January 2006 Changes Coming for Degussa Degussa's supervisory board approved plans to streamline operations and authorized the sale of its construction chemicals business. The managing board will increase its operational activities and will be expanded to six members from four. The five operating divisions will be replaced with four reporting segments, and the number of business units will increase from 17 to 20. The seven regional organizations within Degussa will report directly to the managing board to provide further internal streamlining. Following the announcement that Degussa will sell its construction chemicals division, BASF issued a proposal for "exclusive negotiations" to Degussa's board of management. The construction chemicals business had sales in fiscal 2004 of approximately $2.2 billion (Euro 1.8 billion) and employs nearly 7,400. In addition to this restructuring, Degussa will see changes in its ownership in 2006. RAG, which currently owns 50.1 percent of Degussa, announced that it will offer Eon $3.36 billion (Euro 2.78 billion) for its shares, and another $0.72 billion (Euro 0.6 billion) for the remaining free floating shares. Funds raised from the sale of the construction chemicals division, plus monies obtained through the sale of some of RAG's own assets will be used for the purchase. RAG plans to fully integrate Degussa into its businesses to create "value based and growth oriented development," according to chairman Mueller. RAG is planning an IPO for Degussa in 2007.   Famous Quotes of the Month - A couple of months in the laboratory can frequently save a couple of hours in the library. (Westheimer) - Lots of people know a good thing the minute the other fellow sees it first. (J.E. Hedges) - Half our life is spent trying to find something to do with the time we have rushed through life trying to save. (Will Smith) - Remember not only to say the right thing in the right place, but far more difficult still, to leave unsaid the wrong thing at the tempting moment. (Benjamin Franklin) - Blessed is the man, who having nothing to say, abstains from giving wordy evidence of the fact. (George Eliot) Why Do We Get Headaches From Eating Ice Cream? It's called brain freeze, and it's a pain in your head that occurs when the nerves on the roof of your mouth are hyperstimulated by cold foods like ice cream and frozen drinks. The nerves are in your mouth but the nerve center is in your brain, so that's where you feel the pain. This is known as "referred pain." Why do humans experience pain in one place when the stimulus is elsewhere? No one knows for sure. But we do know that migraine sufferers are more prone to ice cream headaches. We also know that eating slowly and sipping slowly seem to reduce the effects of the cold. Once the headache sets in, the fastest way to make it go away is to drink something lukewarm. DSM Pharma Undergoes Restructuring DSM Pharma Products will shift its focus away from early-stage non-registered intermediates and generic active pharmaceutical ingredients (APIs) to higher value-added products including advanced and registered intermediates, APIs, and more specialized generic APIs. Early-stage intermediates will be sourced from Asia/Pacific. The company will also focus on the development of the human cell line production technology platform Per.C6 through an alliance with biotech firm Crucell. It will close its DSM Biologics facilities in Montreal, Canada in early 2006 and the DSM Pharma Chemicals operations in South Haven, Michigan in the first half of 2007. 3M Gets New CEO George W. Buckley, chairman and CEO of boat, engine, and bowling equipment maker Brunswick, has been appointed chairman and CEO of 3M, effective immediately. Buckley replaces Robert S. Morrison, who served as interim chairman and CEO since James McNenery left for Boeing in July. Analysts approve of the appointment, indicating that Buckley has demonstrated skills in value creation and driving organic growth. LG Chem to Get New Head No Ki Ho will step down as president and CEO of LG Chem in the first week of January, 2006. The company has appointed Kim Bahn Suk, CEO of wholly owned subsidiary LG Daesan Petrochemical, to replace him. The announcement was unexpected by the Korean chemical industry. Ho will become an executive advisor once he leaves his position within the company. Merger Between GE and Honeywell Denied by European Court The merger between General Electric and Honeywell would "significantly impede effective competition in the markets for aerospace products and industrial systems and deprive customers from the benefits of competition" as originally determined by the European Commission. That was the recent decision of the European Court of First Instance. The merger, valued at $41 billion (Euro 34 billion) when first proposed, cannot take place, even though it was approved by U.S. antitrust regulators. Mexican Chemical Imports Increase Pemex Petroquimica (PPQ), Mexico's state-run oil company, increased its imports by nearly 100 percent in the first 10 months of 2006 to nearly $86 million (Euro 72 million), up from $45.7 million in the same period in 2004. Trade agreements including NAFTA (North American Free Trade Agreement) have made it possible for Pemex to offer an increased variety of supplies to meet the growing demand in Mexico. The company's exports also increased in the same period from $176.3 million to $226 million. Modest Growth Expected for Brazilian Chemicals in 2006 Sales of both paints and thermoplastic resins in Brazil are expected to increase in 2006 as compared to 2005. According to the Brazilian Paint Producer's Association (Abrafati), paint sales in the country should grow at 4 percent in 2006. In 2005, revenues totaled $1.88 