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Future of Biofuels Not
So Clear
Political decisions, such as mandates on the
use and levels of taxation, combined with
limits on raw material production
capability, are impacting the biofuel
sector. Europe has been affected
significantly in the last few months. New
taxes are now similar to the taxes on
petrochemical-based fuels, making it more
difficult for producers, particularly
smaller manufacturers, to stay in business.
Germany has been the hardest hit. On a
positive note, the government there recently
announced that the blending of biofuels will
increase from 5 percent to 10 percent.
European farmers have converted much of
their land to growing crops for biofuel use,
contributing to the "food or fuel" debate.
The EC expects it will have to reduce its
biofuel planting subsidy, because the
maximum area allowed to benefit from the
subsidy could be exceeded by 50 percent.
Even so, only so much land is available for
the cultivation of the necessary raw
materials for biofuel, and feedstocks from
other parts of the world are being explored.
And while costs are climbing, producers in
other countries see Europe as a new export
market. Some biodiesel producers are
concerned that increased imports from the
United States, for example, could lead to
oversupply. Bioethanol manufacturers in
Europe are already facing stiff competition
from Brazilian imports.
European biodiesel producers are requesting
that the United Stated withdraw its
$1/gallon blenders excise tax credit,
claiming that it offers an unfair advantage
to American exporters. Supporters argue that
it benefits those that import material into
the country as well. The European Biodiesel
Board has threatened to file European Union
and World Trade Organization trade
complaints against subsidies provided to
American biodiesel producers by the U.S.
government.
The International Monetary Fund (IMF)
recommends that both the United States and
Europe eliminate tariffs on biofuels so
production will shift to more efficient
operations in India and Latin America.
According to the IMF, Ethanol produced from
sugarcane and sugar beets is less expensive
than gasoline, while Ethanol produced from
corn is more expensive.
In the United States, auto manufacturers are
working with the government and energy
sector to meet targets for biofuel
consumption. General Motors (GM), Ford and
Chrysler have committed to producing 50
percent of vehicles with the capability of
running on E85 (85 percent Ethanol, 15
percent gas) or biodiesel by 2012.
Overcapacity, however, may lead to the
closure of up to 50 percent of biodiesel
production facilities in the United States
within the next year and a half.
At the same time, a much more rapid shift to
corn-based Ethanol production than was
expected has changed the basic structure of
the agricultural economy in the United
States, resulting in a dramatic rise in
prices for corn, soybeans, wheat and other
crops. The additional supply has also led to
declining Ethanol prices and some companies
have suspended expansion plans.
The debate about biofuel continues, with
many questioning the impact that biofuel use
has on global warming. Studies have shown
that growing plants for biofuel production
does not always benefit the environment and
can be harmful in some cases. Rapidly rising
food prices have led to riots in several
places around the world. The reliance on
subsidies for biofuel production remains
questionable as well. Corn-derived Ethanol
increases soil erosion, pollution and leads
to the depletion of water supplies. It also
requires heavy electricity consumption.
Asian countries such as India, Myanmar and
the Philippines are rapidly expanding the
number of hectares of Jatropha Curcas, a
perennial tall bush with toxic fruits, to
supply oil for biofuel production. It grows
in dry soil and in barren areas and is not a
food crop. On the negative side, the oil
yield is much lower than that for the palm
plant, so a vast area must be planted. It is
higher, though, than rapeseed and soy.
Intensive research is underway to develop
cultivars with higher oil yields.
Alternative technologies may also help
address some of the problems facing the
biofuel industry. North Shore Energy
Technology expects its biomass-to-Methanol
plant, which will rely on established steam
reforming technology, to start up some time
in 2009. Methanol is not a subsidized energy
product like Ethanol. Lurgi will have its
biomass-to-liquids (BTL) technology
available in 2010. This process results in
synthetic gas for fuel or Methanol
production.
Production of Ethanol from cellulosic
biomass is predicted to reach the commercial
stage within the next four years, with
widespread operations in place by 2017,
according to an industry expert. Pilot
plants are under construction and will be
operating within 18 months. Cellulosic
biomass consists of nonfood feedstocks and
uses enzymes or acids to break down the
cellulose into sugars that can be converted
to Ethanol. Genencor recently launched the
first commercially available enzyme designed
to break down lignocellulosic biomass into
fermentable sugars in these pilot plants.
The Unites States Congress is working to
pass a farm bill that will provide
significant funding for the development of
commercial cellulosic Ethanol plants.
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GSK Gets New CEO, Signs Large
Licensing Deal
Andrew Witty, president of
GlaxoSmithKline's (GSK) European
pharmaceuticals business, has been
appointed as the company's new CEO,
effective May 2008. He succeeds Dr.
Jean-Pierre Garnier, who will be
retiring at that time.
Garnier recently outlined a $3
billion restructuring planned aimed
at generating annual cost savings of
approximately $1.4 billion (GBP 700
million), with 40 percent
originating in manufacturing, 40
percent in sales and 20 percent in
R&D. Specifics include
implementation of new technologies
to improve R&D efficiencies, reduced
layers of management, establishment
of global sourcing operations,
reformulation of specialty sales
teams and outsourcing of several
administrative type activities.
