Dow Makes Cuts
To achieve annual savings of about $180 million, Dow Chemical will close plants and eliminate as many as 1,000 jobs. Facilities likely to be shut down include an agrochemicals intermediates plant in Lautebourg, France, Hydroxymethyl cellulose plant in Aratu, Brazil, a Styrene plant in Camaçari, Brazil and a Union Carbide Polypropylene plant in St Charles, Louisiana. R&D activities at a Union Carbide site in South Charleston, W.Va. will also be reduced significantly. In addition, the company will exit the automotive sealants business in North America, Asia Pacific and Latin America. Further decisions could be pending with other commodities businesses.

These actions will make capital available for investment in projects in Asia and the Middle East. Dow Chemical recently announced that it will invest in an $11 billion joint venture with Petrochemical Industries Co. in order to gain access to cheaper feedstocks. Dow will sell to PIC for $9.5 billion a 50 percent share in five of its global businesses that are worth about $19 billion. The JV will be headquartered in the United States, will operate as a separate company (its name has not been chosen yet) and will produce Polyethylene, Ethylenamines, Ethanolamines, Polypropylene and Polycarbonate. The two companies already have other joint ventures and have been working together for 10 years. The new joint enterprise will mean that Dow will have projects integrated from feedstocks to derivatives.

PPG has Trouble with Sale of Auto Glass Business
PPG's $500 million sale of its automotive glass businesses to investment firm Platinum Equity has run into trouble. Platinum has accused PPG of inflating the value of its businesses and filed a lawsuit seeking to abandon the deal and alleging that PPG provided false revenue projections, understated pension liabilities and obligations and deferred several million dollars of maintenance expenditures. Platinum says that if it had known this information it would have lowered its purchase price or not entered into a purchase agreement. The company is seeking from PPG the costs and expenses incurred in connection with the transaction, lost opportunity costs and punitive damages.

Reorganization at BASF

Effective Jan. 1, 2008, BASF will operate with six business segments rather than five. The segments include chemicals, plastics, functional solutions, performance products, agricultural solutions, and oil and gas. The new functional solutions unit will incorporate the catalysts, construction chemicals and coatings divisions and will largely serve the automotive and construction industries. Performance products will include the newly created care chemicals division (fine chemicals plus detergents and cleaners) plus acrylics and dispersions, which previously was the functional polymers business. The performance chemicals segment will target the oil and refinery, coatings and plastics and leather and textile industries. BASF will divest its styrenics business. According to the company, the change will enable BASF to be faster to market, closer to customers, increase efficiency and ensure greater cyclical resilience.

China Gets Tougher on Exports
After cutting export tax rebates for over 2,000 products in 2007, China may apply further pressure in 2008 on the export of light industrial products such as plastics and electrical appliances. The 2007 cuts, however, do not appear to have affected the level of exports, which grew by 20 percent in November as compared to the same month in 2006. In general producers passed on price increases that were accepted by buyers who could not find alternative sources for these materials.

The Chinese government might introduce taxes on energy-intensive and environmentally unfriendly products in addition to maintaining the rebate cuts to further reduce exports. The central government will also release regulations on emissions and safety performance for manufacturers involved in the Chlor-alkali production chain, which should create barriers to entry into this industry.

Firms Fined by South Korea for Polyethylene Price Fixing
Hanwha Chemical, LG Chem, SK Energy, Samsung General Chemicals, Seetec and Samsung Total Petrochemicals received fines totaling $58.1 million (W 54.1 million) by South Korea's Fair Trade Commission for fixing prices of low density Polyethylene (LDPE) and linear LDPE (LLDPE). The case is the second in 2007. The government previously fined companies a total of $112.7 million (W 105 million) for forming domestic high density PE (HDPE) and polypropylene (PP) cartels for the past 12 years. The agency may expand its investing to Styrene monomer as well.

New Price Fixing Fines for European Companies
Denka, DuPont, Dow Chemical, ENI and Tosoh have been fined a total of $357 million (Europe 243.2 million) by the European Commission (EC) for conspiring to fix prices of Chloroprene rubber from at least 1993 to 2002. Bayer's Euro 201 million fine was rescinded because the company was the first to come forward with information.

In a separate case, the EC increased BASF's fine for its part in a Choline chloride cartel by $79,294 (Euro 54,000). BASF, Akzo Nobel and UCB were initially fined a total of Euro 66 million in 2004 for price-fixing activities from June 1992 to April 1994. BASF and UCB appealed the decision. In response to the appeal, the court raised BASF's fine but lowered UCB's amount by 90 percent, since UCB reported the European activities of the cartel.

