special report - us specialty chemicals: east coast

GBR_Report_p39-58_scm11_GBR_Report 11/19/12 9:55 AM Page 39

A special report for Speciality Chemicals Magazine by Angela Harmantas, Amelia Salutz, Katya Koryakovtseva, andChloe Dusser of Global Business Reports

The pervasive nature of the chemicalsindustry has usually ensured its reliability asan indicator of the wider economy. True to

form, the US chemicals industry has closelymirrored the turbulence and uncertainty of boththe US economy and, given that it produces afifth of the globe’s chemicals, that of the widerworld.

Recent economic troubles have had a severeadverse effect on the US chemicals industry. Thenumber of bankruptcy filings among chemicalscompanies reached 55 in 2009, up from 27 in2007 and just 12 in 2006; employment wanedand chemicals shipments fell dramatically. For anindustry that touches nearly 97% of theAmerican economy, the impact was severe.

While the worst of the global recession maypossibly be over, continued uncertainty in theEurozone, plus tenuous recovery at home, areputting immense pressure on the US chemicalsindustry. To add insult to injury, China recentlyovertook the US as the world’s largest chemicalsproducer. As Asian countries transform theireconomies to become more sophisticatedmanufacturers, the US market is being floodedwith cheaper product equivalents from Chinaand India; the value of inorganic imports in Q32011 was $4.8 billion, the highest in three years.

Yet, just as the beloved American writer MarkTwain once famously quipped, “Reports of mydeath are greatly exaggerated”, the same couldbe says for his country’s chemicals sector.Geological developments at home and globaleconomic circumstances have combined to create

a new business environment, one that is in equalparts turbulent and dynamic.

Speciality chemicals companies especially arebeing forced to rethink their business modelsdrastically. Underpinning this all is a slow butsteady growth over the past few years and acautious optimism that pervades among thesector’s insiders.

“The chemicals industry in the US has aninteresting future that will be full of growth.Companies are starting to focus more oninnovation and technology as opposed to lowcost,” says Alexander Wessels, president andCEO of DSM Pharmaceuticals Products andchairman of DSM North America.

Much of the optimism surrounding the USchemicals industry’s recovery is due to theexcitement over the Marcellus Basin shale, ageological outcrop containing untapped naturalgas reserves that blankets the sediment beneaththe Eastern US.

“Given the relative inexpensiveness of naturalgas and the closeness of the Marcellus shale fieldin Pennsylvania, there is a very good chanceinvestment will come back to the region,” saysHal Bozarth, executive director of theChemistry Council of New Jersey.“Natural gas is the lifeblood of the chemicalsindustry, whether it is used to heat or run thefacilities or its wet stream materials are used asraw materials for speciality chemicalsmanufacturing.”

This is especially true in the speciality chemicalssector, which has historically been the bastion of

North American and Western Europeancountries. According to the AmericanChemistry Council (ACC), speciality chemicalsproduction in the US is expected to grow by5.1% in 2012 and by 3% in 2013, thanks toincreased demand from end-use markets such asagrochemicals and consumer products.

The demand, however, is not driven entirely bythe domestic market. The US housing andconstruction industries are only beginning torecover from the 2008 crash and, while theautomotive industry is regaining its footing, theUS economic outlook as a whole remains weak.In light of these domestic challenges, newgrowth markets become ever more important forchemicals companies to survive and thrive.

This shift towards outward growth representsa significant change in business models andstrategies. Chemicals companies are taking heed;the value of US chemicals exports reached arecord $86.9 billion in 2011, according to censusdata.

The US speciality chemicals industry is at acritical conjecture as markets become increasinglyglobalised. In order to provide a more focusedanalysis, Speciality Chemicals Magazine and GBRhave elected to focus on regional markets,starting with the East Coast, which hashistorically been the centre of the manufacturingindustry in the US.

The region is strategically placed in order tobenefit from declining European chemicalsproduction, which fell by 2.4% in the first sevenmonths of 2012, thanks to lower transportation

40 � Speciality Chemicals Magazine November 2012 www.specchemonline.com

US Special Report

US Speciality Chemicals: East Coast


A special report for Speciality Chemicals Magazine by Angela Harmantas, Amelia Salutz, Katya Koryakovtseva, andChloe Dusser of Global Business Reports

The pervasive nature of the chemicalsindustry has usually ensured its reliability asan indicator of the wider economy. True to

form, the US chemicals industry has closelymirrored the turbulence and uncertainty of boththe US economy and, given that it produces afifth of the globe’s chemicals, that of the widerworld.

Recent economic troubles have had a severeadverse effect on the US chemicals industry. Thenumber of bankruptcy filings among chemicalscompanies reached 55 in 2009, up from 27 in2007 and just 12 in 2006; employment wanedand chemicals shipments fell dramatically. For anindustry that touches nearly 97% of theAmerican economy, the impact was severe.

While the worst of the global recession maypossibly be over, continued uncertainty in theEurozone, plus tenuous recovery at home, areputting immense pressure on the US chemicalsindustry. To add insult to injury, China recentlyovertook the US as the world’s largest chemicalsproducer. As Asian countries transform theireconomies to become more sophisticatedmanufacturers, the US market is being floodedwith cheaper product equivalents from Chinaand India; the value of inorganic imports in Q32011 was $4.8 billion, the highest in three years.

