March 2005 Successful First Run for ChemSpec India The first ChemSpec India, held in February in Hyderabad, met with great success, with a total attendance of well over 9,000. About half of attendees came from the pharmaceutical industry, while the other half represented fine chemical, agrochemical, flavors and fragrances, and other specialty chemical sectors. Approximately 30 companies from Europe, the U.S. and Japan were present as exhibitors, either through international or local offices or through personnel at the booth of an Indian distributor. The number of visitors was well in excess of what was expected by these exhibitors, and the quality of the visitors was also very good. Exhibitors met with both existing and prospective new customers and many indicated that they expected to generate business in the medium term from contacts made at the show. DMG World Media has announced the dates for the second ChemSpec India, which will take place at the NSE in Mumbai April 3-6, 2006.   Famous Quotes of the Month - Don't put the fate of your business in the delusions of economists. (Peter Drucker) - The secret to creativity is knowing how to hide your sources. (Albert Einstein) - We judge ourselves by what we feel capable of doing, while others judge us by what we have already done. (Henry Wadsworth Longfellow) - The worst thing about some men is that when they are not drunk they are sober. (William Butler Yeats) - Opportunity is sometimes hard to recognize if you're only looking for a lucky break. (Monta Crane) Why Are Baseball Dugouts Built So They Are Half Below Ground? If dugouts were built any higher, the sight lines in back of the dugout would be blocked. Baseball parks would either have to eliminate choice seats behind the dugout or sell tickets with an obstructed view at a reduced price. If dugouts were built lower, either the players would not be able to see the game without periscopes or they wouldn't have room to stretch out between innings. Of course, if dugouts were built at ground level, then they wouldn't be dug-out. No Chinese Involvement in Sale of Yukos Subsidiary Yuganskneftegaz Despite an announcement by Russian finance minister Alexei Kudrin indicating that Vnesheconombank raised $6 billion from Chinese banks to fund the acquisition of Yukos subsidiary Yuganskneftegaz by state-owned oil company Rosneft, both Rosneft and Vnesheconombank deny any such action. Vnesheconombank stated that the loan it secured from a consortium of Chinese banks was used to fund long-term and stable crude oil supplies from Russia to China. Rosneft paid $9.3 billion (Euro 7.15 billion) for Yuganskneftegaz. Pfizer to Reduce Workforce and Unload a Facility in the U.K. The Sandwich, U.K. Pfizer production facility will lose 400 jobs, largely in manufacturing and distribution, while the Morpeth, U.K, manufacturing site will be sold. R&D activities will continue at the Sandwich location, as will some specialized manufacturing processes. Pfizer is taking the actions to eliminate spare manufacturing capacity following its acquisition of Pharmacia. R&D Center in China Planned by Dow Dow Chemical will pick a location in China for a new research and development and information technology center. The company expects the IT portion of the center to be in place within 12 months, and the entire facility completed within three years. The center will employ approximately 600 people. IT services will include system and work process support for Dow locations worldwide. Other service and support facilities will be added later on. Solvay Finalizes Plans for Consolidation While Looking for Acquisition Targets Solvay will consolidate all of its pharmaceuticals assets into a new 100 percent owned subsidiary named Solvay Pharmaceuticals SARL, which will be located in Luxembourg. The consolidation will be completed in the third quarter of 2005. The company also announced that it is looking for acquisition targets in pharmaceuticals, chemicals and plastics. Solvay has $3.4 billion (Euro 2.6 billion) available in cash and credit for purchases. Symrise Appoints New Chairman Effective March 1, 2005, Gerold Linzbach will become chairman of Symrise (formed from the merger of Bayer subsidiary Haarmann & Reimer and Dragoco), replacing James Forman, who "left by mutual agreement." Owner EQT is looking to expand the business through acquisitions, and may bid for the food ingredients business of Degussa, which is expected to be put on the block in the second quarter of 2005. 2005 Looks Good for Japanese Companies, Following on Strong 2004 Domestic demand and the growth of the Chinese economy will enable the Japanese petrochemical industry to continue growing despite an overall economic slowdown in the country. Analysts are predicting increases of approximately 9 percent for operating profits in the petrochemical sector. In 2004, both sales and operating profits were up significantly for Japanese chemical companies. At Mitsubishi chemical, sales were up 24 percent compared to the same period a year ago, while gross profit increased nearly 5 times. A 68 percent increase in operating profits over the previous year was reported by Sumitomo Chemical, while Toray Industries reported a 39 percent growth in its operating profits. Teijin saw operating profits rise 45 percent, and Ube Industries reported a massive 190 percent growth in the operating profit of its chemicals division as a result of a recovery in the Caprolactam market. 