Potential for Growth Abroad but Tough Times at Home for U.S. Chemical Companies in 2008
Restrictions on natural gas and rising crude oil prices will have a negative impact on the United States chemical industry in 2008. The energy bill passed by Congress in late 2007 strongly pushes for increased biofuels and will create a level of demand for natural gas greater than current supplies. Additionally, climate change legislation that is expected to be adopted in 2008 will likely force many chemical producers and utilities to switch from coal to natural gas, further heightening demand.

American chemical companies will be facing this energy and raw material crisis at a time when the country may be facing a recession. The continuing decline in the housing market will affect many segments of the chemical industry. Automobile production, while not expected to drop further, is predicted to remain at the low levels seen in 2008. Manufacturing sectors not connected to housing or automobiles are the only areas of the U.S. economy that are expected to perform well in 2008.

Given the situation at home, many commodity chemical producers in the United States are looking to exports to maintain profitability. The weak dollar is making their products much more competitive in the global chemical marketplace. Growing demand overseas is also a favorable factor, as is access to competitively priced feedstocks. Outsourcing of pharmaceutical production will continue, however.

New Deals in Contract Manufacturing
Several transactions have taken place recently in the world of contract manufacturing. Cambridge Major Laboratories acquired Chemshop, a supplier of active pharmaceutical ingredients (API) development services. Cambridge will expand reactor capacity and increase the laboratory capabilities at the European site, which has been renamed Cambridge Major Laboratories Europe. PPG Industries completed the $65 million sale of its fine chemicals business to ZaCh Systems, a subsidiary of Zambon Company. PPG sold the business as part of its strategy to focus on coatings and specialty products.

Aptuit purchased the chemical development business of Evotek for about $64.57 million (Euro 44.36 million) to expand its development services. Evotek sold the business in order to focus on its high-end research capabilities. Isochem sold its NeoMPS peptides business to PolyPeptide Laboratories Group for an undisclosed amount. Finally, ownership of Vertellus Specialties changed from Arsenal Capital Partners to Wind Point Partners. Arsenal formed Vertellus in 2006 by combining the operations of Reilly Industries and Rutherford Chemicals. Richard Preziotti, a former executive at Honeywell, will take the position of CEO at Vertellus.

Big Pharma Reductions Will Pay Off
More than 30,000 job cuts have been announced by big pharma companies in 2007. Analysts predict that these actions, while painful, will benefit these key players in the future. Novartis recently joined Eli Lilly, Pfizer, GlaxoSmithKline, Bristol-Myers Squibb and several others with announcements of significant reductions in personnel and plans for reorganizing operations. In the end, according to analysts, leaner businesses that have shifted some operations overseas will be better suited to compete with low-cost producers in emerging markets.

Spotlight on Biopharma
Major pharma companies are investing heavily in biopharma firms as they look to biotech for strong profits. Novartis AG has signed a $1 billion R&D contract with MorphoSys AG for the development of antibody-based therapies. Merck & Co. agreed to pay $170 million to Addex Pharmaceuticals to develop a treatment for Parkinson's disease and Sanofi-Aventis will invest as much as $810 million in Regeneron Pharmaceuticals for antibody-based research.

Many leading drugs on the market today are biologics, such as Herceptin (Roche Holding), Remicade (Johnson & Johnson) and Humira (Abbot Labs). Sales of biopharmaceuticals in the United States grew 20 percent in 2006 to reach $40.3 billion, according to IMS Health. Biologics are also attractive because they do not face generic competition, at least in the United States, where the FDA has yet to establish a regulatory protocol.

At the same time, many biopharma firms are anticipating decisions from the FDA that will determine their future. Approval decisions are expected in December 2007 for drugs from Neurocrine BioSciences, BioMarin and Pharmacyclics, while Biogen Idec, Cardiome, Discovery Labs, Elan, Genentech, Indevus Pharmaceuticals and Johnson & Johnson will be waiting for decisions in 2008. Other companies that have yet to formally submit drugs for approval but are expected to do so include Advanced Life Sciences, Genitope, ImClone Systems and Medarex.

Deal Between Nufarm and ChemChina Cancelled
A consortium of buyers led by ChemChina was unable to formalize a proposal for the $2.63 billion takeover of Nufarm before the deadline for expiration of the agreement. As a result, talks between the two companies have been halted. ChemChina, Blackstone and Fox Paine Management had signed an exclusivity agreement to buy Nufarm, but Nufarm is no longer obligated to the group now that the deed has expired. Nufarm indicated that it is interested in speaking with other potential bidders.

Separately, ChemChina also failed to come to an agreement with the parent company of Shandong Haihua about cooperation between the two companies.

