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June 2, 2003
Volume 81, Number 22
CENEAR 81 22 pp. 21-25
ISSN 0009-2347
ENGINEERING POLYMERS
The industry is fighting off maturity by turning to new ideas and consolidation in order to boost business

ALEXANDER H. TULLO, C&EN NORTHEAST NEWS BUREAU

Polycarbonate Digital Video Discs (DVDs) designed to become unreadable after two days of use. Faux leopard-print fabric molded into cell-phone jackets. Is madness the latest trend in the engineering plastics industry?

SUNROOF Makrolon polycarbonate roofing material is installed at new RheinEnergie stadium in Cologne, Germany.
BAYER POLYMERS PHOTO
Not really. Products like these can be better interpreted as evidence that the engineering polymers business hasn't lost its creative touch, despite its age. This year, after all, marks the 50th anniversary of GE Plastics' Lexan and Bayer's Makrolon, both brands of polycarbonate.

Indeed, during the past few months, the industry has shown its mature side in a series of consolidation moves. BASF acquired Honeywell International's engineering polymers business, and DuPont purchased Eastman Chemical's liquid-crystal polymers (LCPs) business. Observers say this trend should continue.

The former deal took the form of a swap of Honeywell's engineering polymers unit for BASF's nylon fibers business plus $90 million in cash. With the deal, BASF is getting an engineering plastics business that generated $380 million in sales in 2002, mostly in nylon 6 but also with a slate of recycled polyethylene terephthalate polymers.

About 80% of the Honeywell business is in North America. In fact, according to Mount Olive, N.J.-based consultancy BRG Townsend, the acquisition propels BASF from the fourth to the second largest nylon 6 producer in North America. Based on a 2001 market size of about 500,000 metric tons, BASF now has 32% of the U.S. industry, putting it between DuPont with 40% and Solutia with 16%.

To Jay Baker, BASF group vice president for performance polymers in North America, the deal puts the respective nylon and fibers assets into the hands of companies that are capable of doing more with them. "We were able to divest the fibers business, which has been a pretty cyclical business for BASF in the past," he says, "and we can concentrate our efforts on where we believe the growth market is--which is engineering plastics."

Baker says BASF has been interested in the Honeywell business ever since General Electric's acquisition of Honeywell collapsed in 2001. "GE looked at it," he says. "When we saw that opportunity fall out for GE, we wanted to take advantage of it, so we moved right in and started a dialogue."

According to Baker, the acquisition complements BASF's automotive plastics business by giving the firm better access to U.S. automakers. But he says Honeywell has a specific strength in nonautomotive areas, such as power tools and industrial applications, which means a lot of new business for BASF in North America and a potential area of cross-fertilization elsewhere. "Our strength was more on the automotive side, and their strength was on the nonautomotive side," he says. "What we have at the end of the day is a nice balance between the companies."

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MOREOVER, the new business gives a stronger centerpiece for BASF's engineering polymers business in North America, where its positions in polybutylene terephthalate (PBT), polyacetal, polysulfones, and polyethersulfones weren't as strong as they were in Europe. In fact, the company closed an outdated polyacetal plant in Theodore, Ala., last year and is now supplied in North America by Ticona.

In March, DuPont Engineering Polymers acquired Eastman's high-performance plastics business for an undisclosed sum. The business includes Eastman's Titan LCPs; its proprietary Thermx PCT, a familyof polycyclohexylene dimethyl terephthalate products; and its Thermx EG reinforced PET resins.

Paul M. Kalicky, vice president of Vespel, Zenite, Thermx, and strategic planning for DuPont Engineering plastics, says that the purchase will make DuPont number two in the LCP area, right behind Ticona.

About 70% of LCPs are used in electronics connectors, but growth areas tend to be in new applications such as automotive--and some more offbeat ones such as bakeware. "One of the reasons Eastman divested the business is that it realized that a lot of the growth was in market segments like automotive that they did not have strengths in," Kalicky says.

Louis N. Kattas, an engineering plastics consultant with BRG Townsend, agrees. "Eastman was never going to be a major factor in the liquid-crystal polymer business, although they have been at it for years," he says. "Certainly, they are big in polyester, and they have the raw materials, but they don't have the product line to spread the costs out. DuPont is in those markets all the time, and they know polyester and high-temperature crystalline plastics."

In addition to LCPs, DuPont is adding the PCT line, which, Kalicky says, complements existing business in PBT, LCPs, and high-temperature nylons. For example, PCT has better high-temperature properties than PBT and can replace it, if needed, without a change in processing equipment.