Separately, GSK signed a $1.1
billion drug development deal with
Synta Pharmaceuticals Corp. that
will give GSK the rights to Synta's
skin cancer treatment STA-4783,
which will be entering Phase III
trials soon. Initially, GSK will pay
Synta $80 million, with an
additional $885 million in milestone
payments possible in the future. The
drug has shown promising results in
early trials as a treatment for
metastatic melanoma, a deadly form
of skin cancer.
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Exchange Rate Affects Chemical
Industry
U.S.-based companies are finding
that the weak dollar creates
opportunities for exporting their
chemical products, while European
producers are faced with the
challenge of selling their higher
prices goods in both domestic and
external markets. Chemical exports
have climbed dramatically in the
Unites States in 2007 and
significantly exceed imports.
Products are being shipped to both
Europe and Asia.
International companies such as
Celanese, Dow, DuPont, FMC and NOVA,
with a large proportional of sales
outside of the United States, are
well positioned to take advance of
the current currncy situation.
Smaller U.S.-based firms will begin
to reap the benefits once they have
distribution channels established
overseas.
In Europe, manufacturers are faced
with lower-priced competition from
Asia and America at a time when
energy and raw material costs are
rising dramatically. Resistance to
higher pricing, particularly for
fine and specialty chemicals, will
lead to reduced margins for many
European manufacturers. Analysts
believe that if the Euro remains
highly valued, to remain
competitive, European chemical
producers will need to shift their
focus to higher value, less
price-sensitive products and
establish production sites around
the globe.
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Uphill Battle for Bioengineered
Foods
Manufacturers of foods based on
biotech crops face significant
technical challenges and resistance
from consumers before they will be
truly accepted in the marketplace.
To date, much of the corn, soya and
canola crops produced in the US are
grown with seeds that have been
genetically modified to resist pests
and the key herbicide roundup. The
crops are processed into oils,
flour, sweeteners and additives, but
little if no GMO produce is found on
store shelves.
Europe has been one region with a
great deal of resistance to GMO
foods. The European Union (EU), in
fact, banned such products from
1998-2004. Support is growing for
engineered food crops though, as
evidenced by the recent approval by
the EU for the use in food and
animal feed two Dow-DuPont corn
varieties, a Monsanto corn type and
a sugar beet that Monsanto developed
with KWS Saat AG. Cultivation of GMO
crops remains unendorsed, though.
Current research focuses on creating
hypoallergenic, heart-healthy, and
vitamin-, nutrient- and even
pharmaceutical enriched varieties of
engineered crops. Companies invest
about $100 million for each new
biotech based seed product that
reaches the market. With many towns
and counties in the US declaring
themselves GMO free, there will be
fewer places where farmers can plant
these seeds if they do become
available.
Consumer fears relate to the
possibility that genetically
engineered foods might introduce new
allergens into the food supply,
affect the functioning of the immune
system or cause people to develop a
resistance to antibodies. Cross
contamination with natural food
crops and a decrease in biodiversity
are also a concern. As a result,
many critics are looking to national
governments to provide much more
extensive oversight of the testing
and safety evaluation of biotech
foods.
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Big Plans in India for Plastics and
Petrochemicals
Exports of plastics from India are
anticipated to climb to $4.1 billion
for the year ending March 31, 2008,
up from $3.1 billion in the previous
year. Plastindia Foundation, the
polymer industry group in India, is
targeting sales of products such as
Polyester film, Polypropylene and
Polyvinyl chloride compounds and
others (27 in all) to countries such
as the United States, Germany,
France and China. The association
would like the government to reduce
the excise and valued added tax on
polymers from 30 percent to 15
percent to improve the industry's
global competitiveness.
In the petrochemical sector, the
Indian government expects that its
investments in the chemical sector
will total $9 billion (RS 360
billion) over the next five years.
One goal is to increase Ethylene
capacity from 2.7 million tonnes/year
to 6.9 million tonnes per year. The
government is also considering the
creation of a Technology Upgradation
Fund (PTUF) that would provide loans
at reduced interest rates for
funding modernization and expansion
projects.
Separately, three states in India
have submitted formal applications
for setting up Chemicals and
Petrochemicals Investment Regions (PCPIRs),
and three more have indicated they
will file applications soon. The
proposed PCPIRs will be located
where there is access to readily
available liquid and gas feedstocks.
Each region will cover 250 square
kilometers and include refineries,
petrochemical complexes and
downstream units serving both
domestic and export markets. The
central government has committed to
investing $1 to $1.5 billion (RS 40
to RS 60 billion) to develop the
transportation infrastructure for
the PCPIRs.
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Rising Oil Costs Drive Aromatics
Pricing
Prices of Benzene, Toluene and other
aromatics around the world rose
dramatically in response to
increasing crude oil prices.
