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November 17, 2003
Volume 81, Number 46
CENEAR 81 46 pp. 35-42
ISSN 0009-2347


PLASTICS ADDITIVES
The industry is coming off a couple of bad years, but a recovery--buoyed by new technologies and diversification--may be in sight

ALEXANDER H. TULLO, C&EN NORTHEAST NEWS BUREAU

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BIG GAME Ciba Specialty Chemicals provides the pigments, light stabilizers, and flame retardants used in the plastic seats at St. Jakob Football Stadium in Basel, Switzerland. CIBA SPECIALTY CHEMICALS PHOTO


The fortunes of the plastics additives business are tied to those of the plastics industry as a whole. Traditionally, this has been a great position to be in, but not for the past several years. The economic downturn in the developed world has hit plastics additives hard, and like many business sectors, the industry is facing cutbacks, a shift in manufacturing to the developing world, and consolidation.

But the news isn't all bad. Industry watchers expect business to pick up next year as the economy does. Moreover, they believe that new technologies and geographic diversification are creating opportunities that may spur a whole new generation of prosperity.

David Underwood, director of Rohm and Haas's plastics additives business unit, says the basic polymer can't take all the credit for the final properties of today's plastic products. "We are responsible for many of the properties and processing characteristics of the products being sold," he says. "In the case of polyvinyl chloride, if you didn't have additives, you would have a brittle plastic that would shatter when you dropped it. You would have something that would burn up when it went through a piece of equipment."

The economic downturn, manifested in North America's manufacturing woes, has depressed the plastics industry, bringing plastics additives down with it, says Steve Stone, vice president of performance chemicals and polymer additives at Cytec Industries. "It is no surprise that we have been struggling a little bit with the business," he adds.

The effect has been severe. According to Fred Gastrock, a plastics additives consultant with BRG Townsend, global plastics additives volumes in 2002 were about 17 billion to 18 billion lb, including plasticizers, which composed 60% of the tonnage. The plastics additives market was valued at about $15 billion. All this was after demand dropped by 10 to 15% in 2001. And because there has been little growth since that year, the market has never recouped its 2000 volumes, he says.

Felix Meyer, head of Ciba Specialty Chemicals' plastics additives business, says the maturity that is setting into the sector hasn't helped. "It is very difficult for the polymer additives industry, and triggering this is the disappearance of the growth that we used to have in thermoplastics in the '90s," he says.

However, Rohm and Haas's Underwood says sales of additives for rigid PVC applications have been buoyed in part by strong housing starts. "The business has not been doing too badly, but it has not been as strong as it had been in the late 1990s," he says.

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COLOR JUNCTION Polyvinyl chloride pipe incorporating Rohm and Haas's additives. ROHM AND HAAS PHOTO

And John McChesney, business manager for polymer additives at Albemarle, is optimistic about a North American recovery in polyolefin additives. "In terms of volumes, the market is holding up pretty well," he says. "It is looking like a recovery in some areas."

Whether there is a recovery around the corner or not, some polymer additives makers that are not content to wait have launched cost-cutting programs. In April, Akzo Nobel announced a polymer chemicals restructuring program that will include 150 layoffs by the end of next year. In September, the company put its phosphorus chemicals business, which makes phosphorus-based flame retardants, up for sale.

Last month, Great Lakes Chemical announced a $30 million cost-cutting program that will eliminate 400 jobs. The consolidation focuses on the company's polymer additives business and includes the closure of an antioxidants plant in Newport, Tenn., and bromine derivatives facilities in the U.K.

Henri Steinmetz, executive vice president of Great Lakes's polymer stabilizers business, says the Newport plant only made two standard antioxidants. Instead, the company is focusing on its two-year-old Gulf Stabilizers joint venture in Saudi Arabia with the Al Zamil Group. "We didn't lose any capacity, but we took out all the fixed costs of a production site in an area that was not growing in any end market," Steinmetz says.

One producer explains that the polymer additives industry has been following the lead of resin makers and plastics converters, who are building in Asia en masse. "A lot of these companies are global, so they have options to manufacture their resin not only in North America and Europe, but also in joint ventures in the Middle East and Asia," he says. "The cost of natural gas here in the U.S., where energy costs are so much a part of polymer costs, have made it worthwhile to manufacture product overseas. And fabricating, which is much more dependent on labor costs, has been trending, certainly, toward Asia."