Even though DuPont is acquiring highly specialized products, Kalicky maintains that it will enjoy the same manufacturing synergies seen in commodity plastics mergers. DuPont will make the Eastman LCP products at its Chattanooga, Tenn., LCP plant. "We can make all their material at only incremental cost," he says. "It helps us fill up our assets." Eastman will make PCT base polymer for DuPont under contract at its Kingsport, Tenn., site.

The BASF and DuPont acquisitions are just the latest in a string of engineering polymers deals. In 2002, GE purchased engineering plastics compounder LNP. In 2001, BP got out of the engineering polymers business, trading it to Solvay for stakes in Solvay's European and U.S. high-density polyethylene businesses.

Kattas believes the trend will continue and says companies like Honeywell and Eastman that have only limited engineering plastics product lines are the ones most likely to divest. "People are taking rational looks at their business and saying, 'Not everything I throw against the wall is going to stick. We're not good at engineering plastics, so let's get rid of them,' " he explains.

Gerald F. MacCleary, head of performance systems at Bayer Polymers, expects the consolidation to manifest itself in manufacturing joint ventures--such as the European PBT ventures that are planned by Ticona and DSM and by Bayer and DuPont. "Consolidation will continue with major raw materials suppliers," he says. "It is a must with overcapacity and the economics of the business."

Bayer is doing some internal consolidation by forming Bayer Polymers, which includes its plastics, polyurethanes, rubber, and coatings businesses. It will become a legally independent company, owned by Bayer, by the end of the year. The new company plans $660 million in annual cost savings, including 5,300 job cuts, by 2005.

Kalicky says that, for its part, DuPont is still considering acquisitions, even in amorphous polymers, which would be a departure for a company that participates mainly in the semicrystalline market. "We are always looking for opportunities to get bolt-on acquisitions to expand our current portfolio or to fill in the portfolio like PCT does," Kalicky says. "Whether it is semicrystalline or amorphous shouldn't matter too much."

Ulf Buergel, global business director of engineering plastics at Dow Chemical, cautions that when Asia is brought into the mix it becomes clear that the opposite of consolidation is happening. He fears an oversupply that could ruin profitability in some product lines.

"The total number of engineering plastics producers for each and every polymer has gone up instead of down," Buergel says. For example, 10 years ago, there were only three major polycarbonate producers: GE, Bayer, and Dow. Since then, many more producers have sprouted in Asia.

New competitors could be bad news for an industry that is only starting to recover from the economic downturn. According to BRG Townsend, the industry expands at a 6% annual rate globally. But last year, Ticona, the technical polymers business of Celanese, reported a 2% drop in sales to $715 million. Likewise, Bayer Polymers sales' declined 2.2% last year to $10.2 billion.

This year, producers are seeing increased volumes largely because of customer restocking. However, the weak dollar and price competition have hit revenues, and high costs for raw materials have hurt profitability. For example, during the first quarter, Ticona reported a 10% increase in volume over the first quarter of 2003 but a 4% sales decline to $182 million owing to falling prices and currency effects. Bayer Polymers increased volumes during the same period but reported a 2.3% sales decline for the same reasons.

Longer term, Jim Weigand, vice president of sales and marketing at DuPont Engineering Polymers, says there is a lot of growth left in engineering polymers. He expects that it will come from new technologies, organic growth, and expanding markets in developing regions. "In the sense that the business has been around for a long time, it is mature," he says. "From the sense of its growth flattening out, I don't see it yet. Year-over-year, we're probably still looking at 6% growth as a plastics industry. A lot of industries would like that."

Fred Daniell, marketing director for core markets at Ticona, agrees. "We don't think our product line is maturing any differently than five to 20 years ago," he says. "In terms of our ability to innovate--to take our products into new applications and new areas--those opportunities are still out there, and we continue to explore and develop them."

 


8122glassesEngineering plastics companies are focusing on aesthetic applications, which have spearheaded a revolution in design in which plastics bring appearance as well as functionality.


INDUSTRY OBSERVERS expect fewer new polymer introductions in the future because it is a risky and expensive endeavor. Fresh in their memories are Shell Chemicals' Carilon aliphatic polyketones, which were withdrawn from the market because of lack of interest.

"To commercialize a new polymer, a totally new platform like Carilon, is a long road," DuPont's Kalicky says. "I'm not sure many of the functional needs today aren't nicely met by modifications of what's out there today."