Yet, just as the beloved American writer MarkTwain once famously quipped, “Reports of mydeath are greatly exaggerated”, the same couldbe says for his country’s chemicals sector.Geological developments at home and globaleconomic circumstances have combined to create

a new business environment, one that is in equalparts turbulent and dynamic.

Speciality chemicals companies especially arebeing forced to rethink their business modelsdrastically. Underpinning this all is a slow butsteady growth over the past few years and acautious optimism that pervades among thesector’s insiders.

“The chemicals industry in the US has aninteresting future that will be full of growth.Companies are starting to focus more oninnovation and technology as opposed to lowcost,” says Alexander Wessels, president andCEO of DSM Pharmaceuticals Products andchairman of DSM North America.

Much of the optimism surrounding the USchemicals industry’s recovery is due to theexcitement over the Marcellus Basin shale, ageological outcrop containing untapped naturalgas reserves that blankets the sediment beneaththe Eastern US.

“Given the relative inexpensiveness of naturalgas and the closeness of the Marcellus shale fieldin Pennsylvania, there is a very good chanceinvestment will come back to the region,” saysHal Bozarth, executive director of theChemistry Council of New Jersey.“Natural gas is the lifeblood of the chemicalsindustry, whether it is used to heat or run thefacilities or its wet stream materials are used asraw materials for speciality chemicalsmanufacturing.”

This is especially true in the speciality chemicalssector, which has historically been the bastion of

North American and Western Europeancountries. According to the AmericanChemistry Council (ACC), speciality chemicalsproduction in the US is expected to grow by5.1% in 2012 and by 3% in 2013, thanks toincreased demand from end-use markets such asagrochemicals and consumer products.

The demand, however, is not driven entirely bythe domestic market. The US housing andconstruction industries are only beginning torecover from the 2008 crash and, while theautomotive industry is regaining its footing, theUS economic outlook as a whole remains weak.In light of these domestic challenges, newgrowth markets become ever more important forchemicals companies to survive and thrive.

This shift towards outward growth representsa significant change in business models andstrategies. Chemicals companies are taking heed;the value of US chemicals exports reached arecord $86.9 billion in 2011, according to censusdata.

The US speciality chemicals industry is at acritical conjecture as markets become increasinglyglobalised. In order to provide a more focusedanalysis, Speciality Chemicals Magazine and GBRhave elected to focus on regional markets,starting with the East Coast, which hashistorically been the centre of the manufacturingindustry in the US.

The region is strategically placed in order tobenefit from declining European chemicalsproduction, which fell by 2.4% in the first sevenmonths of 2012, thanks to lower transportation


US Special Report

US Speciality Chemicals: East Coast


costs than their Asian and West Coastcounterparts. This report will examine theNortheast, which here is defined as including thestates of New Jersey, New York, Connecticut,Massachusetts, Pennsylvania, Delaware, Marylandand North Carolina.

Market recovery: Lessons learnedEmerging from the most widespread downturnto hit the US since the Great Depression in the1930s, chemicals companies have learneddifficult but important lessons on how tonavigate through the waters of a volatilemarketplace.

“The global financial crisis affected everybusiness,” says Wessels. “DSM has been moreaffected in performance materials than inpharmaceuticals or nutrition, although thecompany is resilient and our financial stability hasprovided the company with many opportunities.”

In order to maintain this financial stability, USchemicals companies were forced to examinetheir cost structure in a more innovative manner.

“During the recovery, we invested ourresources in a way that has allowed us tomanage our products, which has given us moreof an insight into how our costs really work,”says Kate Donahue, president of HampfordResearch, a custom chemicals manufacturer inStratford, Connecticut. The company put systemsand infrastructure in place for data managementthat enabled it to react quicker to other marketopportunities, such as dental and cosmeticproduct manufacturing.

The financial crisis certainly forced companiesto tighten their cost structure, but somecompanies, such as Croda, a subsidiary ofCroda International, remained focused on long-term objectives. “During the crisis, we werecareful about costs, but we were also sure not todo anything we would regret later when theeconomy improved. We did not change our

US Special Report

www.specchemonline.com November 2012 Speciality Chemicals Magazine � 41

Hampford Research’s facility in Stratford,Connecticut, and (inset) Kate Donahue, companypresident


US Special Report


long-term investment in R&D, marketing orpromotional work,” says Kevin Gallagher,president of Croda North America.

As demand from end-user markets has nowbegun to increase, so too have the fortunes ofUS chemicals companies; various indices, such asthe Dow Jones, are showing a sustained trend ofstrong and increasing growth.

Shale gas: The miracle cure?Estimates of the amount of recoverable shale gasin the Marcellus basin vary but, according to a2011 report by the US Geological Survey, thetotal recoverable amount is close to 2.4 trillionm3 of natural gas. For American chemicalsmanufacturers who rely on ethane, a natural gasliquid that is derived from shale gas, this givesthem significant cost advantages over theirforeign competitors using oil-based feedstock.

Dow Chemical and Royal Dutch-Shellrecently solidified the enthusiasm surroundinglow-cost feedstock in the US. In March 2012,Shell announced plans to build a $2 billionethylene cracker near Pittsburgh; the followingmonth, Dow followed suit by investing $4 billioninto a similar facility near Texas. CEO AndrewLiveris directly attributed Dow’s investment to lownatural gas prices, putting the company “on thethreshold of an American natural gasresurgence”.