And the growth has been fast. Currently, about 3.7 billion lb of additives is consumed in China. Close to 70% of that is plasticizers, popular products because the vinyls industry in the country is already well developed. Overall, plastics additives are growing at 7% per year in China.

More specialized segments are growing faster, according to BRG Townsend. Antioxidants, for example, are growing at a 10% annual clip on a consumption base of 34 million lb per year, with 70%--mostly mature products--produced domestically. "There has only been a little bit of a push for higher performance additives," Gastrock says. "I would expect down the road that there will be, but the market is in the early stages of development."

Mark Heldt, business manager for stabilizers at Atofina Chemicals, contends that China's use of yesterday's additives technology is a detriment to its plastics industry, citing poor-quality PVC house siding as an example. "Their siding might be something that could be brought into the Americas, but I don't think its performance would match products made domestically," he says. "They are in their infancy and are in a rapid learning curve, but right now I don't think they have extrusion equipment and formulations that are state of the art."

But Gastrock doesn't think that the more mature technology has been a limit to exports to the U.S. and other developed countries. "A lot of those products have been around a long time to begin with," he says.

Moreover, Cytec's Stone says, Asian producers are likely to catch up to current technologies quickly by skipping the evolutionary steps that the U.S., European, and Japanese polymer additives industries went through years ago. "Asian customers are adapting and focusing on translating to current technology and are not waiting to go through the typical stages. Many times they are starting with current state-of-the-art technologies," he says.


New technologies and geographic diversification are creating opportunities that may spur a whole new generation of prosperity.


IN SOME CASES, Gastrock says, China may even introduce new technologies to the polymer additives industry. One product he has been investigating is rare-earth PVC heat stabilizers, which he says are new materials being used nowhere else but in China.

Gastrock points out that mature technology isn't the only quirk of the Chinese additives industry. It also tends to be more fragmented than that of more developed countries. "There are no Akzos, no Atofinas, no Cromptons--companies in several different categories of additives," he says. For example, a company might have one plant that makes flame retardants--typically one type of flame retardant--and one company might have one plant that makes stabilizers, and so on.

This is likely to change as large polymer additives makers angle to get involved in China and the Middle East any way they can. Already, almost every major plastics additives supplier has assets, or is considering some, in either or both regions. Ciba, for example, has an antioxidant facility in Shanghai, is making custom blends in Saudi Arabia, has a technical cooperation agreement with King Fahd University of Petroleum & Minerals in Saudi Arabia, and is starting a local operation in Bahrain for distribution and customer support that will focus primarily on plastics additives.

Albemarle's McChesney says his firm's Ningbo Jinhai Albemarle Chemical & Industry Co. joint venture, which started making polymer stabilizers and additives blends in China three years ago, may expand within the next three years. "The developed parts of Asia--Korea, Japan, and Singapore--are like the U.S. But Vietnam, China, and India still have some untapped consumption capability, so I would expect plastics demand to continue to grow there," he says.

But the plastics additives industry is not only fragmented in China; to an extent, it is fragmented everywhere. And this, experts say, is changing through industry consolidation. The days of companies making only one or two types of polymer additives are over, they say.

To McChesney, the consolidation in plastics additives is a symptom of the industry's maturity. "It is amazing to see how fast the plastics market has changed," he says. "It hasn't taken long to go from when there were radical new products coming out all the time, to where we are calling it mature. As in any business, as it matures you see consolidation."

The biggest deal this year was Crompton's sale of its OSi organosilicones business to General Electric. The sale gave Crompton more than $600 million in cash, possibly $250 million more in performance-based quarterly payments, and its polymer additives business in return (C&EN, Sept. 15, page 14). The business consists mostly of a facility in Morgantown, W.Va., that makes phosphite antioxidants, polymer additive blends, and impact modifiers.

Crompton also picked up GE's stake in polymeradditives.com, an online marketplace that GE started in 2000 with Cytec and Albemarle. But Crompton pulled out of the venture earlier this month and switched customers using the site to its internal order fulfillment capabilities. Cytec is also abandoning the venture, although Albemarle and Akzo Nobel say they will continue to use it as a channel to customers.