billion (Euro 1.59 billion) for the Brazilian paint sector. Thermoplastic resins should experience an even higher growth rate of 9 percent, according to Tendencias, a local think-tank. Lower interest rates are expected to result in increased construction, which will lead to higher demand for paints and coatings. The lower interest rate and overall tightness of supply in the international resins market will lead to growth in this sector as well. Overall BES Securities predicts that Brazil's chemical industry will operate at greater than 90 percent of installed capacity in 2006. Strong Growth Expected for Canadian Chemical Industry Sales of chemicals in Canada reached $19.6 billion (Euro 16.5 billion, Can $23 billion) in 2005 and are expected to increase 12 percent in 2006, according to the Canadian Chemical Producers Association (CCPA). The trade association also predicts that operating profits for Canadian chemical companies will rise by 33 percent, while fixed capital investment will decline by about 17 percent. Factors that could affect this positive outlook include rising natural gas costs and any additional increases in the Canada-U.S. exchange rate. Construction Chemicals on the Rise Before hurricanes Katrina and Rita, growth in demand for construction chemicals was expected to rise at a rate of 5 percent per year to $7.5 billion in 2008, according to The Freedonia Group. Producers of construction chemicals like BASF, Degussa, Henkel, Rohm and Hass, and W.R. Grace are already experiencing increases in demand as high as 8 percent as compared to last year. The higher demand is attributed to the reconstruction efforts taking place in the Gulf Coast region. Demand is expected to climb even higher through much of 2006. At this point, much of the rebuilding efforts are in the assessment phase, with actual work to take place in the coming months. The U.S. government alone plans to spend around $200 billion on reconstruction in the region. Growth in overseas markets such as Eastern Europe and Asia are also contributing to the positive outlook for construction chemicals. CPhI Exhibitors Have Positive Outlook Downsizing by certain players and an expected growth in demand has fine and specialty chemical companies looking forward to 2006. Capacity utilization increased slightly in 2005 and is expected to rise further in the coming year. DSM has realigned its business model and is now offering complete services from drug development to final packaging. Degussa's fine chemicals business is restructuring in order to improve its profitability and capitalize on core capabilities. Isochem just recently reorganized its business in order to position itself in the agrochemical and pharmaceutical markets, particularly focusing on phosgenation and production of advanced intermediates and generics. Lanxess announced the spinoff of its fine chemicals business under the name Saltigo. Custom manufacturing operations are running at full capacity for BASF, and the company is investing in the Orgamol facility it acquired in 2005 in preparation for future growth. Siegfried, after recent position reductions and restructuring, expects growth in its actives and biologics businesses and is increasing capacity at several sites. Several fine and specialty chemical producers are also investing in production sites in China and India, where analysts predict at least a third of the volume of basic pharma custom manufacturing chemicals will move within the next several years. Clariant and Lonza are just two companies making such investments. Asian manufacturers, meanwhile, are investing in U.S. and European companies. Nicholas Piramal India and Sun Pharmaceutical Industries are two companies taking this approach to gain access to production capabilities for advanced intermediates and APIs. Asian Companies Look to Sign Steroid Deal with Pfizer Pfizer CentreSource, Pfizer's contract manufacturing business, is talking with two different Asian fine and specialty chemical companies regarding production of the later steps in its steroids portfolio. Pfizer will continue to control the critical biotechnology based step of the process at its Kalamazoo, MI site. The later steps in the process rely on typical chemistry that tends to be labor-intensive. Pfizer indicated it was close to finalizing deals with both Asian suppliers that will provide cost savings for the downstream steps. PCS will retain regulatory responsibilities, including GMP and EH&S compliance as well as the drug master files for the products. The company expects material to be supplied from Asia beginning in 2007. Bayer Receives FDA Approval for Nexavar The US FDA announced approval for Bayer Pharmaceutical's Nexavar (Sorafenib), a new generation treatment for advanced renal cell carcinoma. Nexavar is an oral treatment that blocks tumor growth and has been shown to extend survival while maintaining good quality of life. Sales are expected to total $88 million (Euro 74.5 million) in 2006 for Nexavar, and could reach as much as $550 million in 2010. The drug was initially developed in conjunction with Onyx Pharmaceuticals. The FDA is also expected to approve Pfizer's Sutent (Sunitanib) for kidney cancer, another angiogenesis inhibitor developed by Pfizer, in early 2006. Pharma Companies Consider Options for China Like any other industry, China offers significant opportunities to the pharma industry - a large and quickly growing market and a low-cost manufacturing base, plus a reduced regulatory environment for conducting clinical trials. As the Chinese government works to improve its intellectual property laws and make foreign investment more attractive, western pharma companies are looking at how to capitalize on these opportunities. They are