Though companies operating in the lessenergy-intensive speciality chemicals sector maynot experience the direct benefits of lowerenergy costs, the implications for the USchemicals industry as a whole can be viewed aspositive.

“In addition to the downstream connections ofextracting ethane, propane and butane, thechemicals industry has a whole range ofinvolvement, from developing environmentallybenign additives to fracking water to providingchemicals for water treatment,” says Jeffrey

Peters, president of the PennsylvaniaChemical Industry Council.

Boosted by these anticipated downstreameffects of the shale boom, chemicals companiesare going forward with their investment plans.The ACC estimates that chemicals companiesacross the country have allocated over $25 billionto the construction and expansion of theirfacilities. The East Coast in particular has becomeused to seeing decreasing investments as majormanufacturers have exited the region. Now, withthe Marcellus shale play, this trend is reversing.

BASF, the world’s largest chemicals company,built a new methylamines plant in Geismar,Louisiana, and will be putting a new formic acidplant there as well. “We have started batteryactivities here, with the building of a plant inElyria, Ohio. We would not do these things if wewere not convinced we could be cost-competitive, because we would not be able tosurvive in the market,” says Beate Ehle, EVP ofBASF, based in Florham Park, New Jersey.

“Of course, we have activities in Asia, andthere is no doubt we will increase our presencein emerging markets; however, North Americaenjoys very attractive energy prices right nowdue to the shale gas effect, as well as excellentraw material prices in certain value chains,” sheadds.

Other global chemicals companies areinvesting significant resources in the US. DSM’smanufacturing base in the US has expandedduring the last two years to increase the capacityof its performance materials, material science andlife science businesses.

“Chemicals manufacturing in the US hasbecome more competitive because of low energyprices and the cost of labour, the regulatoryenvironment and IP protection, which make theUS an attractive destination for investors,” saysWessels of DSM.

Manufacturing locally also fits within thestrategy of global chemicals companies with a USpresence, such as Kureha America, the NewYork City-based subsidiary of a Japanese rawmaterials supplier, which has threemanufacturing sites in the US.

“In 2009, we decided to build a plant in WestVirginia that will make a brand new polymer calledpolyglycolic acid under the brand name Kuredux,using very unique technology. Part of our strategyis to diversify, not only in sales and marketing butalso in our manufacturing sites,” explains ElizabethGershon, EVP of Kureha America.

Bluestar Silicones, a silicone manufacturerwith a US base in East Brunswick, New Jersey,recently consolidated all of it North Americanmanufacturing and R&D operations in a 21,000

Kureha America’s WestPGA plant (left) and(above) Elizabeth Gershon,EVP of Kureha America

Manufacturing

GBR_Report_p39-58_scm11_GBR_Report 11/19/12 9:55 AM 2

US Special Report


long-term investment in R&D, marketing orpromotional work,” says Kevin Gallagher,president of Croda North America.

As demand from end-user markets has nowbegun to increase, so too have the fortunes ofUS chemicals companies; various indices, such asthe Dow Jones, are showing a sustained trend ofstrong and increasing growth.

Shale gas: The miracle cure?Estimates of the amount of recoverable shale gasin the Marcellus basin vary but, according to a2011 report by the US Geological Survey, thetotal recoverable amount is close to 2.4 trillionm3 of natural gas. For American chemicalsmanufacturers who rely on ethane, a natural gasliquid that is derived from shale gas, this givesthem significant cost advantages over theirforeign competitors using oil-based feedstock.

Dow Chemical and Royal Dutch-Shellrecently solidified the enthusiasm surroundinglow-cost feedstock in the US. In March 2012,Shell announced plans to build a $2 billionethylene cracker near Pittsburgh; the followingmonth, Dow followed suit by investing $4 billioninto a similar facility near Texas. CEO AndrewLiveris directly attributed Dow’s investment to lownatural gas prices, putting the company “on thethreshold of an American natural gasresurgence”.

Though companies operating in the lessenergy-intensive speciality chemicals sector maynot experience the direct benefits of lowerenergy costs, the implications for the USchemicals industry as a whole can be viewed aspositive.

“In addition to the downstream connections ofextracting ethane, propane and butane, thechemicals industry has a whole range ofinvolvement, from developing environmentallybenign additives to fracking water to providingchemicals for water treatment,” says Jeffrey

Peters, president of the PennsylvaniaChemical Industry Council.

Boosted by these anticipated downstreameffects of the shale boom, chemicals companiesare going forward with their investment plans.The ACC estimates that chemicals companiesacross the country have allocated over $25 billionto the construction and expansion of theirfacilities. The East Coast in particular has becomeused to seeing decreasing investments as majormanufacturers have exited the region. Now, withthe Marcellus shale play, this trend is reversing.

BASF, the world’s largest chemicals company,built a new methylamines plant in Geismar,Louisiana, and will be putting a new formic acidplant there as well. “We have started batteryactivities here, with the building of a plant inElyria, Ohio. We would not do these things if wewere not convinced we could be cost-competitive, because we would not be able tosurvive in the market,” says Beate Ehle, EVP ofBASF, based in Florham Park, New Jersey.

“Of course, we have activities in Asia, andthere is no doubt we will increase our presencein emerging markets; however, North Americaenjoys very attractive energy prices right nowdue to the shale gas effect, as well as excellentraw material prices in certain value chains,” sheadds.