Fertilizer Industry Facing Shortages of Key Materials
Phosphoric acid, a key raw material in the production of phosphate fertilizers, will be in tight supply through 2010, according to the International Fertilizer Industry Association. Additional capacity is being added, but it will not be on-stream until 2011. Much of the material will be used for domestic downstream applications in China and Saudi Arabia, though, and most of the capacity targeted for export is already under contract. Urea supplies are also tightening, as new production plants around the world are experiencing delays. Industry operating rates are currently at 90 percent. Even if planned projects do come on-stream on time, there will not be a surplus until 2010. Most urea is used as fertilizer, but non-fertilizer applications are expected to grow rapidly over the next few years, adding to the need for increased capacity.

Prices for many fertilizers hit record highs in 2007 as a result of an increased demand for food at a time of low grain stocks. Increased demand for crops used for biofuels production and resulting high crop prices also contributed to the rise in fertilizer prices. These conditions continue to be factors in 2008.

The shortness in the Phosphoric acid market is impacting the Indian farm sector. Domestic phosphate fertilizer producers are not able to import the necessary quantities of Phosphoric acid, resulting in idle capacity. Prices for 2008 contracts are significantly higher than 2007 levels and are expected to climb further. India is also the world's largest importer of Diammonium phosphate (DAP) and Urea.

China Market Cooling Off?
Key industry players in China predict that demand for petrochemicals in China will slow down in 2008 as government controls and high energy and raw material costs take their toll. The Chinese government has implemented both financial controls and safety regulations that are affecting the industry at a time when crude oil costs are rising rapidly. Further actions may include additional tightening of credit and removal of remaining export subsidies. Controls in downstream markets such as the construction industry are also having an impact. Contraction in demand for Ethylene and derivatives, as well as many of the major polymer markets, is expected.

Middle East Center of Chemical Activity
Ready access to low-cost feedstocks is enabling the Middle East to establish itself rapidly as a major exporter of petrochemicals. The level of building is placing significant pressure on engineering firms and resources, including skilled labor, materials and construction equipment, resulting in the delay of several projects. Rising feedstock costs and constraints on some raw materials (Ethane in particular) are also becoming growing concerns.

Despite these difficulties, analysts predict that producers in the Middle East will become true global players, reaching customers around the world and offering more than Ethane-based derivatives. Successful companies will be from global partnerships. The diversity of projects (commodity and specialty chemicals) and careful control of costs will also be critical for companies looking to take a top position in the worldwide chemicals marketplace.

Companies building facilities include Kuwait Olefins Co. (TKOC), a joint venture project between Petrochemical Industries Co. of Kuwait and Dow Chemical; Ras Tanura, a Dow Chemical and Saudi Aramco project; Jam Petrochemical Co. (JPC); Rabigh Refining & Petrochemical project, a joint venture between state-owned Saudi Aramco and Sumitomo Chemical; Eastern Petrochemical (Sharq); and Borouge, a joint venture between Borealis and ADNOC.

Most of the projects are expected to be on-stream by 2012. Many wonder about the impact this increase in capacity will have on the marketplace, as it will occur at the same time that many new Asian plants will be starting operations. Oversupply in Ethylene is of particular concern.

Questionable 2008 for Olefins
High feedstock costs are likely to plaque olefins producers around the world in 2008. High crude oil prices are squeezing margins for producer in the United States, Europe and Asia. Some producers in Asia are considering reducing exports to save costs, which could reduce spot availability. Supplies will be further tightened in the region, with a significant number of maintenance turnarounds scheduled in Japan in 2008. Growing demand could place further strain on the market. Traders are hopeful that large production capacity in the Middle East will provide access to material.

European producers are concerned about the access that Asian and Middle Eastern producers have to lower cost Ethylene. They also must hope that downstream polymer markets will accept the record high olefins prices necessary for maintaining even slim margins. In the United States, olefin producers also face tight suppliers and high crude oil costs. Strong demand for derivatives and increased imports will continue in 2008. There are also a number of planned shutdowns scheduled in the Unites States in 2008.

Russian Petrochemical Industry Growing
The Russian government has plans to develop its petrochemical sector in order to take advantage of its strong position in oil and natural gas. Currently the country imports over 50 percent of the plastics and commodity chemicals it needs. Plans include raising overall production by 40 percent between 2007 and 2015 through investment of about $163 billion (Euro 11 billion, Rs 4 trillion). Dow Chemical and BASF are two western companies already establishing plans to advantage of this growth opportunity. Ethylene, Polypropylene, Polyethylene and Polyvinyl chloride facilities are being planned or are nearing the construction stage. Other oil companies have announced plans to build petrochemical hubs. The Russian government has also indicated that it may revise the country's environmental, health and safety regulations so they are in line with international regulations such as Reach in the EU. Most analysts expect that both the new facilities and any new regulations will be slow in materializing, but will occur eventually.

