Archives

 April 2008
Ready or Not: Reach Will Affect North American Producers; U.S. Fights Back with Champ
Whether companies are prepared for Reach, or remain unaware of upcoming registration deadlines, North American chemical firms will be affected by this European chemical legislation. A recent study by PricewaterhouseCoopers found that North American companies are far behind their European counterparts in their awareness of Reach requirements. Chemical companies seem well-prepared, but only about 50 percent of manufacturers outside of the chemical industry even know that the Reach legislation exists. Even companies with some understanding do not seem to grasp that Reach will impact operations throughout the company, including supply-chain management, sales, IT and all types of reporting, not just environmental performance. Chemical firms could find themselves facing significant business interruptions as a result. If customers' products are barred from entering the EU, then demand for chemical raw materials used in those goods could be reduced significantly.

In the meantime, many chemical companies in the United States are supporting the new agreement between Canada, Mexico and the United States to develop a chemical assessment and management program ("Champ," also known as the "Montebello Agreement"). The risk-based approach includes a goal of completing risk characterizations for more than 9,000 chemicals by 2012, and establishment of a shared database by 2020. It will include information from Canada's chemical management plan, the existing High Production Volume (HPV) program in the United States, and a reevaluation of the TSCA inventory in the United States to eliminate substances that are no longer produced or used.

The countries hope to prevent Reach from migrating to other countries and to avoid the introduction of a Reach-style program in the United States. They point out that the Champ program has a complete date of 2012, six years in advance of the final deadlines for Reach. This earlier date will make it possible for other governments around the world to have access to information about commercially used chemicals and enable them to make decisions about the nature of their own regulatory systems. About 40 World Trade Organization (WTO) member nations have already expressed concerns about the Reach program.
 

 
Chemical Industry Affected by Political Difficulties Between Venezuela and Colombia
Diplomatic tensions between Colombia and Venezuela have led to reduced truck traffic between the two countries. The bilateral trade agreements covering chemicals and petrochemical commodities are critical for each country's economy. Plastic resin shipments have already stopped, with producers and raw material suppliers on both sides losing significant revenues. Neighboring countries are urging President Chavez of Venezuela to resolve the dispute with Colombia. Colombia, meanwhile, is concerned about how the situation might impact a pending free-trade agreement with the United States.

 


 
Chinese Chemical Producers Affected by Government Fuel Pricing Policy
Freezing of prices for gasoline, diesel and kerosene in January has negatively impacted state-owned chemical firms in China including Sinopec, PetroChina and Shanghai Petrochemical. Refining losses and reduced cracker output have led to drops in stock prices. The companies are hopeful, though, that the Chinese government will lift he price controls in the fall. Some may also receive compensation from the government.

 


 
Economic Slowdown and Rising Energy Prices Take Toll on Chem Industry
The United States is expected to enter a recession in 2008-2009, and the rest of the world to experience a definite slowdown in their economies, at the same time that crude oil prices are consistently trending upwards. The significance of these trends: the chemical industry is facing difficulties on both the supply and sell sides. Compounding these challenges is the capacity expansion many commodity chemicals will be undergoing over the next couple of years as they hit the market and a weakened U.S. dollar. Volatility has made it difficult to establish pricing strategies, and margins are being squeezed.

 


 
Eastern Chemical Companies Active with IPOs
In 2007, all 11 initial public offerings (IPOs) in the chemical sector took place in Asia and the Middle East. The largest was the $1.8 billion IPO of Saudi Kayan Petrochemical. The trend is continuing in 2008. The Indian company Fineotex hopes to raise about $3.67 to $4.38 million with its upcoming IPO, and Chinese company Liheng Chemical Fibre Technologies is looking to raise $167 million. Two other areas experiencing IPO activity include Australia and Poland. The major western IPO - for Germanys Evonik - remains in doubt at this point.

 


 
Indian Tax Changes Not Welcomed by Chemical Industry
Indian chemical producers were disappointed with the tax changes proposed by the government. Some indicated that the changes would make the tax system more complicated. Others noted that the minimum reductions in excise duties would have very little impact. Fertilizer industry officials also said that the fertilizer subsidy was only half what was really needed. For refineries, the budge proposal to reinstate the 5 percent customs duty on naphtha imports will have a negative impact on any projects scheduled to begin after March 2009. Others are worried that a similar duty on naphtha for polymer production will hurt that industry as well.

 


 
Possible Rail Strike Planned in Germany
Drivers of German trains are threatening to strike beginning March 10, 2007, if a deal agreed to by the Gerwerkschaft Deutscher Lokomotivfuhrer Union and Duetsche Bahn is not finalized. The rail workers went on strike in November 2007, causing some difficulties for chemical manufacturers. A second strike in January 2008 was avoided when the agreement on pay raises was reached.

 


 

 
Asia Renewables Big Investment for GE

Rising energy demand in southeast and east Asia has led General Electric Energy Financial Services to invest $5 billion (Euro 3.25 billion) in renewable energy projects. GE hopes to increase international revenues based on growing demand for energy in emerging markets such as India, Southeast Asia, Latin America, Turkey and the Middle East. The GE business will have a broad portfolio, including small and independent power companies as well as multinational corporations.