Other global chemicals companies areinvesting significant resources in the US. DSM’smanufacturing base in the US has expandedduring the last two years to increase the capacityof its performance materials, material science andlife science businesses.

“Chemicals manufacturing in the US hasbecome more competitive because of low energyprices and the cost of labour, the regulatoryenvironment and IP protection, which make theUS an attractive destination for investors,” saysWessels of DSM.

Manufacturing locally also fits within thestrategy of global chemicals companies with a USpresence, such as Kureha America, the NewYork City-based subsidiary of a Japanese rawmaterials supplier, which has threemanufacturing sites in the US.

“In 2009, we decided to build a plant in WestVirginia that will make a brand new polymer calledpolyglycolic acid under the brand name Kuredux,using very unique technology. Part of our strategyis to diversify, not only in sales and marketing butalso in our manufacturing sites,” explains ElizabethGershon, EVP of Kureha America.

Bluestar Silicones, a silicone manufacturerwith a US base in East Brunswick, New Jersey,recently consolidated all of it North Americanmanufacturing and R&D operations in a 21,000

Kureha America’s WestPGA plant (left) and(above) Elizabeth Gershon,EVP of Kureha America

Manufacturing

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44 � Speciality Chemicals Magazine January 2012 www.specchemonline.com

m2 facility in York, South Carolina.“Today’s environment creates theopportunity for manufacturers toregionalise production,” says J.Christopher York, North Americanpresident of Bluestar Silicones.

Domestic advantagesThe resurgence in domesticmanufacturing capacity hasimplications beyond low-costfeedstocks. Chemicals companies cannow offer their domestic US clients asurety of supply that they wouldotherwise have to source from abroad,which leaves customers open to increased tariffsand other cost pressures outside their control.

“Croda has learned that customers wantsupply chain surety and part of that surety comesfrom being able to source near where you aregoing to use the product. We have a largemanufacturing footprint in North Americabecause this is what our customers want fromus,” says Gallagher.

York echoes this. “For silicones, the cost is incapital equipment and raw materials such asmethanol, silicon, copper and platinum. Ourstrategy is to be close to our customer base inorder to be responsive to the evolving needs ofour markets.”

In addition, manufacturers are able to relievesome of the uncertainty surrounding IP security inemerging chemicals manufacturing destinations.Donahue of Hampford Research explains: “In theUS, customers are guaranteed IP protection andAmerican manufacturers can ensure that theircustomers will not be out of production, whichlimits any negative impacts on the supply chain.”

Wessels likewise agrees that, while DSM doeshave a significant Chinese manufacturingpresence, “our more IP-sensitive manufacturing iscarried out in the US, as a lot of the company’ssales are driven by our rich IP portfolio.”

According to Dave Mazzarell, president of LabExpress International, a manufacturer of

niche materials for the pharmaceuticals andspeciality chemicals industries, many customershave had “nightmare experiences” with Chineseand Indian manufacturers.

“Pricing has gone up in these countries, butquality has not. It is approaching the point whereit just no longer pays to source from them.Regulations are tightening in overseasmanufacturing; the FDA has a bigger presence,and will shut down those who are not complyingwith US regulatory measures.”

For all this, the advantages of overseasmanufacturing are declining for another reason

entirely: labour costs. Wages in thePearl River delta alone have increased10% this year and, coupled with risingland prices and tighteningenvironmental and safety regulations,China’s cost advantages are not whatthey used to be.

“China used to offer savings of fiveto ten times over suppliers from othercountries competing on the samematerial. Labour costs in China areincreasing quickly, partly because of thehigh demand for chemists generally,and also for more highly trainedchemists with an American or

European background,” says Charlie Lewis,president of AcceleDev Chemicals, a customsynthesis organisation with R&D andmanufacturing sites in both the US and China

The Chinese education system, Lewis adds, hasbeen opened up to allow a lot more students ineach classroom, while the number of expertteachers has not increased at the same rate. So thelevel of training is not quite as good as it once was.

“Over time, it made sense for AcceleDev toalso integrate R&D back into the US as thereduction of real estate prices and the cost ofhiring chemists became much more cost-

DSM’s Greenville North building

(left) John Gaither, chairman, president and CEO, Reichhold; (centre)Alexander Wessels, chairman, DSM North America, and (right) CharlieLewis, president, AcceleDev Chemical


US Special Report

44 � Speciality Chemicals Magazine January 2012 www.specchemonline.com

m2 facility in York, South Carolina.“Today’s environment creates theopportunity for manufacturers toregionalise production,” says J.Christopher York, North Americanpresident of Bluestar Silicones.

Domestic advantagesThe resurgence in domesticmanufacturing capacity hasimplications beyond low-costfeedstocks. Chemicals companies cannow offer their domestic US clients asurety of supply that they wouldotherwise have to source from abroad,which leaves customers open to increased tariffsand other cost pressures outside their control.

“Croda has learned that customers wantsupply chain surety and part of that surety comesfrom being able to source near where you aregoing to use the product. We have a largemanufacturing footprint in North Americabecause this is what our customers want fromus,” says Gallagher.

York echoes this. “For silicones, the cost is incapital equipment and raw materials such asmethanol, silicon, copper and platinum. Ourstrategy is to be close to our customer base inorder to be responsive to the evolving needs ofour markets.”

