June 2005 BP Accepts Responsibility for Refinery Explosion In an interim accident report on the recent explosion at its Texas City, Texas refinery, BP indicated that mistakes by supervisory and operational personnel were the "provisional critical factors" that led to the explosion that killed 15 contract workers and injured another 170 people. The company is disciplining both supervisory and hourly employees, including warnings through termination. According to the report, unit managers did not properly supervise the start-up of an isomerization unit and were absent during the critical period. Unit operators did not follow procedures, take corrective action soon enough, and failed to sound evacuation alarms. Contract workers were located in temporary trailers near the blow-don stack of the unit and should have been notified of the dangerous situation. BP immediately prohibited any further occupancy of trailers within 500 feet of blow-down stacks and flares, and is in the process of modifying or replacing all blow-down systems that handle heavier-than-air hydrocarbon vapors or light hydrocarbon liquids (gasoline and lighter). The United Steelworkers (USW) labor union will issue its own report indicating that BP did not take responsibility for design flaws and process safety and procedures that caused the accident. Three bargaining unit members participated in the BP investigation but did not take part in writing the report. The USW believes that failure to properly vent hydrocarbon vapors and liquids to a flare system was the root cause of the accident. It is also angry with BP for initially stating that the interim report listed root causes of the incident, then later on called the items in the report "provisional critical factors." The USW has hired process safety expert Isadore (Irv) Rosenthal to help conduct its own investigation. The union is also reviewing the actions taken by BP against its members.   Famous Quotes of the Month - The definition of insanity is doing the same thing over and over and expecting different results. (Benjamin Franklin) - Being defeated is often a temporary condition. Giving up is what makes it permanent. (Marilyn vos Savant) - Imagination is more important than knowledge, for knowledge is limited while imagination embraces the entire world. (Albert Einstein) - Prefer a loss to a dishonest gain; the one brings pain at the moment, the other for all time. (Chilton) - If you think you can, you can. And if you think you can't, you're right. (Marykay Ash) Why Aren't There Plums in Plum Pudding? And Why Is It Called a Pudding Even though it contains flour and is as sweet and rich as any cake, plum pudding cannot be classified as a cake because it contains no leavening and is not baked, but steamed. Besides flour, plum pudding contains suet, sugar and spices as well as raisins and currants. In early America, both raisins and currants were referred to as "plums" or "plumbs". Presumably, because the raisins and currants were the only visually identifiable ingredients in the dessert, the nickname stuck. Chemtura to be New Name for Merged Crompton and Great Lakes Businesses Upon completion of its $1.8 billion (Euro 1.4 billion) acquisition of Great Lakes Chemical, Crompton will change its name to Chemtura (pronounced chem-CHOOR-a) in order to reflect the "new" nature of the merged entity. The name also represents Crompton's goal of becoming "the world's best specialty chemicals company," according to Robert Wood, chairman and CEO of Crompton (and Chemtura when it is formed). Crompton shareholders will vote on the name change at the same meeting in which shareholders of both companies vote to approve the merger. Negotiations on Job Cuts Nearly Complete for Lanxess Lanxess expects to finalize negotiations for termination of 1,200 positions in its poorly performing styrenic resins and fine chemicals businesses. Restructuring that has already been completed contributed to a strong first quarter performance, but company leaders stress that further measures are required if Lanxess is to achieve additional and meaningful gains in earnings. These measures include the closure of an Acrylonitrile-Butadiene Styrene (ABS) plant in either Germany or Spain. According to the company, for the two businesses to be competitive, annual cost savings of at least $125 million (Euro $100 million) must be achieved. Businesses maintaining acceptable margins for Lanxess include rubber chemicals, engineering plastics, and chemical intermediates (despite fine chemicals). Rhodia Management Facing Interesting Times Despite significantly improved first quarter profits, top executives at Rhodia face several challenges. Currently the company is being investigated