According to Ciba's Meyer, as major polymer additives companies get bigger, survival will become harder for the midsize players--those firms with annual additives sales between $20 million and $150 million. "The industry environment is starting to trigger consolidation," he says. "If you look at the industry players, there is a category of company that is too big to die and too small to be successful, especially those companies that don't innovate or have economies of scale for their core products. These are the ones that are getting squeezed."

BRG Townsend's Gastrock agrees. "You don't want to be in the middle," he says. He adds that companies, like GE, that have only one or two products will be a target for acquisition. Broader based suppliers like Ciba, Atofina, Rohm and Haas, Crompton, Albemarle, and Great Lakes will likely emerge as the consolidators.

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PINKHOUSE This greenhouse uses Ciba's Smartlight RL 1000 additive to improve rose growth by shifting the wavelength of sunlight. CIBA SPECIALTY CHEMICALS PHOTO

However, Great Lakes's Steinmetz points out that the plastics additives business is different from petrochemicals, where companies gain a lot of leverage by consolidating and garnering a sizable global market share. The market is so fragmented that the typical acquisition raises a company's market share only modestly. "Companies looking for consolidation only go from 5% to 6% market share," he says. "You still don't get major benefits in the marketplace, and you are still very fragmented with complex portfolios."

Companies are also trying to broaden their portfolios through organic growth and R&D-fueled innovation. "With innovation, you can differentiate," Ciba's Meyer says. "And then you have a uniquely broad platform for products and services that allows you to offer unique solutions."

Ciba's plastics additives business is focusing on three new areas to complement its core antioxidant and light stabilizer business. These include flame retardants, surface modifiers, and effect additives. "With the basic antioxidants, you make plastics usable. With effect additives, you equip the plastic for a much more sophisticated application," Meyer says.

Ciba's effect additives include Smartlight, a product it debuted last year specifically for greenhouses that are used to raise roses. When added to a greenhouse's plastic film covering, Smartlight changes the wavelength of the sunlight passing through to a band more favorable to rose growth. "It is a specialty that adds a lot of value and therefore has a lot of significant potential," Meyer says. "If a farmer can have three crops instead of two during the year, that is a lot of money."

Also in the effects category are biocides with an antibacterial agent that the company started to roll out in the late 1990s. They were followed by a line of algicides and then, this spring, a line of fungicides. "Ciba has been a leading provider of biocides for the home and personal care market and in detergents. This is quite a natural extension to go into plastics," Meyer says.

Ciba's second growth area is surface modifiers--agents that improve polymer properties such as paintability and printability. One recent addition is a line of permanent, colorless antistatic agents that, Meyer says, eliminate the darkening inherent with carbon black, the traditional antistatic agent. Ciba is also marketing Irgasurf HL 560, which makes polyolefin fibers hydrophilic and imparts a "soft touch" effect to nonwoven fabrics.

And replacement chemistry is also a big driver in the plastics area. Crompton's Mark Chamberlin, North American business director of olefins and styrenics, points out that non-nonylphenol antioxidants are a growing area because of concerns that nonylphenol is an endocrine disruptor.

Crompton has also developed an organic PVC heat stabilizer--called OBS--targeting the market that is expected when lead-based stabilizers are eventually banned in Europe. In the U.S., lead is already banned and is used only in wire and cable applications; other vinyls are usually heat stabilized with mixed-metal or organotin stabilizers.

Rohm and Haas is testing a heat stabilizer, Advastab OFS, for lead replacement. Underwood says it has already been successful in customer trials. However, because it is more expensive than lead-based stabilizers, the applications will probably have to wait for regulations banning lead, Underwood admits. "The big move will come when the regulatory emphasis becomes strong or we continue to evolve our technology and we come up with the right economics that would make it competitive with lead systems," he says.

And plastics additives are still bringing familiar polymers into unfamiliar applications. Underwood says an emerging market for PVC is fencing materials, which are growing at a 25% annual rate. However, in the more mature vinyl siding market, Rohm and Haas developed an acrylic capstock--a protective coating coextruded with another polymer--that allows vinyl siding to be made in dark colors. Because dark hues absorb more sunlight, he says, such applications previously suffered from color-fastness problems. Atofina is coming out with similar acrylic capstock products.

