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Archives

May 2008

China Hikes Export Taxes on Fertilizers; Global Prices Spiral

The National Development and Reform Commission in China approved an increase in export taxes of 100 percent on all fertilizers. Rising fertilizer prices and a shortage of some fertilizer products are causing concern for the food supply in China. The new taxes are an attempt to curb exports to address the situation and are in force from April 20, 2008 through Sept. 30, 2008. Some traders believe, though, that the government will extend the higher duty through the spring of 2009. International fertilizer prices rose dramatically in response to the news of the increased tax, increasing by around 25 percent in some parts of the world. Chinese prices, however, have fallen significantly. Some Chinese Diammonium phosphate (DAP) manufacturers indicated that -- due to the restriction on exports and rising feedstock costs -- they may reduce production. Industry players expect the global supply of phosphate fertilizers to be reduced by as much as 20 percent. In 2007, China exported more than five tonnes each of Urea and phosphate fertilizers, largely to Southeast Asia and the Far East.

			Big Plans for Wacker Chemie Wacker Chemie will invest $1.5 billion (Euro 1 billion), or 26 percent of its 2007 sales, to increase capacity for Polysilicon and solar wafer production. Rapidly growing demand for the materials used to produce solar cells is the driving force behind the expenditures. The company is also investing in silicones and polymers, which are experiencing strong growth in Asia and Eastern Europe. The company expects to see growth in excess of 10 percent in 2008, following a 13 percent increase in sales in 2007. For the future, the company is looking to bio-based processes for the competitive production of many key chemicals such as Acetic acid and Polyvinyl acetate.

			New Headquarters for Albemarle As part of its strategy to maximize its global position and create long-term value, Albemarle is moving its headquarters from Richmond, Va. to Baton Rouge, La. A date for the move was not announced. According to a company official, the level of "collaboration between the state administration, the city-parish and the local business community" was a deciding factor, as was the close proximity of many key customers. The company already has 600 employees located in the Baton Rouge area.

			Oltchim Plans Big Investment Oltchim Ramnicu Valcea, the Romanian pesticide and plastics producer, announced plans to invest $1.6 billion (Euro 1 billion) through 2012 to expand and improve its production units. The expenditures are aimed at reducing raw material costs and increasing revenue, according to the company. The Romanian government is actively seeking a buyer for the state-owned firm.

			Syngenta to Invest in Chinese Biotech Syngenta will invest $65 million over the next five years in Syngenta Biotechnology Co. Ltd. (China) -- a new R&D center in Beijing that will focus on early-stage assessment of biotech crops, such as corn and soybeans for improved yield, drought-resistance, disease control, and biomass conversion. The research will complement work conducted in the United States and include collaboration with Chinese research institutes. Activities will begin in the summer of 2008 in temporary facilities, with completion of the center expected in 2010.

			Challenging Times Ahead for Global Petrochemicals Within the next year, significant capacity expansion in the Middle East and Asia/Pacific will impact global operating rates at a time when demand is already weakening due to a slowdown in worldwide economic growth. Additional projects are planned for 2010 and beyond, but the fate of some of these may be affected if economic conditions slow down more than anticipated. The weak dollar and lower cost natural gas based production will help protect North American producers from the impact of new, lower cost capacity. Asia will be hardest hit, and some less efficient cracker may be forced to close. European producers will also experience lower prices and reduced margins.

			EC Investigating Wax Cartel The European Commission (EC) is investigating several companies in the paraffin waxes industry that have allegedly been involved in cartels and restrictive business practices. No names have been published, but Repsol has confirmed that it is one of the firms receiving scrutiny by the EC. Other possible companies being investigated include Total, Enel and Sasol.

			Economic Woes in Vietnam Affect Chemical Producers The cost of processing petrochemicals in Vietnam has increased by as much as 10 percent due to inflation. In particular, higher transportation and labor costs have had a significant impact. In addition, the government's attempts to curb inflation with interest rate hikes has led to a higher cost of credit. The country is one of the largest importers of plastic resins in Southeast Asia, and the regional plastics market could be affected if Vietnam's plastic industry experiences a slowdown.