by the Autorite des Marches Financiers (AMF), France's stock exchange authority and may have to a pay a $1.93 billion (Euro 1.5 billion) fine. The company is also involved in an arbitration procedure with Sanofi-Aventis from which it is seeking to recover at least $732 million (Euro 570 million) in environmental and pension costs. Minority shareholders Colette Neuville and Hugues de Lasteyrie will introduce resolutions at the upcoming annual meeting to oust Rhodia CEO Jean-Pierre Clamadieu, chairman Yves-Rene Nanot, and other executives. Rhodia's board has recommended that shareholders vote against the resolutions and also continues to support the company's recovery plan that has been in effect since October 2003. Separately, Rhodia announced that it is switching to the new International Financial Reporting Standard (IFRS) from the French GAAP system. Under the new system, shareholder equity decreased to a $701 million (Euro 546 million) deficit as compared to a Euro 70 million surplus, largely as a result of the different method of recognizing actuarial losses on pension obligations. Rhodia's sales and earnings before interest, tax, depreciation and amortization (EBITDA) increased under IFRS as compared to the French GAAP rules. However, net losses also rose as a result of the treatment of deferred taxation. According to the company, the new accounting standards will not have any impact on its financial situation. Croda Appoints Chairman-Elect Martin Flower, deputy chairman of the Severn Trent water company, has been appointed non-executive director of Croda effective immediately, and new chairman effective the end of September. Flower will replace Antony Beevor, who is retiring. Merck Gets New Head Richard Clark, until recently the head of Merck's manufacturing division, has been appointed CEO and president, effective immediately. He replaces Raymond Gilmartin, who left the company for undisclosed reasons. Previously Clark served as chairman and chief executive of Medco Health Solutions. OM Group Appoints New CEO OM Group (OMG) appointed Joseph Scaminace, president and COO of Sherwin-Williams, as president and CEO, replacing James Mooney, who stepped down in January, 2005. Interim CEO Frank Butler will return to his position as non-executive chairman of the board. At Sherwin-Williams, chairman and CEO Christopher Connor will assume the role of president and is expected to be formally awarded the title upon approval of the board. Solvay Names New CEO Christian Jourquin will take over as CEO of Solvay in May, 2006, replacing current CEO Alois Michielsen, who will become group chairman when Daniel Janssen retires. Jourquin is the head of the chemicals business and a member of the executive committee. He will be replaced by Vincent De Cuyper, who is currently manager of Thai Polyvinyl chloride (PVC) and Vinyl chloride monomer (VCM) affiliate Vinythai. Chemical Industry Not Expected to Be Impacted by Privatization of Chinese Companies In order to reform its stock exchange, China will allow the sale of nontradeable shares in several listed companies. A trial program includes Shanghai Zijiang Enterprise Group, Hebei Jinniu Energy Resources, Sany Heavy Industry and Tsinghua Tongfang. Industry analysts do not believe the Chinese government will fully privatize major petrochemical companies such as Petrochina and Sinopec, and thus the impact on the chemical industry should be minimal. The decision to privatize some businesses, however, could be a positive indication that the Chinese government will move toward increased accountability and provide a more favorable environment for investment. Chinese Imports and Exports Rose in 2004 Three petrochemical companies were in the top 25 exporters for China during 2004. According to the country's Ministry of Commerce (MoC), total exports increased 35.4 percent to $593.4 billion. Imports rose 36 percent to $561.4 billion. The country now holds the number three position in terms of world trade. In a list of top exporters, Sinochem International ranked 13th with $2.26 billion in exports, China National Petroleum Corp (CNPC) ranked 17th, with $1.96 billion in exports, and Sinopec International ranked 23rd, with $1.71 billion worth of exports. Chinese Make Financial Maneuvers The Chinese Ministry of Finance will implement a uniform tax for domestic and foreign companies beginning in 2007. The rate was not specified, but some reports place it at around 25 percent. A five-year transition period will be given to foreign companies who invest in China before 2007. Foreign investors have received a preferential tax rate since the mid-1980's, paying half of the 33 percent that domestic companies pay on average. Separately, China's