Of course, cost savings is always an issue in plastics additives, especially given the tough environment of recent years. "Additives are still an expensive component of a plastic mix, so people have been trying to reduce loading levels for years," BRG Townsends' Gastrock says.

Rohm and Haas's Underwood agrees. "In the traditional markets that are more mature, we see customers continue to value cost-performance improvements over what we're able to bring through technology," he says.

According to Underwood, improving costs can entail substitutes for more costly additives, or incorporation of better lubricants that allow processors to run at a higher throughput. Or cost improvement can mean the opposite: formulations that can handle new processing equipment. "Some of those machines tend to run hotter and with different pressures, and there's definitely formulation know-how and changes required," he says. "You have to come up with slightly different chemistries that work better in those formulations."

AND SOMETIMES innovation is as simple as mixing several different components together to relieve customers of the task. Polymer additive blends are a growing area that suppliers are flocking to as a means of leveraging service for a competitive advantage. The appeal of blends to customers is simple, says Crompton's Chamberlin. "They don't have to keep X amount of several different components on site and can have a tailor-made blend already supplied to them," he says.

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MELTING POT Albemarle says its additive blends are a way to leverage service to specific customers. ALBEMARLE PHOTO

For three years, Albemarle has offered plastic pellets that contain antioxidants, acid scavengers, and other materials, several of which Albemarle purchases from third-party manufacturers. "We can put together blends that others can't do as effectively," McChesney says. "And that allows the user to get the material in an effective package."

Accel, started by former executives at M. A. Hanna--now PolyOne--is based entirely around offering service and small quantities of additive and color concentrates to plastics converters. Started in 1998, the company now has plants in Illinois, Ohio, California, and Tennessee--close to clusters of plastics converters--and is offering quick delivery of lots of additive blends or concentrates that can be as small as 5 lb.

Dan Martelli, Accel's manager of strategic accounts, says that as consumers demand more products tailored to their preferences, manufacturers will need to offer a wide variety of products in smaller quantities--what he calls the Wal-Mart effect. "We are at a $20 million sales pace right now," he says. "We have seen good growth despite the recession, which gives us the confidence that we have the right business model."

Much bigger compound and concentrate producer PolyOne is taking a different approach: offering materials to plastics processors that were previously unavailable. In June, the company launched Nanoblend Concentrates, which are plastics concentrates and compounds incorporating nanoclays.

The products are the fruits of a joint development between PolyOne and Nanocor, a subsidiary of Amcol Corp., which supplies the nanoclays. George Zollos, market development manager at PolyOne, says the products offer much lighter weight, higher stiffness, and better impact resistance than conventionally filled polyolefins. "The Nanoblend Concentrates clearly bridge the gap between polyolefins and engineering polymers," he says. "It takes the properties to a whole new level."

Conventional plastics additives makers are also interested in nanomaterial technology. "It is very developmental in terms of actual volumes, but it is certainly an area where we see a lot of interest and activity," says Crompton's Chamberlin, noting that his company is developing chemistries in nanomaterials such as fatty amine chemistry for treating the clay and coupling agents to couple the clay with the polymer.

But the fostering of yet another generation of plastics innovation by a novel additive comes as no surprise to additives makers. According to Rohm and Haas's Underwood, this is what chemical companies have been able to do for decades. "The plastics industry is still a truly amazing industry in terms of its ability to innovate and replace traditional materials across a number of industries," he says. This ability is made possible, of course, with a little help from plastics additives.


COVER STORY

PLASTICS ADDITIVES
The industry is coming off a couple of bad years, but a recovery--buoyed by new technologies and diversification--may be in sight

SLEEPING EASIER
The flame-retardants industry is optimistic about its future, though some products are under fire




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Cover Story

PLASTICS ADDITIVES
The industry is coming off a couple of bad years, but a recovery--buoyed by new technologies and diversification--may be in sight

SLEEPING EASIER
The flame-retardants industry is optimistic about its future, though some products are under fire

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[C&EN, September 15, 2003]

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[C&EN, February 24, 2003]

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