In addition, manufacturers are able to relievesome of the uncertainty surrounding IP security inemerging chemicals manufacturing destinations.Donahue of Hampford Research explains: “In theUS, customers are guaranteed IP protection andAmerican manufacturers can ensure that theircustomers will not be out of production, whichlimits any negative impacts on the supply chain.”

Wessels likewise agrees that, while DSM doeshave a significant Chinese manufacturingpresence, “our more IP-sensitive manufacturing iscarried out in the US, as a lot of the company’ssales are driven by our rich IP portfolio.”

According to Dave Mazzarell, president of LabExpress International, a manufacturer of

niche materials for the pharmaceuticals andspeciality chemicals industries, many customershave had “nightmare experiences” with Chineseand Indian manufacturers.

“Pricing has gone up in these countries, butquality has not. It is approaching the point whereit just no longer pays to source from them.Regulations are tightening in overseasmanufacturing; the FDA has a bigger presence,and will shut down those who are not complyingwith US regulatory measures.”

For all this, the advantages of overseasmanufacturing are declining for another reason

entirely: labour costs. Wages in thePearl River delta alone have increased10% this year and, coupled with risingland prices and tighteningenvironmental and safety regulations,China’s cost advantages are not whatthey used to be.

“China used to offer savings of fiveto ten times over suppliers from othercountries competing on the samematerial. Labour costs in China areincreasing quickly, partly because of thehigh demand for chemists generally,and also for more highly trainedchemists with an American or

European background,” says Charlie Lewis,president of AcceleDev Chemicals, a customsynthesis organisation with R&D andmanufacturing sites in both the US and China

The Chinese education system, Lewis adds, hasbeen opened up to allow a lot more students ineach classroom, while the number of expertteachers has not increased at the same rate. So thelevel of training is not quite as good as it once was.

“Over time, it made sense for AcceleDev toalso integrate R&D back into the US as thereduction of real estate prices and the cost ofhiring chemists became much more cost-

DSM’s Greenville North building

(left) John Gaither, chairman, president and CEO, Reichhold; (centre)Alexander Wessels, chairman, DSM North America, and (right) CharlieLewis, president, AcceleDev Chemical


US Special Report

www.specchemonline.com January 2012 Speciality Chemicals Magazine � 45

effective, and began closing the gap with China.This US site now fits well within our overall lowcast business model, while adding additionalcapability and team expertise for our customers.”

Global competition, global solutionsWhile chemicals manufacturers are optimisticabout their North American productionfootprints, the lure of emerging markets remainsstrong. Faced with flat demand from a maturehome market, globalisation has been the key togrowth for the domestic chemicals industry asthe demand dynamic has shifted from mature toemerging markets. Though having a globalpresence has traditionally been the mandate ofchemicals manufacturers, US companies arelooking for creative ways in which to penetratecompetitive emerging markets, whether throughgreenfield investments or acquisitions.

Reichhold, a North Carolina-based supplierof resins for coatings and composites, recognisedthe importance of global integration and madesignificant investments in building greenfieldplants in India and China, which came online in2009 and 2011 respectively. Forrmely owned byJapanese company Dainippon Ink & Chemicals,Reichhold saw a need to develop its ownpresence in Asia after it became independent.

“At that time, the US and Europeaneconomies had started to flat line, so it was veryimportant to grow through our Indian andChinese business,” says John Gaither, chairman,president and CEO. “Our overall growth in recent

years has been through our global customerswho have needed the same Reichhold productsin other parts of the world.”

Boston-based Cabot, a global specialitychemicals manufacturer with expertise in carbonblack, has concentrated most of its efforts andinvestments on emerging markets in the last fewyears. “We have continued to grow in China,South-East Asia, South America and the MiddleEast, perhaps at the expense of Europe where wesignificantly restructured through the financialcrisis,” says Patrick Prevost, president and CEO.“China is now worth 17% of Cabot’s revenuesand assets; we are currently building our fourthplant there and have just expanded one of oursilica facilities.”

For AkzoNobel, the largest global paints andcoatings company, development in Asia has beena mixture of organic growth and acquisition.“Historically, AkzoNobel has had very goodorganic growth in mature markets, but tooutgrow them we needed to improve ourpositions in emerging countries,” says BobMargevich, global business unit leader for theAkzoNobel Surface Chemistry business.

“A major part of our Asian strategy was theinvestment of more than €300 million in agrassroots chemicals facility in Ningbo, China,and we gained a leading position in specialitysurfactants across Asia from our acquisition ofBoxing. Elsewhere, we are building a newindustrial coatings plant in Bangalore and haveexpanded capacity in Brazil.”

Last year, Swiss chemicals manufacturerLonza acquired Connecticut-based ArchChemicals, a major producer of biocides, in a$1.4 billion deal designed not only to diversify itsproduct portfolio but also to strengthen thecompany’s presence in Asia and South America,according to Jeanne Thoma, COO of theMicrobial Control business.

“Our diverse portfolio allows us to leverageour strength in traditional markets to access newor developing markets. Some of our largestrevenue drivers in the microbial control sector arein the recreational water, personal care and woodprotection markets,” Thoma says.

Similarly, Philadelphia-based FMC is lookingoutside of US borders to drive its strategicgrowth plan. “We have made tremendousamounts of investments in rapidly expandingeconomies,” says Andrew Sandifer, VP ofstrategy and development and investor relations.“Many of our businesses, in agriculture, food andpharmaceuticals are strongly driven by the rise inmiddle class wealth in rapidly developingeconomies and the insatiable need for morecalories and protein.”