			Further Tax Rebate Cancellations Possible in China As part of its program to consolidate its plastics industry and reduce the country's large trade surplus, China's government may withdraw the 5 percent tax rebate currently available for plastic exports. In July 2007, the rebate for plastic products was dropped from 9 to 11 percent down to 5 percent, along with reductions on more than 2000 other products. Plastic processors are concerned that the removal of the rebates will force them to raise prices and reduce their competitive position in the global market significantly.

			Indian Chemical Industry Shows Great Potential A growing Indian economy, particularly in the increasing manufacturing sector, will continue to drive the growth of the country's chemical industry for the next decade. A sharp rise in per capita income will also be a factor. Since 2006, the Indian chemical industry as grown at 12 percent per year, and that rate could increase to as much as 16 percent annually by 2010. Pharmaceuticals and biotechnology are leading the way with growth rates of 18 percent per year. With a 14 percent annual growth rate, the petrochemical sector is also receiving significant investment dollars. In 2007, the government announced its plans for investing more than $9 billion over the next five years and a policy to create several designated petroleum, chemicals, and petchem investment regions (PCPIR) throughout the country. Analysts expect India to become a major global player in specialties and polymers, in addition to pharma, biotech and petrochemicals. Rising feedstock costs, reduced credit availability and shortages of skilled engineers and construction equipment could, however, delay projects planned for the near future.

			Strikes in France Affect Chemical Industry Twenty-four hour strikes at ports across France caused widespread disruptions and delays. Dry cargo ships were affected the most, but there were also backlogs of tankers. The Confederation Generale du Travail Union planned the strikes to protest a potential new law that would transfer jobs at state-controlled port authorities to private cargo-handling companies. A strike by tugboat crews across France also affected major ports, preventing the berthing and departure of chemical tankers, even though the planned three-day event was called off one day early. This tugboat worker strike was organized to support the striking port workers. Additional 72-hour strikes protesting industry reforms in the industry were scheduled at several ports beginning Friday, May 2. With other privatization bills scheduled for the summer, many expect more strikes will plague the chemical industry in future months.

			Demand for Catalysts Grows in Wake of High Energy Costs High energy costs are driving refiners, petrochemical and plastics producers to turn to new catalysts that increase yields and productivity and provide access to alternative raw material sources. Catalyst demand for petrochemical applications will increase by 7.2 percent annually, for polymer synthesis 5.4 percent per year, and for refinery operations 5.7 percent per year, according to The Catalyst Group. Catalysts allow for increased refining productivity and the processing of syngas and heavier feedstocks such as heavy crude oil and tar sands into fuels. Many catalyst manufacturers are expanding capacity to meet growing demand.

			Dr. Reddy's Makes Western Acquisitions Dow Chemical announced that it is selling its Chirotech Technology Ltd. business to Dr. Reddy's Laboratories Ltd. for an undisclosed amount. The deal is expected to be completed by the end of April 2008. With the acquisition, Dr. Reddy's gains access to proprietary chiral and biocatalysis technology, as well as scale-up capability, and it will get a stronger position in the industrial synthesis of complex prostaglandins and carbohydrate chemistry. With the sale, Dow will be able to focus more on core markets, an arena where it can become a long-time leader. Separately, BASF agreed to sell a U.S.-based drug production facility and its related contract manufacturing business to Dr. Reddy's Laboratories. The plant makes and packages prescription and over-the-counter products. According to BASF, the facility was sold because it is not part of the company's core businesses, which include APIs, excipients and custom synthesis services. Other Indian firms are looking for acquisitions in the United States and Europe. Biotech companies, such as GVK Biosciences, TCG Life Sciences, Jubilant Organosys, Sanmar Speciality Chemicals Limited and Syngene, offer contract research and manufacturing services to the life science industries, and hope to add custom synthesis assets in both regions to their portfolios. Acquisitions provide not only existing infrastructure and expertise, but an established customer base on which to build.