Ticona's Daniell puts it differently: "In the future, I would hope, if not expect, that new polymer inventions will come as a result of necessity rather than 'look at what I've discovered and where can we use it?' "

On the other hand, GE boasts that it is coming out with more new products now than ever before. William Banholzer, vice president of global technology for GE Plastics, says GE's response to an engineering polymers market that has been hit hard by low demand is to increase its offerings. "In a down economy is usually when your customers are more desperate for value," he says. "That is how you grow. If you are only going to sell the same stuff in the same cars and in the same application, you will only grow and shrink with the auto industry."

And GE is targeting specific markets. Walt Disney Co.'s Buena Vista Entertainment division will use limited-time-play DVD technology, developed by New York City-based Flexplay Technologies and GE Plastics, in test markets this August. DVDs incorporating the technology can only be played during a 48-hour window after the DVD is opened from its packaging. With the technology, consumers can watch the movies at their own convenience and no longer have to take DVDs back to the store or pay late fees.

The DVDs have a dye in an adhesive layer that oxidizes when exposed to air, making the DVD opaque and unreadable by the player's laser. GE and Flexplay developed the dye together, and GE developed a polycarbonate copolymer with the right degree of oxygen permeability.

The product is part of a whole new slate of polycarbonate copolymers that incorporates monomers other than bisphenol A. Among these is Lexan SLX, designed to make automotive body panels that are weather resistant without the need for paint.

In March, GE introduced Lexan EXL, a polycarbonate copolymer that incorporates silicone into the polymer backbone. Set to be commercialized by the end of the year, the new polymer is touted as offering better impact resistance and low-temperature ductility properties than conventional polycarbonate, with no expense in aesthetics.

"Silicone has been used as an additive, but put it in the backbone and make it clear and you really have something," Banholzer says. The company is aiming at portable computers and telephones as well as air-bag modules and outdoor communications equipment, all of which can take advantage of the polymer's cold weather performance.

Dow has switched to a more modest approach with new polymers. The company has halted efforts in its Index styrene-ethylene interpolymers and polycyclohexylethylene. And it previously disclosed that its program in Questra syndiotactic polystyrene was behind schedule (C&EN, May 20, 2002, page 13).

HOWEVER, Dow's Buergel says Questra has turned the corner over the past year. Instead of reaching broadly for a number of different potential markets, Dow has focused on specific niches in automotive, appliance, and electronics applications where Questra can add value. The company says a Questra-nylon blend--which combines the properties of the two polymers, making for a hydrolysis-resistant nylon--is gathering steam.

Engineering plastics companies are focusing increasingly on aesthetics. Applications like the brightly colored Nokia telephones and the translucent iMacs have spearheaded a revolution in design in which plastics bring appearance as well as functionality. GE has marketed the VisualFX portfolio of plastics with color effects, like glitter, since the iMac days, and says the line has generated overall revenues of some $200 million.

Companies such as Dow and Bayer have followed suit with their own aesthetics and color-matching systems. "Computers used to be beige or gray boxes with a lot of electronics and high-performance chips inside," Buergel says. "There are different types of computers today, but they have the same electronics capabilities and performance. The way for OEMs [original equipment manufacturers] to differentiate themselves is really through design."

In April, Dow introduced the Exo overmolding system, which can integrate any kind of fabric--be it suede, denim, or fur--into the enclosure of electronic devices. In the process, the fabric is placed in the mold and bonded into the part; the edges are then covered to prevent fraying.

Ticona's Daniell contends that if there is any maturity in the engineering plastics world, it is on the part of customers, who have grown remarkably savvy about the huge slate of polymers that the business now provides. "The marketplace is more knowledgeable about plastics today than it was 20 years ago," he says. "And that knowledge has inspired them to ask more questions and be more creative than they were."


8122Makrolon

STILL VIBRANT Worker extrudes Bayer's Makrolon polycarbonate sheet. This year marks the 50th anniversary of Makrolon and GE's Lexan polycarbonates.
BAYER POLYMERS PHOTO


COVER STORY

ENGINEERING POLYMERS
The industry is fighting off maturity by turning to new ideas and consolidation in order to boost business

THE NEXT WAVE
Polyolefins licensors start to get busy again as plastics makers prepare for an upturn



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Copyright © 2003 American Chemical Society



 
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COVER STORY
POLYMERS
ENGINEERING POLYMERS
The industry is fighting off maturity by turning to new ideas and consolidation in order to boost business

THE NEXT WAVE
Polyolefins licensors start to get busy again as plastics makers prepare for an upturn

Related Stories
Breaking The Bank With New Polymers
[C&EN, May 20, 2002]

Polymer Heat Up
[C&EN, Sept. 24, 2001]

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