Ministry of Commerce cancelled earlier announced increases in export tariffs for 81 textile products after the U.S. re-imposed quotas on three textile categories imported from China. The European Union also imposed temporary limits on Chinese imports and took the matter to the World Trade Organization. China had initially raised export taxes on 148 textiles and clothing products on January 1 when the Multi-Fiber Agreement ended. Since then, China has dominated world textile trade. Many in China consider the moves by the U.S. and EU to be acts of "trade protectionism." Earnings Strong for U.S. Chemical Companies Rising prices are helping U.S. chemical companies maintain higher earnings despite reduced demand growth. Eastman Chemical reported a 10 percent increase in sales in the first quarter of 2005 as compared to a year ago, and expects the remainder of the year to be strong as well. Exxon-Mobil achieved an earnings record for the first quarter of 2005. Air Products saw its second fiscal quarter revenues increase 8 percent and net income climb 24 percent as compared to the same period in 2004. Indian Chemical and Pharmaceutical Industries Rapidly Expanding The Indian Chemical Manufacturers' Association (ICMA) is making predictions of strong growth for its chemical and pharmaceutical industries over the next several years. According to ICMA, India's chemical industry could achieve $100 billion in sales in 2010-2011, up from $30 billion in 2004-2005, assuming the country's infrastructure is improved. Pharmaceutical chemical production will experience the highest growth rate by 2010 (27 percent per year), followed by specialty chemicals (16.4 percent), and basic chemicals (7.9 percent). Currently, logistics costs are very high for Indian companies, making them less competitive when compared to Chinese firms. The country also needs to maximize its use of rail and freight transportation. Price-fixing Investigations Abound Participants in the paraffin wax market recently received notification of a new price fixing investigation launched by the European Commission (EC). Both Sasol and Total reported receiving notices from the EC indicating that alleged anti-competitive behavior among members of the paraffin wax industry was being investigated. Recently, Total and Sasol decided not to pursue plans to form a paraffin wax joint venture because the EC was going to carry out a four-month long investigation into the proposed new company. Sasol indicated that a U.S. court has also requested information regarding the company's activities in the paraffin wax industry. Both companies said they were cooperating fully with the investigations. Sasol has also been found guilty of uncompetitive behavior in the South African fertilizer market. If the Competition Commission's decision is upheld by the Competition Tribunal, Sasol could be fined up to $995 million (Euro 774 million, Rand 6 billion). The company said it is cooperating with the Tribunal. The initial investigation followed in response to a complaint by Nutri-Flow, a small fertilizer manufacturer, indicating that Sasol was charging unreasonable prices to smaller customers. Sasol also was recently charged by the Competition Tribunal with pricing abuses in the creosote market. Russian Export Tax on Petrochemicals to Increase The duty on petrochemical products exported from Russia will be raised 28 percent (up $22.7/tonne to $104.1/tonne) effective June 18, 2005. Some of the affected chemicals include Ethylene, Propylene, Benzene, Butylene, Xylene, Toluene, and Butadiene. This increase follows on two others earlier this year, which together totaled $24.4/tonne. The export duty was $57/tonne at the beginning of 2005. Apollo Creates New Company and Plans IPO Apollo Management will combine Resolution Performance Products (RPP), Resolution Specialty Materials (RSM), and Borden Chemical, including the recently acquired Bakelite business (Borden completed the approximately $200 million (Euro 154 million) acquisition from Rutgers in early May, 2005) into a new company. With over $4 billion in sales, Hexion Specialty Chemicals Inc., which will have two divisions - coatings and adhesive/structural, will be the third largest North American fine & specialty chemical company. Apollo plans to take Hexion public and expects to raise as much as $800 million in an IPO, which it hopes to hold later in 2005. The consolidation should provide increased operating efficiencies, reduced costs, optimization of assets, and enhanced marketing power through global product line management. Apollo will implement a restructuring program once Hexion has been formed. Hexion will then focus on making acquisitions in the highly fragmented