			Food Producers Look to Ingredient Suppliers for Cost Saving Technology To meet the demand for lower cost food ingredients, producers of these specialty products are looking to alternative materials or new processing techniques that improve efficiency. Enzyme manufacturers report growing interest in products designed to reduce water and energy consumption and optimize production processes. Applications are found in brewing, fruit maturation, juice making, baking and cheese production. With dairy prices reaching record highs, many companies are looking for alternatives to dairy-based ingredients. New starch technology can replace many milk-based ingredients while maintaining similar performance characteristics. Soy-protein can be an alternative for dairy protein. New cream flavors, as well as texturizers and stabilizers, are also helping food producers reduce costs.

			Henkel Finalizes National Starch Acquisition The $5.4 billion (Euro 3.4 billion) sale of ICI's National Starch adhesives and electronics materials businesses to Henkel has been finalized. Henkel agreed to purchase the company when Akzo Nobel made its bid for ICI in 2007. The acquisition significantly increases the company's market share for adhesives in the Asia Pacific region. Henkel will sell all or part of its 29.4 percent stake in Ecolab to pay for the deal.

			Indian Electronic Chemicals Market Poised for Growth The electronics industry in India is growing rapidly, and producers of electronic-grade chemicals are set to experience significant growth. In 2007, the Indian government announced an incentive scheme for semiconductor and related micro- and nanotechnology projects that provides a 20 to 25 percent of the project cost, depending on location. Numerous applications have already been received from companies such as Reliance Industries, Signet Solar Inc., Titan Energy, Videocon Industries and Moser Baer.

			More Business for Contract Manufacturers from the Personal Care Sector According to industry players, personal care companies are looking to contract manufacturers to improve their supply chain efficiencies. Many companies have significantly expanded their outsourcing activities to focus on both new product and brand identity development. As this has occurred, closer relationships between contract manufacturers and their personal care customers have developed; a greater range of services are now provided, including assistance with innovation and access to international markets. As globalization and regulatory requirements continue to increase, this outsourcing trend will grow as well.

			FDA Faces Further Criticisms on International Inspections The Government Accountability Office (GAO) testified before Congress that despite the FDA's increased oversight of foreign drug facilities to about 11 percent, the agency still needs around $70 million to inspect adequaltely all overseas manufacturing operations. FDA head Andrew von Eschenbach said that a complete overhaul of the system was required, not just an increase in overseas inspections. The FDA has already set in motion its plan to place agents in China and other countries. Separately, Democrats in the House of Representatives have proposed legislation, the "FDA Globalization Act," which would require the labeling of all foods, drugs and medical devices with country of origin information. Drug labels would include a listing of the origin of active ingredients and the place of manufacture. The legislation would also create a permanent inspection force dedicated to inspecting facilities in foreign countries. Funds to support these activities would be provided through higher registration and user fees. Janet Woodcock, director of the FDA's Center for Drug Evaluation and Research, said the agency should be allowed to set inspection schedules based on risk assessments, and that the inspection requirement in the legislation might be a financial burden to the FDA. She did not support the immediate imposition of higher fees. The FDA has announced, though, that it will hire 1,300 additional scientists by October 2008 to monitor drug-safety data before and after product approval and to manage the safety and inspections of imported goods.

			New Pharma Research Initiative in Europe The European Federation of Pharmaceutical Industries and Associations (Efpia)and the European Commission (EC) together launched a $3 billion (Euro 2 billion) Innovative Medicines Initiative designed to increase the competitiveness of the region's medical research efforts through support of academic researchers and small businesses. Initial focus areas include development of biomarkers and the study of asthma, psychiatric disorders, neurodegenerative diseases, and understanding the mechanisms of pain. The EC will contribute $1.5 billion to the seven year program, while pharma companies will provide staff, lab equipment and compound libraries.

			Pharma Companies Make Cutbacks Wyeth and Schering announced plans to reduce costs. Wyeth will eliminate about 1,200 positions in its U.S. sales force. These cutbacks are part of a company-wide program to reduce costs and reorganize the business. Overall, the company plans to reduce its workforce around the world by 4 to 6 percent by the middle of 2009. Schering's cuts are in response to the decision by a panel of cardiologists to limit the use of the company's blockbuster cholesterol drugs Vytorin and Zetia. The company announced that it will shut down plants, streamline product offerings and reduce the number of management jobs in order to save $1.5 billion. As many as 5,500 positions -- about 10 percent of its total workforce -- will be eliminated. Nearly 80 percent of the cuts will take place by the end of 2010.