 


 
Chemical Information Services Encourages DWCP User Updates

To encourage companies included in the DWCP to update their information, Chemical Information Services is offering various prizes in a series of drawings. Each listee in the DWCP has been sent an e-mail requesting that the company update its information. Quarterly incentive drawings are scheduled, with the next one in May, 2008. Prizes have included cash, Travel Alarm Clocks, IPod Nanos, and IPod Shuffles.

To update information, companies log in to the Source2Source (S2S) section of the DWCP site with the User ID and Password provided. Both contact information and product listings must be updated or verified for a company to be eligible for the drawing.

Past winners have included Hamlung Chemicals Co., Ltd. (China), Maxima-Air Separation Center Ltd. (Israel),SLN Pharmachem (India), ABCR GmbH & Co. KG (Germany) and Xing Cheng Chemical Co., Ltd. (China).

Thank you to everyone who has updated their information!
 

 


 
DSM Focuses on Biotechnology
With the potential for up to 20 to 25 percent of all chemicals to be made via bio-based processes, DSM is banking on biotech for its future success. The company is investing in four business areas: personalized nutrition, specialty packaging, biomedical materials and white (industrial) biotechnology. Projects include the development of second-generation biofuels made from nonfood feedstocks, production of key raw materials for fine chemical and polymer synthesis on naturally based feedstocks and the development of novel fermentation processes to reduce carbon dioxide emissions.

Recently DSM announced that DSM ventures, along with six other funds, is investing in Tianjin Green Bio-Science Company's new 10,000 tonne/year polyhydroxyalkanoates (PHA) manufacturing plant. PHA is a bio-renewable polymer designed for automotive, biomedical and electronic applications. Production should begin in early 2009. DSM has also invested in IQ Therapeutics, a company focused on developing novel antibody technology. Finally, the company agreed to divest DSM Specialty Products to Arsenal Capital Partners so it could focus on its life and material sciences businesses.
 

 


 
DuPont Plans Massive Cost Reductions

Through improvements in efficiency, DuPont will reduce its costs by $1.7 billion over the next three years. Employee attrition through retirement will also be a source of savings. Enhanced investments in its agricultural, safety and protection businesses are expected to bring in increased revenues, particularly in the emerging regions of Latin America, Asia and Central Europe. Future acquisitions will be smaller, strategic purchases that provide access to new technologies and products.

 


 
Hovione Invests in Chinese Producer

Portuguese custom manufacturers Hovione has taken a 75 percent stake in Chinese producer Hisyn Pharmaceutical Co., Ltd. for an undisclosed amount, but the value of the deal was estimated to be approximately $20 million. Hisyn is also a producer of active pharmaceutical ingredients (APIs) and pharma intermediates. The deal includes a development lab and API plant and provides Hovione with greater capacity in the region with a low-cost advantage.

 


 
Invista Files Lawsuit Against DuPont

Invista filed a $1 billion (Euro 640 million) lawsuit against DuPont, claiming that plants sold to Invista by DuPont as part of its textiles and interiors business in 2004 were not compliant with safety and environmental regulations. Invista was formed when the DuPont businesses were combined with Kosa fibers business of Koch Industries. DuPont responded that the allegations lacked merit and that evidence to support them was lacking.

 


 

 
Industrial Gases Continue to Offer Opportunities
Despite the slowdown in the global economy, industry gas producers are expected to experience strong growth in 2008. Consolidation in the sector has left the survivors with better pricing power and higher revenues. Strong demand in both developed and emerging markets is another factor. Overall, the gas industry is expected to experience 8 percent growth over the next five years. Latin America and China are two regions with very high demand for industrial gases. In Latin America, increasing steel production and growth in the chemical industry are the main drivers. In China, the largest opportunities are in Hydrogen and synthetic gas production processes, coal gasification projects, biofuel and Methanol. Steel production is also increasing.

 


 

 
Biosimilar Guideline Draft Published by Health Canada
Health Canada took the first steps in the creation of a regulatory framework for the approval of generic biopharmaceuticals with the issuance of a draft guidance document. Additional guidelines for specific classes of bio-based drugs will be forthcoming. The agency noted that it could approve follow-on biologics under existing regulations until the new approval system is adopted. Under the proposed guidelines, biogeneric producers would need to show that a follow-on product is similar to a previously approved drug using publicly available safety and efficacy data, with interchangeability and substitutability decided on an individual basis. Biogenerics would also not automatically be approved for every indication as the branded product; data to support each indication would be required.

 


 
Declining Number of FDA Approvals for Biopharmaceuticals
The number of FDA approvals of biopharmaceutical products, including recombinant proteins and monocolonal antibodies has decreased in recent years, dropping from an average of 16.6 approvals/year from 1999 to 2005 to 12 in 2006 and 11 in 2007. None of the products in 2007 were blockbuster drugs. This trend has occurred despite a strong development pipeline for biopharmaceuticals. It may be reversed in 2008 and 2009 as filings for a number of products are pending or expected. The biopharmaceutical industry will be seriously affected if the rate of approvals does not improve.