global thermoset resins industry. Craig Morrison, president and CEO of Borden, will take the same titles at Hexion. The vice chairman position will be held by Marvin Schlanger, chairman and CEO of RPP and chairman of RSM. Competition from Asia Threatening European API Manufacturers Unfair competition from Asian active pharmaceutical ingredient (API) producers who are bringing large quantities of poor quality, low-priced products into the area is reaching a critical point for European players. Specifically, European API makers claim that the European Union must be far more rigorous in its effort to ensure that imported APIs are made in cGMP-compliant facilities. In the U.S., the FDA only allows imports of active ingredients from foreign plants that it has inspected and approved. Legislation that will require pharmaceutical companies to audit their API suppliers for compliance with cGMP requirements is supposed to take effect in the EU at the end of October. Many believe the legislation does not go far enough to solve the problem, but will hopefully provide some control over the situation. The European Commission is also developing guidelines for inspection of questionable plants. Dishman Acquires Synprotec Dishman Pharmaceuticals and Chemicals Ltd. acquired contract R&D firm Synprotec for an undisclosed amount. With the purchase, Dishman expands its services to the pharmaceutical, fine and specialty chemical industries to include contract research and development through to commercial scale manufacturing. Dishman also gains a presence in U.S. and European markets with the acquisition of Synprotec. DSM Concentrates Vitamin C Production in Scotland Beginning in the third quarter of 2005, DSM will produce all of its Vitamin C in its Dalry, Scotland facilities, which is currently undergoing an upgrade. Production of vitamin C will be stopped at DSM's Belvidere, New Jersey plant, but production of formulations for other vitamins and arachidonic acid for baby formula milk will continue in the U.S. facility. The company is also developing a "one-step direct-fermentation process" for the production of Vitamin C that will strengthen its position in the market, according to Feike Sijbesma, chief executive of DSM Nutritional Products. Finnish Paper Strike Affecting Chemical Producers A strike by approximately 25,000 members of the Finnish paper worker's union Pappersforbundet and 7,000 associated members in other industries that began on May 15th, ended on May 18th when the Federation of the Finnish paper industry, Skogsindustrin, started a two-week lock-out. Issues on the table include overtime pay, sick leave cuts, holiday work schedules and the use of temporary workers. Talks were held late in May but an agreement was not reached. As a result, the lockout continues and could last until June 29th. National Finnish conciliator Juhani Salonius proposed a solution to the standoff on June 2nd. A reply to the proposal is required by both the union and employers by June 5th. If an agreement is reached, the lockout will be cancelled. Chemical companies supplying bleaching and other chemicals to the Finnish pulp and paper industry are operating at significantly reduced rates, and some integrated paper chemical plants have been closed. Companies such as Kemira and its recently acquired Finnish Chemicals subsidiary, Akzo Nobel unit Eka Chemicals, BASF, Ciba, and Noviant are focused on increasing storage levels and exporting material. Some are considering rescheduling maintenance shutdowns planned for later this year. Styrene from Russia that typically is consumed by the Finnish paper industry may end up on the market in Rotterdam, which could threaten pricing. SEAC Sold to Minakem Nufarm divested SEAC, its fine chemicals custom manufacturing business, to Minakem Holdings for $30 million (Euro 23 million) in order to focus on crop protection. Minakem will use the SEAC acquisition to become a fully integrated company that offers services from research and development up to commercial scale manufacturing. Headquarters for SEAC will be relocated to Beuvry-la-Foret, France. Minakem will focus on increasing its presence in Asia and the U.S. Novus Fine Chemicals Purchased by Malladi Large Ephedrine and Pseudoephedrine producer Malladi Drugs and Pharmaceuticals acquired Novus Fine Chemicals, the only U.S. producer of Pseudoephedrine. According to Malladi, the transaction is the first time an Indian company has acquired a U.S.-based API manufacturer. The acquisition puts Malladi's total production capacity at approximately 1/3 of the total global Pseudoephedrine market. Novus gains access to economical development, scale-up and early-stage intermediate production capabilities.