also aware of the improved ability of Chinese producers to compete in the global pharma market. According to a recent survey by Ernst & Young, 70 percent of pharma companies are already participating in the Chinese market, with 54 percent manufacturing directly or through a Chinese partner. Acquisitions are unlikely for the near future, but many are interested in gaining wholly owned foreign businesses as a way to mitigate some of the risks. Over half of the survey respondents indicated that the regulatory and legislative environment in China presents a significant risk. Other concerns include intellectual property rights, data security and privacy, and counterfeiting. China is working to address these concerns. The government adopted a Good Manufacturing Practice system in 2004, but needs to improve its enforcement capabilities. Court Decides in Monsanto's Favor The U.S. District Court in St. Louis determined that Monsanto did not infringe on patented technology for insect-protection of corn owned by Bayer CropScience and that the Bayer patent is invalid. The patents in question covered technology related to Bacillus thuringiensis (Bt) insect-resistant corn. Judge Changes Ruling on Cargill Canola Claim Cargill plans to appeal a recent post-trial ruling by a U.S. federal judge that declared Cargill's patents for its Clear Valley high oleic canola oils unenforceable on the grounds that not all testing data have been submitted to the U.S. Patent Office. The claim was submitted to the judge by Dow Agroscience. This ruling by the judge followed a federal court jury decision to award Cargill $2 million (Euro 1.68 million) in damages from Dow Agroscience for infringement of Cargill's patents with Dow's Natreon canola cooking oil. According to Cargill, the data not submitted to the Patent Office was "inaccurate and unreliable compared to the reams of other testing data" that was submitted. Growing Interest in Biopesticides Increasing regulatory pressures and growing demand for "organic" foods are resulting in greater investment in biopesticide research and development. Business Communications Company, Inc. (BCCI) predicts the market for these products will reach as much as $1 billion by 2010), a growth rate of 9.9 percent. Naturally derived biopesticides are reported to work in smaller doses and decompose to harmless ingredients much more quickly than their synthetic counterparts. Microbial products have a microorganism as the active agents. Other biopesticides are incorporated genetically into the plant and cause it to produce substances that protect it. Biochemical based biopesticides are naturally occurring chemicals that control harmful insects using non-toxic methods, often attracting them into traps. AgraQuest recently received approval from the EPA and the California Department of Pesticide Registration for its natural fumigant based on the fungus Muscodor albus. The product has crop and plant fumigation applications, plus it can control food-borne pathogens like Salmonella, E.coli and Listeria. The new biopesticide may be a replacement for Methyl bromide, which was banned in 2005 in accordance with the Montreal Protocols. It is still widely used in the U.S. for tomatoes, strawberries, peppers, Christmas trees and other crops. Chinese Ethylene Spot Prices on the Rise The unexpected shutdown of Chinese Petroleum Corp's (CPC) No. 5 cracker in Taiwan led to a shortage of Ethylene supply and a rise in prices of $30-$50 per tonne. Prices rose above $800 per tonne in December. With several planned outages occurring in the early part of 2006, prices could climb above the $1000/tonne mark, which hasn't been seen since September 2005. Increased demand from derivative sectors will also fuel future price hikes. Ethylene Spot Prices Drop in U.S. Reduced demand and increasing inventories resulted in a decline in spot Ethylene prices in the U.S. Lower costs for crude oil and Ethane also contributed to the drop in price. Typical prices for Ethylene in late December ranged from $0.475-$0.50/lb delivered, down 25 percent from earlier in the month. Increasing MTBE Prices Expected for China Rising natural gas prices in China could lead to higher prices for the gasoline additive Methyl tertiary butyl ether (MTBE). Industrial and urban utilities in China were recently informed of the first price increases for natural gas since 1997 by the National Development and Reform Commission (NDRC), the state body responsible for economic development. The price of MTBE, which has been slightly depressed due to reduced demand, could rise if producers that rely on natural gas cut back output in response to the higher gas costs. Further price increases for natural gas are expected in the coming years as the Chinese government brings prices more in line with international markets. North American Commodity Chemicals Promise Higher Margins Analysts predict that commodity chemicals producers in North America will see strong margins in the fourth quarter of 2005 and into the first half of 2006. Despite remaining high raw material costs, decreasing energy prices and increasing demand are working together to provide higher margins. Price Plunge for PET Producers of Polyethylene terephthalate (PET) resin saw prices in North, Central, and South American markets drop $100-$198 (Euro 85 - Euro 169) in December in response to lower feedstock costs and increasing competition from Asian manufacturers. As the U.S. recovery from hurricanes Katrina and Rita proceeded and supply of aromatics improved in October and November, Asian PET prices dropped, placing pressure on North American prices as well. With demand expected to decline during the holiday season, prices were expected to continue to weaken through January.