth quarter as well. However, high raw materials costs and the strong Canadian dollar (as compared to the U.S. dollar) could have a negative impact. Earnings on the Rise for Brazilian Chemical Companies The Brazilian Chemical Producer's Association (Abiquim) reported that Brazilian chemical sales revenues increased by 28.7 percent in 2004 to $58.7 billion (Euro 44.1 billion) as compared to 2003. An improved domestic economy, increased exports, and higher prices have been identified as the causes of the growth. The Brazilian chemical industry invested $1 billion in 2004, an amount considered to be too low by Abiquim. Additional investments are anticipated as profit margins improve. The trade deficit for chemicals grew from $6.2 billion in 2003 to $8.5 billion in 2004. However, exports also increased in 2004 to $5.8 billion, up from $4.8 billion in 2003. Growth in 2004 Predicted to Continue in 2005 The American Chemistry Council (ACC) reported that the U.S. chemicals industry achieved record sales of more than $500 billion (Euro 370 billion) in 2004. Strong growth in end-user demand, increased re-stocking of inventories, rising exports and higher selling prices contributed to the positive results. Basic chemicals were up 13 percent, while specialties increased 9% as compared with 2003. An 18 percent growth in exports is estimated for the year. For 2005, ACC predicts further improvements in the U.S. economy and overall growth of 6 percent for the chemical industry. Global expansion of the chemical industry at approximately 4 percent in 2005 and 2006 is also predicted by the ACC. Growth in the U.S. will be a key driver, as will expansion in emerging areas such as China and Taiwan. Steady improvements are also expected in Latin America, and Central and Eastern Europe. In Western Europe, the recovery is expected to be slow, with domestic demand becoming more important than exports. The price of oil is one factor that can significantly and negatively impact global chemical industry growth. Japanese Chemical Industry Experiencing Improved Results An improving domestic economy, increasing exports to China and other Asian countries, and the ability to pass on price hikes have spurred continued improvements in sales and earnings for many Japanese chemical companies. In the first half of 2004, Mitsubishi Chemical's operating profits increased more than five times the same period in 2003, while Asahi Kasei saw greater than a two-fold increase in net profits. First-half net profits for Sumitomo Chemical nearly tripled as compared to the first half of 2003. Both Shin-Etsu Chemical and Showa Denko raised their forecasts for operating profits after reporting substantial increases for the first half of 2004. New Opportunities for US Chemical Companies in Libya With the removal of U.S. government restrictions on doing business in Libya, U.S. chemical companies now have access to a new chemical industry. Petrochemicals in Libya have been weakened due to the isolation of the country over the past two decades. Libyans are very interested in doing business with Americans. However, there is significant competition from countries, China in particular, that has remained in contact with Libya during this period. Petrochemical Firms Could Benefit from Asean-China Free Trade Agreement Although the chemical industry is not specifically covered by the new Asean-China free trade agreement signed in Vientiane, Laos in December 2004, the industry may see indirect benefits. The 10 Asean country members are Brunei, Singapore, Malaysia, Indonesia, the Philippines, Thailand, Vietnam, Myanmar, Laos and Vietnam. The agreement abolishes trade tariffs for 11 industries (textiles, cars, health care and electronics, etc.) by 2007 and further removes all tariffs between Asean countries and China by 2010. Although the chemical industry is not included in the 11 sectors, the agreement is expected to result in increased trade between China and the Asean countries and drive up demand for chemicals used in these sectors. Sovereign Specialty Chemicals Acquisition Finalized The $575 million (Euro 425 million) acquisition of Sovereign Specialty Chemicals by Henkel was completed after the companies received approval for the deal from the European Commission. With the purchase, Henkel gains a position in the craftsman and do-it-yourself adhesives markets in North America, which complement its existing industrial product line. FDA Approves Two New Potential Blockbusters The U.S. FDA approved Genentech's Tarceva for the treatment of advanced non-small cell lung cancer (NSCLC) and Biogen Idec's Tysabri for the treatment of multiple sclerosis (MS). Tarceva was approved two months in advance of its action date with an indication as a single-agent treatment. It is the first once-a-day oral tablet to treat NSCLC, the most common form of lung cancer in the U.S. Tarceva is Genentech's first small-molecule cancer drug, and the company has also completed Phase III clinical trials of the product in pancreatic cancer. Tysabri, the first monoclonal anti-body approved to treat MS, was also under priority review by the FDA and received early approval specifically for relapsing forms of MS. Peak sales are predicted to range from $500 million to $1 billion. Nicholas Piramel India Acquires Rhodia Anesthetics Business Nicholas Piramal India agreed to purchase the Avonmouth, UK-based anesthetics business of Rhodia for an undisclosed amount. The business earned sales of $13.4 million (Euro 10.1 million) in 2003 for its Halothane and Isoflurane products. The production facility was not included in the sale, and Rhodia will continue to manufacture the anesthetics exclusively for Nicholas Piramal India for up to two years. Patheon Acquires Mova Pharmaceuticals Patheon agreed to buy Mova Pharmaceuticals for $350 million in cash, stock and assumed debt. The deal is expected to close by the end of 2004. According to Patheon, the acquisition will increase production capacity by 40 percent. Mova provides custom manufacturing services to several top pharma companies and has long term contracts in place.