			Takeda to Acquire Millennium Millennium Pharmaceuticals agreed to an $8.8 billion offer made by Takeda Pharmaceutical Co. With the acquisition, Takeda expands its suite of treatments in the cancer, heart disease, gastro-intestinal disorders and rheumatoid arthritis areas. The deal is subject to shareholder and regulatory approvals. Takeda is the second Japanese company to acquire a large U.S.-based drug company. Eisai Co. also took advantage of the weak dollar when it agreed in December2007 to purchase MGI Pharma for $3.9 billion.

			Ag Sector Growing Strong Strong demand for food and biofuel is leading to strong growth in the agrochemicals sector. Producers of agrochemicals, fertilizers and seeds have seen profits rise and are adding new capacity. Stock prices of many ag companies have climbed dramatically. Worldwide supply of big-row crops including corn, soybean and wheat are at very low levels, resulting in higher prices and greater demand for seeds, pesticides and fertilizers.

			Bio-based Oil Could Be New Ingredient for Plastics Scientists at Australia's CSIRO Molecular and Health Technologies Plant Industry division have genetically engineered the Arabidopsis plant to produce a fatty acid that is usually manufactured from petrochemicals. Dr. Allan Green and colleagues have been able to isolate the acid in reasonable amounts -- a significant breakthrough necessary for the technology to be commercially feasible. The group hopes to be able to transfer the technology to safflowers, which are hardy, do well in Australian conditions and are not currently food crops.

			European Biodiesel Board Files Complaint Against U.S. Producers The European Biodiesel Board (EBB) filed a legal complaint against U.S. producers with the European Commission, alleging unfair dumping of subsidized exports of blended biofuels. These blends then receive further subsidies from European authorities, according to the EBB, and result in underutilized capacities at European production facilities. The EBB wants the EC to impose duties to offset the subsidies. The National Biodiesel Board (NBB), a U.S. trade group, accused the EBB of engaging in trade protectionism and said it would challenge the European Union's "existing trade barriers."

			Challenges Ahead for European Chlor-Alkali Producers The rising cost of electricity is placing severe pressure on Chlor-alkali manufacturers. Further hikes are expected, particularly in Europe, where climate change legislation that is aimed at reducing carbon dioxide emissions and revising the current carbon emissions trading scheme should come into effect in 2012. The European Commission plans to give energy-intensive industries (EII) assistance with the higher electricity costs, and producers want the Chlor-alkali sector to be designated an EII. The rise in energy prices comes at a time when manufacturers are investing heavily in more environmentally friendly technologies and have little ability to accept lower margins.

			European Commission to Rule on Chinese Citric Acid Dumping Case The European Commission (EC) is expected to announce in June its decision regarding an investigation of Citric acid dumping by Chinese producers. The simple fact that the EC has been looking into the matter has resulted in higher prices for Citric acid in Europe. Antidumping duties of as much as 30-40 percent are possible for one or more of the leading Chinese manufacturers. Authorities in the United States have also received petitions against Chinese Citric acid exporters and may take measures as well. The Chinese government may also eliminate a 13 percent export tax rebate on Citric acid.

			IPA Prices on the Rise Prices for Isopropanol (IPA) are rising in the United States, India and the Middle East as tightness in supply increases. In India, planned shutdowns and higher costs for Propylene feedstock are exacerbating the situation. In the United States, the price of IPA is driving ink producers to switch to Ethanol or Propanol, which have similar properties. It is largely higher Propylene costs that are driving IPA price increases in the Middle East. Acetone, another commodity made from Propylene, is also experiencing price hikes, particularly in India, where supplies are tight partly because of the anti-dumping duties that have been placed on this product.

			Large Investments Planned in United States Valero announced that it will build a $1.4 billion (Euro 882 million) refinery expansion at its St. Charles, La., site, and is also considering a $2 billion benzene-recovery unit. The company's board must approve the Benzene-recovery unit. The refinery expansion, which involves a new 50,000 bbl/day hydrocracker and a 10,000 bbl.day coker increase, and should be complete by 2010.