4th Quarter Positive for U.S. Petrochemicals Production of petrochemicals in the U.S. rose 10 percent during the 4th quarter of 2004 as compared to the same period in 2003. Compared to the third quarter of 2004, production was up 7 percent. The data is based on output of 19 different petrochemicals tracked by the National Petroleum & Refiners Association. Inventories for 6 basic petrochemicals were up 11 percent as compared to inventories of those products in the year-earlier fourth quarter, and 14 percent compared with third quarter 2004 inventories. China Introduces New Refinery Investment Rules Domestic private companies are now permitted to invest in refinery projects though sole ventures, joint ventures, alliances or financing. Previously, investment in refineries was restricted to the three major local state-owned companies: Sinopec, PetroChina and China National Offshore Oil Corp. (CNOOC). The power, civil aviation, telecommunication, and infrastructure sectors have also been opened to the domestic private sector. Members of the Chinese chemical industry believe this move will provide more equal opportunity for domestic companies, as foreign companies have been allowed to invest in refinery projects for some time. Last year, the Chinese government granted import licenses for crude and refined oil to 17 local companies, two of which were private enterprises. The investment environment is also expected to improve once China opens up the processed oil and crude oil wholesale market in 2006 as part of its commitment to the World Trade Organization (WTO). Petchem Markets Can Expect Mixed Results for 2005 Growth will vary for petrochemical markets in different regions of the world. Slower domestic demand and increased capacity will result in slower growth for the South Korean petrochemical industry, with analysts predicting approximately 7 percent growth in 2005 vs. 60 percent in 2004. Thailand's plans to make the country a regional petrochemical hub through a third petrochemical master plan that includes 42 new plants and at least one cracker could be delayed until a new cabinet is formed in March following general elections in February. Chinese petrochemical companies are expected to announce strong gains for the financial year ending March 31, 2005. Yangzi Petrochemical Co. and Zhenhai Refining & Chemical Co. (ZRCC), due to their involvement in the aromatics market, are both expected to report very strong earnings. Even polymer and fiber producers like Shanghai Petrochemical Co. and Yizheng Chemical Fibre are predicted to report a profit. Strong growth should continue in the Chinese petrochemical market in 2005. Venezuela hopes that new legislation designed to provide economic and tributary incentives as well as special currency exchange provisions for the petrochemicals industry will stimulate growth. President Hugo Chavez believes that development in the petrochemicals industry will create jobs. In Europe, petrochemical producers are looking forward to a strong year in 2005 and beyond due to tight markets created by increasing demand and limited additional supply. European producers, however, must address their high fixed costs by closing old facilities and investing in new, cost efficient plants if they want to remain competitive. Russian Imports and Exports Higher in 2004 Imports of chemicals to Russia increased 24 percent in 2004 to $11.43 billion (Euro 8.79 billion), which accounted for 17.6 percent of all Russian imports. Exports rose by 29.6 percent to $10.09 billion (Euro 7.76 billion) and made up 6 percent of Russia's total exports for 2004. Key chemical exports included Potash, Nitrogen fertilizer, synthetic rubber, Methanol, and Ammonia. U.S. Manufacturers Requesting New Policies to Foster Competitiveness with China Concerned about the rising trade deficit with China (nearly $160 billion in 2003), the National Association of Manufacturers (NAM) in the U.S. has developed a Trade Agenda for China that addresses the issues of Chinese currency revaluation, protection of intellectual property rights, subsidization and standards issues, and the expansion of U.S. exports to China. According to NAM, because the deficit with China accounts for such a large percentage of the U.S. overall trade deficit, the imbalance with the country must be addressed specifically. An analysis of the U.S.-China trade imbalance is underway by the President's Export Council. The chemical trade deficit with China is increasing rapidly - up 36 percent from 2001 to 2003. Drug Safety Oversight Board to be Created by FDA The U.S. FDA will create a drug safety oversight board to manage drug safety issues and provide information to health providers and patients about the risks and benefits of medicines. The independent board will include members from the FDA and medical experts from Human Health Services and other governmental departments. It will also look to medical experts and representatives of patient and consumer groups for input. Generic Firms Acquired by Novartis With the acquisition of 100 percent of Hexal and 67.7 percent of Eon Labs (which has a strategic partnership with Hexal), Novartis' Sandoz division will become the global leading generic drug firm with combined pro forma 2004 sales of $5.1 billion. Novartis will pay $7.38 billion (Euro 5.65 billion) for the purchases, and also plans to offer to buy the other 31.9 million shares of Eon Labs for $31 per share. The company hopes to achieve cost savings of $200 million per year within three years after closing the deals, which is expected to take place in the second half of 2005. Pharmaceutical Industry Continues to Struggle Expirations of blockbuster drug patents, a weak pipeline, and a poor public image continue to plague the pharmaceutical industry. Some new drugs are bringing in sales, but margins remain squeezed as sales of older drugs decline and competition increases in certain markets. Wyeth experienced a 10 percent increase in sales in 2004, but took at $4.5 billion charge in the fourth quarter to cover litigation costs for its Redux and Pondimin diet drugs (total costs $21.1 billion). Sales of its major drugs are also declining, and