Production Outages Affect TDI Supply
Production outages in Asia, Latin America and Europe have led to a tightness in the global supply of Toluene diisocyanate (TDI) for several months. The United States has been a key supplier until recently, when production issues affected the ability of producers in the country to meet demand. Dow Chemical closed its plant for routine maintenance and then extended the shutdown to complete additional work. ABASF plant was also operating at reduced rates due to a supply shortage of a key raw material.

Akzo Gets OK from EU for ICI Purchase with Conditions
Akzo Nobel has agreed to divest several decorative coatings businesses in the UK, Ireland, Belgium and Canada to meet requirements set by the European Commission and Canadian Competition Bureau for approval of its $16 billion (Europe 11 billion) acquisition of ICI. The transaction is expected to be completed on Jan. 2, 2008. In advance of the closure, Akzo is reorganizing the company into three business units - Decorative Paints, Performance Coatings an Specialty Chemicals. The ICI businesses will be merged appropriately, with its specialty polymer operations becoming part of the specialty chemicals business and its packaging coatings activities being placed in the performance coatings unit.

Formation of LyondellBasell Industries Complete

The $19.4 billion (Euro 13.6 billion) acquisition of Lyondell Chemical by Basell is complete. LyondellBasell Industries has annual revenues of about $43 billion, making it the third-largest independent chemical company in the world.

Next Big Car Color: Green
Specialty chemicals are making it possible for the next generation of cars to be much greener than before. Biomaterials, plastics, and greener tires will be incorporated into vehicles that can be run efficiently on alternative fuels. Plastic in particular is making cars lighter. Each pound of plastic used in a car replaces 2 to 3 pounds of heavier materials, providing improved fuel economy. The use of plastics in cars produced in the United States has increased by 18 percent since 2000 and 75 percent since 1990, according to the American Chemistry Council.

A. Schulman Appoints New CEO
Goodyear Tire & Rubber's chief technical officer Joseph Gingo has been selected as the new president and CEO of plastics and resins maker A. Schulman, replacing Terry Haines, effective Jan. 1, 2008. Schulman had said previously that it was considering strategic alternatives for the company, including its sale or merger. Schulman has urged shareholders to reject candidates for the company's board chosen by investment fund Ramius Capital, which owns 7.4 percent of Schulman. Ramius does not approve of the choice of Gingo for the CEO position, preferring to bring in someone from outside the company in order to fully consider all strategic options.

Cabot Gets New Leader
Patrick M. Prevost, currently president of the performance chemicals business of BASF will become the new president and CEO of Cabot Corporation, succeeding Kennett F. Burnes, who retired on Jan. 1, 2008. John F. O'Brien, a member of Cabot's board of directors, is expected to be named as chairman when Burnes retires from that position in March 2008.

Change of Leadership at Eli Lilly
Eli Lilly and Company CEO Sidney Taurel will retire at the end of March 2008 and be succeeded by the current COO, John C. Lechleiter. Taurel will also leave the position of chairman of the board at the end of the year. Lechleiter joined the company in 1979 as an organic chemist. His scientific background is unusual for pharma company heads and could be an advantage for Lilly, according to analysts.

Novartis Announces Major Job Cuts
Novartis plans to achieve cost savings of $1.6 billion (Euro 1.1 billion) by 2010 through its "Forward" plan, which includes elimination of 2,500 jobs (2.5 percent of its workforce) worldwide. The announcement follows the delay or withdrawal of several potential new products for the company. The cuts will be in management, R&D and sales, with a goal of simplifying the organization.

Biofuel and Other Alternative Energy Sources Set for Growth
Transportation fuels will be the fastest growing energy sector in 2030, according to ExxonMobil. Alterative fuels, particularly biodiesel and bioethanol, will increase from just 1 percent of the global market to between 5 and 10 percent by 2017. Government mandates and the need to replace dwindling petrochemical reserves will be major drivers of this growth. Advances in cellullosic technology will be critical for the significant increase of biofuel consumption, though, as the amount of corn and vegetable oil-based raw materials are limited. Biobutanol is a next generation biofuel that could become commercially available in a few years. Hydrogen fueling stations could be constructed in California by 2015. Gas-to-liquids (GTL) and coal-to-liquids (CTL) will also be used to produce cleaner-burning synthetic fuels

More Transportation Strikes for European Chems
Further strikes by rail and road shippers have affected chemical producers in Europe. French rail workers announced the second strike in less than a month to protest proposed reforms to pension plans. In Italy, truck drivers went on strike to protest high fuel prices, disrupting chemical shipments and causing some plants to shut down due to a shortage in the raw materials supply. The strike was resolved after three days.