International expansion is not just the strategyof the multinational companies. Polysciences,Inc., a manufacturer of custom fine andspeciality chemicals materials headquartered inWarrington, Pennsylvania, has had a globalpresence for over two decades.

“We have had a warehouse and salesorganisation in Germany for over 25 years. Now


US Special Report


we are trying to duplicate this in Taiwan with theAsia-Pacific office that we opened last year,” saysMichael Ott, president, CEO and owner. “Wehave several projects under way in Asia and weare certain it is going to be a growth area for us.The place where we are looking to expand next isBrazil, where there is a large medical devicemarket.”

Other companies have taken an entirelydifferent step in their global expansionstrategies, such as Stamford, Connecticut-basedTronox, a global producer of titanium ore andtitanium dioxide used in the paper industry. InJune 2005, the company purchased the mineralsands business of Exxaro, making it the thirdlargest titanium feedstock producer in theworld.

“Tronox has shifted a lot of the demand forfeedstock at our pigment plants towards ourown mineral sands business; we are thereforemuch more self-sufficient in feedstock thanbefore. Now that we own 100% of ourfeedstock and pigment suppliers, we can absorbthe variations in profit margins across the supplychain,” says Tom Casey, chairman and CEO.

While chemicals companies are experiencinggrowth in emerging markets, particularly Chinaand parts of South America, the US continues tobe a very important market. To solidify its

presence, in 1992, Kureha established a jointventure with Ticona, the engineering polymerdivision of Celanese in polyphenylene sulphideresins for use in the aerospace and automotiveindustries.

“We are the first overseas manufacturer ofshort carbon fibres in China, but it is importantto maintain our American manufacturing base inthis sector; US customers will always requireshort delivery times and support from localsuppliers,” says Jeff Zhang, EVP at KurehaAmerica.

The growth potentialAny report on the US East Coast chemicalsindustry would not be complete without anexamination of pharmaceuticals companies, themajority of which are centered in the North-East,attracted by hordes of graduates from top-tieruniversities and a high concentration of scientificprofessionals. New Jersey alone is home to 15 ofthe world’s top 25 pharmaceuticals companies.

Although the sector has experienced similarchallenges to their chemicals counterparts, suchas outsourced manufacturing, for smallerpharmaceuticals companies who rely heavily on

innovation, the depth of talent available ensuresthat the East Coast will remain the centre of thepharmaceuticals industry.

Aceto is a Long Island-based virtualmanufacturer which shifted its business modelfrom industrial chemicals to focus onpharmaceuticals manufacturing. “We found thatmany of our industrial chemicals also hadpharmaceuticals applications, which offered moreattractive margins and less cyclical dependence,”says Albert Eilender, chairman and CEO.

In 2010, the company penetrated the marketby acquiring Rising Pharmaceuticals in order tofocus on finished dosage forms. “With theintroduction of generic drugs into the market anumber of years ago, the need forpharmaceuticals involvement became muchgreater. Our pharmaceuticals business has grownat greater rates than our other businesses and wehave become involved in intermediates andAPIs,” Eilender says.

Having an East Coast footprint is alsoattractive to European companies looking toexpand their presence in the US. Swiss-basedHelsinn Therapeutics has been focusedprimarily on supportive care and has a nichefocus on supportive cancer care. In 2009, the

Helsinn Therapeutics’ US site in Bridgewater, New Jersey

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Chemical Heritage Foundation in Philadelphia


US Special Report


we are trying to duplicate this in Taiwan with theAsia-Pacific office that we opened last year,” saysMichael Ott, president, CEO and owner. “Wehave several projects under way in Asia and weare certain it is going to be a growth area for us.The place where we are looking to expand next isBrazil, where there is a large medical devicemarket.”

Other companies have taken an entirelydifferent step in their global expansionstrategies, such as Stamford, Connecticut-basedTronox, a global producer of titanium ore andtitanium dioxide used in the paper industry. InJune 2005, the company purchased the mineralsands business of Exxaro, making it the thirdlargest titanium feedstock producer in theworld.

“Tronox has shifted a lot of the demand forfeedstock at our pigment plants towards ourown mineral sands business; we are thereforemuch more self-sufficient in feedstock thanbefore. Now that we own 100% of ourfeedstock and pigment suppliers, we can absorbthe variations in profit margins across the supplychain,” says Tom Casey, chairman and CEO.

While chemicals companies are experiencinggrowth in emerging markets, particularly Chinaand parts of South America, the US continues tobe a very important market. To solidify its

presence, in 1992, Kureha established a jointventure with Ticona, the engineering polymerdivision of Celanese in polyphenylene sulphideresins for use in the aerospace and automotiveindustries.

“We are the first overseas manufacturer ofshort carbon fibres in China, but it is importantto maintain our American manufacturing base inthis sector; US customers will always requireshort delivery times and support from localsuppliers,” says Jeff Zhang, EVP at KurehaAmerica.

The growth potentialAny report on the US East Coast chemicalsindustry would not be complete without anexamination of pharmaceuticals companies, themajority of which are centered in the North-East,attracted by hordes of graduates from top-tieruniversities and a high concentration of scientificprofessionals. New Jersey alone is home to 15 ofthe world’s top 25 pharmaceuticals companies.