Tensions between Turkey and Kurdish
rebels in northern Iraq and a
weakening U.S. dollar were
contributing factors. In Europe,
Benzene values rose nearly 4 percent
and Toluene surged by as much as 8
percent. Styrene initially continues
to see declining prices, as several
plants came back on stream after
being shut down for maintenance, but
eventually prices for this commodity
began to rise as well. Asian
aromatics prices reached very high
levels. Prices for Benzene, Toluene
and Styrene monomer all climbed
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BP will pay $373 million (Euro 261
million) in fines and restitution
for criminal violations relating to
the March 2005 refinery blast at its
Texas City, Texas, Texas facility,
pipeline leaks in Alaska and propane
trading fraud. 
BP will reorganize into just two
operating business segments -
exploration and production, and
refining and marketing. A third
segment - gas, power and renewables
- will be folded into the other two.
Alternative energy will remain a
separate division. Each segment will
be made of strategic performance
units. With the elimination of as
many as four layers of management,
the restructuring is designed to
achieve long-term operational
efficiencies. No major asset
divestments are expected.
As part of its strategy to improve
its drug pipeline, Pfizer announced
that it will create a new
biotechnology center in South San
Francisco that will be dedicated to
developing biotherapeutic drugs and
research technologies. Corey S.
Goodman, who recently resigned as
CEO of biopharma company Renovis,
will head the center. The
biotherapeutics and bioinnovation
center will discover, license and
acquire new product candidates, and
serve as an incubator for startup
ventures.
The United States Supreme Court
agreed to review a $2.5 billion
(Euro 1.73 billion) punitive damage
award against ExxonMobil related to
the 1989 Exxon Valdez ship grounding
and oil spill to determine if the
level is excessive. Chemical and
other manufacturers in America point
out that ExxonMobil has already paid
$3.4 billion in actual damages,
fines and remediation expenses
related to the accident, and believe
that the additional $2.5 billion is
excessive and unfair. Manufacturers
are concerned that if this punitive
fine is allowed to stand, it will
set a precedent for future massive
product liability awards. A ruling
is expected from the High Court by
mid-2008.
With 12 Central and Eastern European
countries now members of the
European Union, chemical
manufacturers and distributors in
Western Europe are presented with
opportunities to expand sales in
this region. To be successful,
however, they must overcome many
logistics issues. Building new
plants and distribution centers is
not enough. There are significant
differences in rail systems - from
signal standards to track voltages
to rolling stock - that must be
managed. Road maintenance is often
minimal and haphazard and there are
very few highways. Consequently,
travel speed is much diminished
compared to than in Western European
nations. A cohesive training and
registration system for drivers is
lacking as well. Recent legislation
may address this issue, though.
The $6.7 billion (Euro 4.9 billion)
acquisition of Merck KGaA's generic
drugs business by Mylan Laboratories
has been completed. With the
purchase, Mylan has become the third
largest generics company in the
world and changed its name to Mylan,
Inc. As part of the deal, Mylan can
continue to use the Merck name for
the business for up to two years.
The acquisition provides Mylan with
a much larger scale of operations
and creates a better balanced
portfolio of products, thereby
reducing business risk.
Four categories of drugs -
biologics, HIV/AIDS medicines,
cancer therapies and conditions with
no existing treatments - will
receive fast-track approval in China
according to a new rule released by
the State Food and Drug
Administration (SFDA). The new
special approval procedure replaces
an existing rapid approval procedure
for the registration of these
categories of drugs. The SFDA's
Center for Drugs Evaluation must
decide in much less time whether a
new therapy qualifies for the
special approval process. Surrogate
markers (measurements intended to
substitute for the clinical
measurement of interest) can also be
used to grant approval, as long as
the manufacturer submits appropriate
risk management plans and completes
all other tests required. Pharma
companies must also provide the SFDA
with safety, effectiveness and
adverse drug reaction information
about fast-track approved drugs for
five years after approval. The SFDA
may also request additional research
and modify instructions following
receipt of this information.
If Akzo Nobel's $16.5 billion
acquisition of ICI closes as
expected in January 2008, the
company will sell ICI's specialty
starches business. The company will
retain ICI's specialty polymers
business, however, and use that as a
growth platform for its chemicals
operations. These groups are
separate from the electronic
materials and adhesives businesses,
which Akzo previously agreed to
divest to Henkel. Industry experts
predict that Akzo will also need to
sell its Crown-brand European
decorative coatings unit in to
comply with antitrust regulations.
Leading custom manufacturers such as
BASF, Daicel Chemical Industries,
Dow Chemical, DSM, Evonik, Lonza,
Pfizer CenterSource and
Sigma-Aldrich Fine Chemicals are all
investing heavily in China. Low
wages are the key attraction for
these companies, where the cost of
employing a chemist can be 10
percent lower than in the Europe or
America. The potential for growth in
the domestic Chinese pharmaceutical
market is also an attraction. As
more companies build in China,
however, the cost of labor is
increasing and finding qualified
personnel that will stay with a firm
is more difficult. Customer concerns
regarding quality and intellectual
property protection have led most
organization with manufacturing
plants in China to maintain sites in
the West as well.
Higher global crop and petrochemical
prices have driven up the price of
Phosphate-based fertilizers sold by
U.S. companies to Latin America.
Diaamonium phosphate prices have
climbed approximately 80 percent
since the beginning of 2007,
according to the Phosphate Chemicals
Export Association.