analysts don't expect any of the compounds in its pipeline to be blockbuster drugs. Bristol-Myers Squibb (BMS) experienced a 6 percent decline in earnings in 2004 as compared to 2003 on an increase in sales of 4 percent. BMS also has several older drugs coming off patent soon and will be relying on newer, less profitable products. Eli Lilly & Co. had positive results for 2004, with both sales and earnings up 10 percent as compared to 2003. However, competition for its top drugs is expected to erode sales in 2005. European Biotech Industry Seeking Commercialization Support Following the publication of a scientific study (BioImpact) on the impact of biotechnology-derived medicines on the quality of life and life expectancy of patients, European biotechnology industry associations are pushing for national governments in Europe and the European Commission to increase promotion of biotechnology research in the European Union. Groups such as EuropaBio, France Biotech, and the French Biotechnology Industry Association are seeking fast track approvals for novel medicines that target unmet needs and the creation of a pan-European stock exchange, which would make it easier for venture capitalists to invest in biotech startups. Commodity Imports Stable or On the Rise Most imports of commodity polymers in China remained stable or increased in 2004 as compared to 2003. Imports of Acrylonitrile butadiene styrene (ABS), Polyethylene (PE) and Polypropylene (PP) rose, while Polystyrene (PS) and Expandable PS (EPS) remained stable. Polyvinyl chloride (PVC) was one commodity that saw reduced levels of imports to China in 2004. The move by Taiwanese electronics companies to China is attributed as the cause of increasing ABS imports, while reduced domestic production of PE and PP led to higher imports of these chemicals. In the case of PVC, higher production levels of this commodity were the reason that imports declined. European Sales of Polypropylene are Promising Strong demand combined with high feedstock and oil costs are creating a firm market for Polypropylene in Europe. Despite an uncertain start with lower prices and demand, the 1st quarter of 2005 has experienced a rebound with both demand and prices on the rise. Analysts expect demand growth for Polypropylene in 2005 to be slightly higher than 2004, with supply tightening. Future Remains Bright for Many Commodities Despite rising prices for commodity chemicals, demand for many key raw materials is expected to remain strong throughout 2005. Insufficient capacity will remain a problem in the Benzene market for the next several years, keeping prices high while demand continues to grow, especially in China. Even with high Benzene prices, Phenol derivatives are predicted to experience continued strong growth in 2005, with demand in China being a key driver for this market as well. Rapid demand growth for Methanol has led to the announcement of several new plants. The increasing demand, combined with closure of higher cost production facilities in North America, is expected to offset much of the new capacity in 2005. Oversupply, however, may become an issue beginning in 2006. Tight Supply for Ethylene Expected in Europe for Some Time The lack of investment in new capacity in the face of increasing demand will lead to a tight Ethylene market in Europe for the next several years. Cracker operating rates are currently at 92 percent and are predicted to rise to 97 percent or greater. Sabic is the only company investing in new capacity, with a 500,000 tonne/year cracker planned at Geleen, the Netherlands. The global market for Ethylene is also tight, with operating rates near 90 percent. Spot prices for Ethylene in Europe did drop briefly in response to weak demand in downstream markets that resulted from unexpected production problems at a time when Ethylene storage levels were high. A return to higher levels is expected once the production problems are addressed. Custom Manufacturing Growing in India Demand for custom manufacturing and research services in India from U.S. and European pharma companies is driving the growth of this sector in India. New patent laws took effect in January of 2005 that more closely align Indian pharmaceutical patents with international laws. The new intellectual property (IP) protection makes Indian custom manufacturers more attractive to foreign pharma companies. Indian custom manufacturers are now making advanced intermediates instead of just basic raw materials. While Indian custom manufacturers are not as low cost as those in China, they can now offer IP protection and an increasing level of quality to foreign pharma and other companies that are looking for reliable custom manufacturers. Cytec Finalizes Acquisition of UCB's Surface Specialties Business Cytec completed the $1.797 billion acquisition of UCB's Surface Specialties business, paying $1.505 billion in cash and the balance in shares of Cytec common stock. A maximum Euro 50 million contingent consideration will be paid depending on achievement of certain operating results by Surface Specialties in 2005. Ben Van Assche, previously Director-general of Surface Specialties, has been appointed president of Cytec Surface Specialties. Cytec must divest Surface Specialties' amino resin product line during 2005 and use the proceeds to pay down debt. Excluding the amino resins business, Cytec now has annual sales of nearly $3.0 billion. The company will operate Surface Specialties as a separate segment and will integrate its existing Coatings and Performance Chemicals product lines into that segment. The Polymer Additives and Specialty Additives product lines in Cytec's Performance Products segment will be combined with the Water and Industrial Process segment, which will be renamed Cytec Performance Specialties.