 


 
More Tainted Drugs from China - FDA Criticized
Following the discovery that the blood thinner Heparin sold by Baxter International Inc. contained contaminated ingredients sourced from a Chinese plant belonging to Wisconsin-based Scientific Protein Laboratories (SPL), the deputy commissioner for international programs at the U.S. FDA made an announcement. The deputy commissioner disclosed that the Chinese government does not inspect production facilities that manufacture drugs targeted only for export. SPL acknowledged that its Chinese plant was never inspected by the United States or China. The U.S. FDA confused the plant with another one of a similar name that had been inspected; therefore the SPL facility was never visited. Baxter withdrew material from the market in the United States at the end of February. Cases were reported in Germany and additional material was pulled. Nearly 1000 cases of adverse patient reactions, including some deaths, have been noted.

Several groups including the Institute of Medicine, the Government Accountability Office and the Science Board at the FDA have issued reports saying that poor management and scientific inadequacies prevent the agency from effectively protecting the country against unsafe drugs, medical devices and food. In response, the Senate passed a budget resolution providing a further $375 million (about a 20 percent increase) to the FDA. Critics that believe the FDA needs to be completely reorganized, including appointments of top officials by a new administration, are expected to oppose the proposal.

The FDA also announced that it will place eight officials in permanent positions in China and hire a further five Chinese nationals if approval is received by the Chinese government. The regulators would be located at diplomatic posts in China.
 

 


 
Pharma Companies Moving R&D Out of Japan
Despite the large size of the pharmaceutical market in Japan, a slower regulatory approval process and higher costs led Pfizer to pull its drug R&D efforts from the country and move them to South Korea. Glaxo and Novartis have shut research facilities and are investing in sites in China. There is little growth in the Japanese pharma market, and with operating costs even higher in other key markets, many companies are finding little incentive to stay in Japan. While the Chinese and South Korean pharma markets are currently small, growth potential is significant.

Meanwhile, Japan announced an ambitious goal of supplying a quarter of all new drugs developed globally. The government also wants Japanese doctors to participate in a significant number of clinical trials. Many new drug reviewers are being hired with the goal of reducing the review time by at least 30 months. Research capabilities at several hospitals are also being upgraded so larger studies can be conducted.
 

 


 

 
New Enzyme Catalysts Synthesized from Basic Raw Materials
Scientists at the University of Washington used computational protein design to build an enzyme that can make and break carbon-carbon bonds. David Baker and colleagues first modeled the active site then used a new set of algorithms to evaluate possible proteins that have such a site. The group then synthesized the most promising proteins by using bacteria to convert DNA containing the appropriate genes into the desired proteins. Of 72 selected proteins, 32 catalyzed the reaction, and some increased the rate by as much as 10,000 times. Compared to naturally occurring enzymes, however, these synthetic versions are poor performers. Baker is using directed evolution to create more efficient versions.

 


 

 
General Chemical Acquisition Finalized

With the finalization of its $1 billion (Euro 630 million) acquisition of General Chemical Industrial products, Tata Chemicals became the second largest producer of Soda Ash in the world. The company now has manufacturing facilities on four continents and access to new markets in North America and Latin America.

 


 
High Crude Prices Affecting Asian Chemicals
Asian petrochemical producers are scaling back in response to hikes in Naphtha prices, which have been driven by climbing crude oil. Cracker operators have cut production anywhere from 5 to 20 percent beginning in March. A number of aromatics producers have also reduced operating rates. These cutbacks are helping to keep some prices stable, but fluctuations in the price of crude oil have had some impact. Spot prices for Benzene and Methanol rose nearly 9 percent and over 4.5 percent, respectively, but then Benzene priced tumbled before climbing again. There has been limited buying, and in light of recent currency fluctuations, some traders suggest that it is difficult to gauge the market accurately at this time. Toluene prices, on the other hand, are climbing to near-record levels in Asia. In addition to the higher crude costs, tight supply and rising demand are the key cost drivers in this market.

Plastic prices have also risen, with increases varying from 2.56 percent to 10.75 percent for Polypropylene, low-density Polyethylene, Polyester and Polyvinyl chloride. Agricultural chemicals have been affected quite strongly, with prices for Urea up over 10 percent and for Ammonium dibasic phosphate nearly 50 percent. Imports for some chemicals have been haulted because of reduced operations and shutdowns at overseas plants.
 

 


 
Large New Petrochemicals Complex Planned for Vietnam
A joint venture between Mitsui Chemicals, Idemitsu Kosan and two state-owned Vietnamese oil firms (Kuwait Petroleum International Co. and Petro Vietnam) will build a $5.8 billion (Euro 3.7 billion) refining and petrochemical complex in Vietnam. The complex will produce Polypropylene and Benzene. Production is expected to begin in late 2013.