Although the sector has experienced similarchallenges to their chemicals counterparts, suchas outsourced manufacturing, for smallerpharmaceuticals companies who rely heavily on

innovation, the depth of talent available ensuresthat the East Coast will remain the centre of thepharmaceuticals industry.

Aceto is a Long Island-based virtualmanufacturer which shifted its business modelfrom industrial chemicals to focus onpharmaceuticals manufacturing. “We found thatmany of our industrial chemicals also hadpharmaceuticals applications, which offered moreattractive margins and less cyclical dependence,”says Albert Eilender, chairman and CEO.

In 2010, the company penetrated the marketby acquiring Rising Pharmaceuticals in order tofocus on finished dosage forms. “With theintroduction of generic drugs into the market anumber of years ago, the need forpharmaceuticals involvement became muchgreater. Our pharmaceuticals business has grownat greater rates than our other businesses and wehave become involved in intermediates andAPIs,” Eilender says.

Having an East Coast footprint is alsoattractive to European companies looking toexpand their presence in the US. Swiss-basedHelsinn Therapeutics has been focusedprimarily on supportive care and has a nichefocus on supportive cancer care. In 2009, the

Helsinn Therapeutics’ US site in Bridgewater, New Jersey

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Chemical Heritage Foundation in Philadelphia


US Special Report


company acquired Sapphire Therapeutics, a NewJersey-based biopharmaceuticals company, inorder to acquire a cancer supportive care agentand a GI supportive care molecule that was indevelopment. The acquisition also allowedHelsinn to have a direct commercialisationpresence in the US.

Aloxi, the main revenue generator for HelsinnTherapeutics, is the market leader in the US andJapan for the treatment of chemotherapy-induced nausea and vomiting. The company isalso developing Anamorelin, which is used forthe treatment of cancer-associated cachexia. Thedrug is currently in Phase III and will be launchedin the US under the Helsinn brand.

According to William Mann, president andCEO of Helsinn Therapeutics, “there is a hugeopportunity to bring innovation to increasepatients’ quality of life while they undergochemotherapy; the market is ready for newagents that will help patients deal with theirdisease.”

For Novacap, a French diversified chemicalscompany, market entry into the US came withthe November 2011 acquisition of Rhodia’ssalicylic and acetaminophen businesses, whichwas renamed Novacyl. “Before this, the companywas focused predominantly on Western Europewith assets mainly in France; the acquisitionincreased our international presence and assetbase, particularly in North America,” says GillesGrenier, Novacyl’s general manager.

Many of the same issues facing specialitychemicals companies are prevalent in thepharmaceuticals industry but they must also copewith unique challenges. With some of theirblockbuster products coming off patent soon,major pharmaceuticals companies are facing aprospect of tens of billions of dollars of lostrevenue over the next several years. This segmentof the industry is facing the so-called ‘patent cliff’in different ways says William Wofford, partner atHutchison Law Group a North Carolina-based firm that specialises in the life sciencesindustry.

“What we have seen in response to thissituation is considerable competition amongthese players when it comes to the right kinds oftechnologies, opportunities, and developmentalproducts,” Wofford says.

“Some of these organisations have a lowerappetite for risk now, and are hesitant to take onproducts that are going to require a considerableamount of additional investment to move along.Factors in the larger financial market have madeless venture capital and private equity available,so there are many companies looking forpartnerships and acquisition opportunities.”

The competitive edgeThe US chemicals industry invests $56 billion/yearin R&D and 20% of all US patents are chemistry-

related. The US has long been a clearmarket leader when it comes to innovation and,with a strong emphasis on new products goingforward, that is not likely to change.

“There are predictions every year that the rateof innovation in the US will start to decline.Although China now holds more patents thanwe do, US innovation has not declined. This is

because we are good at it. The US has aninventive and entrepreneurial spirit,” saysThomas Tritton, president of theChemical Heritage Foundation, aPhiladelphia-based library, museum andresearch organisation that promoteschemistry’s impact on society.

Newark, New Jersey-based formulatorof adhesives and coatings InnovativeResin Systems attributes its

achievements to a strong focus on innovation.“Currently, our 2012 sales are showing anincrease of 33% year-on-year on our 2011 recordyear,” says company president Pina Patel. “Thekey to the driver of this increased business is ourR&D; in 2011 we invested $250,000 alone onnew manufacturing equipment.”

Faced with the inevitable commoditisation oftheir products and flatter US and Europeanmarkets, many speciality companies are placingincreased focus on bringing cutting-edgeproducts to market. Yet R&D funds are drying upand companies are finding they need to be aslean and efficient as possible to maximise theirinnovation budgets.

The need for fuller pipelines at lower costs hascreated a significant appetite for partnerships.“So much of what happens in new developmenttoday does involve partnerships. Nobody has allthe pieces of the puzzle by themselves and wecan do it a lot faster and more cost-efficiently byforming alliances,” says Gaither of Reichhold.

In a 2012 survey of chemicals industryexecutives conducted by KPMG, the number ofUS companies expecting to invest over 5% oftheir revenue in R&D dropped from 23% to17%. While this remaining percentage is by no

Chemtura’s headquarters in Philadelphia(www.skyscrapersunset.com) and (inset) Craig A.Rogerson, chairman, president and CEO

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means negligible, it is nonetheless reflective ofcompanies looking to right-size theirprogrammes.