German rail workers promised to go on strike again on Jan. 7, 2008, after negotiations with rail operator Deutsche Bahn failed, but resumed discussions shortly after federal transportation minister Wolfgang Tiefensee intervened. A strike in November affected many chemical manufacturers in Germany and Central Europe.

Truck drivers in the UK are also expected to go on strike at some point.

New Logistics Regs Expected for China
In the wake of a court case about damage resulting from hazardous chemicals in a plane, the Chinese government is expected to introduce stricter transportation regulations. China National Chemical Constriction Corp. lied about cargo that leaked on an Airbus A330 in 2000, causing extensive damage. The Beijing Higher People's Court ordered the state-owned company to pay $65 million (Euro 44.2 million) in damages. As a result of the case, the China Logistics Association is anticipating tighter standards for packaging and third-party transporters. New regulations could address loopholes that allow for the submission of fake samples and make it more difficult for companies to become approved transporters.

Port Security an Issue for Chemical Shippers
Chemical companies face two major types of risks when shipping chemicals. One is the shipment of inherently toxic/hazardous materials. The other is the shipment of nonhazardous materials that could be used for the purposes of terrorism in some way.

To avoid problems with hazardous materials, companies are looking to substitute such products with nonhazardous replacements. If that is not an option, alternative sourcing arrangements through exchanges, swaps, contract manufacturing and purchases are being developed. Using these methods, Dow Chemical has reduced its highly hazardous material tonne per mile by 29 percent.

Actions of chemical companies, of course, cannot prevent missile detonations or large-scale terrorist attacks. That effort must originate with governments. Ports are critical to trade around the world and are expanding continuously to meet the growing needs of the sector. Unfortunately, this means that security is an issue. Only about 2 to 5 percent of the international cargo entering the United States is scanned. The government is wrestling with how to address the issue without bringing the movement of goods to a standstill.

Reach Guidance Causing Confusion
In Europe, companies have less than six months to preregister their products that are marketed in the EU in volumes of more than one tonne per year, according to the Reach implementation legislation requirements. Seven Reach Implementation projects (RIPs) have been designed to define how the program will work, and to provide guidance and support tools. Many companies are finding the guidance material as complex and confusing as the legislation itself. The RIPs \are not legally binding, but deviation from them will draw attention.

RIP 1 is an introductory package of information and is available only electronically. RIP 2 focuses on IT systems and connecting through the Web to the European Chemicals Agency for online preregistration, notification and reporting. RIP 3, the most important and unclear of the first three guidance materials, discusses registration and substance identification, and it leaves room for different interpretations among different EU countries. Data sharing is also required, but companies must do so without colluding. How that is to be achieved is not understood. Clarifications are coming too slowly for most manufacturers, who find the technical guidance document far too complicated to be meaningful.

RIP 4 contains guidance for regulatory authorities, RIPs 5 and 6 create the European Chemical Agency and RIP 7 covers those preparations that the European Commission must make.

The cost of registration for is estimated by companies to be anywhere between $60,000 to $120,000 per chemical. The concept of one substance, one registration (OSOR) allows the formation of consortia to jointly register substances, but there are many legal issues concerning what activities will be permitted by such groups given current antitrust regulations.

Famous Quotes of the Month
"I've learned that failure preceded success, and the right decisions are an extension of the wrong ones." (Alex Spanos)

"One of the tests of leadership is the ability to recognize a problem before it becomes an emergency." (Arnold H. Glasow)

"We are all travelers in the wilderness of this world, and the best we can find in our travels is an honest friend." (Robert Louis Stevenson)

Before You Make a Beeline for the Door....
Question: Is it true that the laws of physics make it impossible for bumblebees to fly? They seem to be able to, in defiance of physics. Why?

Answer: It is true that a basic equation from aeronautics makes the flight of the bumblebee impossible. The equation relates the thrust required for an object to fly to its mass and the surface area of its wings. In the case of bees, this means the small animal would have to do an impossible amount of work to get airborne.

So how does the tireless bumblebee pull off the flying feat?

Well, the equation is flawed. It assumes that a stationary object rather than one with flapping wings is trying to fly. The bumblebee is not one to depend on a passing breeze to take flight, right? The power is in the flapping, and a little wind can only help.