Coming out of a 2010 restructuring, globalspeciality manufacturer Chemtura re-examinedits approach to R&D in order to maximiseresources and speed up time to market. “Wenow have a much more disciplined stage-gateapproach, so the hit rate on projects is muchhigher and the time frame is much shorter tocommercialisation. Innovation is a large part ofwhy we have seen improved earnings, eventhough volume has been soft,” says CraigRogerson, chairman, president and CEO.

According to John Cech, president of CVCThermoset Specialties, a manufacturer ofspeciality epoxy resins, companies must increasetheir R&D spending in order to compete withlower cost products. “We make heavyinvestments in supporting the technologicalknow-how of our products; over 18% of ourpayroll is R&D,” he says.

For CVC, which was acquired by EmeraldPerformance Materials in 2008 and now operatesas a subsidiary, the integration of Emerald’sreactive liquid polymers business has led to foursignificant new materials in the product line thatcontribute to more than 5% of sales.

Furthermore, companies are realising that theirapproach to R&D needs to be as global aspossible. “Reichhold has three major R&D labs,one in North Carolina, Brazil and Norway. In thepast, there was very little coordination betweenthese laboratories. They handled their ownprojects for customers and we were finding thatthey were often working on very similar things.We now have regular global technologymeetings and we share information across allthese groups. We prioritise the projects on whichwe are working on a global basis,” says Gaither.

Arkema, a global chemicals manufacturer, isfocusing on innovation and high value-addedspecialities to achieve growth goals of €8 billionand an EBITDA margin of 16% by 2016. Twothirds of the €150 million/year that the company

spends on R&D is devoted to sustainability andmegatrends, which present a golden opportunityfor a company with experience in bio-basedmaterials.

“One billion people in the world have noaccess to drinking water today, and we haveproducts which help to supply it. We are alsopresent in the field of environmentalsustainability,” says Bernard Roche, CEO ofArkema in the US.

Lord Corporation, a North Carolina-basedglobal manufacturer of speciality adhesives,coatings and electronic materials, invests 8-10%of turnover on R&D in any given year. A largeportion is devoted to the area of green chemistry.“Bringing green chemicals to the industry is anobjective of Lord. We have been working onproducts for several years, but the interest isdeveloping slowly,” says chairman, president andCEO Richard McNeel.

McNeel anticipates that Lord will be ready withgreen solutions when the market has evolved tomake the switch. “After years of improvements,our aqueous adhesive is now close to theperformance of our solvent adhesive,” he says.

“One of the challenges to convincingcustomers to switch to more sustainablesolutions lies in the initial capital investmentrequired to make this switch. As long as they donot have to switch, they do not want to, unlessthey are very dedicated to sustainability.”

According to Tony Stonis, president ofCardolite, a coatings manufacturer which usescashew nut shell liquid (CNSL) technology, theR&D business is a gamble. “It is easier to wait foropportunities to reverse engineer and then sellon price, although maybe not as profitable in thelonger term,” he says.

“This is especially the case in the coatings andfriction industry, where we are selling anengineered product rather than a specificmolecule. Unless customers are ready to take arisk, or they want to second-source, they willstick with the maker of a new product for years,as liabilities are very high in both of our endmarkets.”

However, Stonis adds that Cardolite wouldrather invest in R&D than acquisitions. CNSL isuseful for resistance and adhesion. The liquid isCardolite’s raw material, which is distilled in orderto condense cardanol, the raw material forcoatings products; anything left over is used infriction products.

Friction material end users are used to makebrake linings; for the coatings area, it is thepeople who make paints. The aliphatic portion ofCNSL, which provides flexibility and mobility,“has good water resistance, which is needed formarine coatings. In over 80 years of CNSLtechnology, there have only been two hugebreakthrough areas, so finding applications isclearly not easy,” says Stonis.

Contract and toll manufacturing has been aneffective strategy for companies with excesscapacity to weather the recent economic storm.For Chemtura, contract and toll manufacturing isnot core to any business units, but it was a timelysolution to the impact of market dynamics.

“Chemtura was put together by mergers andacquisitions, so with that we have a broadfootprint and many assets. Many of our plants

Cardolite’s plant in Newark, New Jersey

Outsourcing


US Special Report


means negligible, it is nonetheless reflective ofcompanies looking to right-size theirprogrammes.

Coming out of a 2010 restructuring, globalspeciality manufacturer Chemtura re-examinedits approach to R&D in order to maximiseresources and speed up time to market. “Wenow have a much more disciplined stage-gateapproach, so the hit rate on projects is muchhigher and the time frame is much shorter tocommercialisation. Innovation is a large part ofwhy we have seen improved earnings, eventhough volume has been soft,” says CraigRogerson, chairman, president and CEO.

According to John Cech, president of CVCThermoset Specialties, a manufacturer ofspeciality epoxy resins, companies must increasetheir R&D spending in order to compete withlower cost products. “We make heavyinvestments in supporting the technologicalknow-how of our products; over 18% of ourpayroll is R&D,” he says.

For CVC, which was acquired by EmeraldPerformance Materials in 2008 and now operatesas a subsidiary, the integration of Emerald’sreactive liquid polymers business has led to foursignificant new materials in the product line thatcontribute to more than 5% of sales.

Furthermore, companies are realising that theirapproach to R&D needs to be as global aspossible. “Reichhold has three major R&D labs,one in North Carolina, Brazil and Norway. In thepast, there was very little coordination betweenthese laboratories. They handled their ownprojects for customers and we were finding thatthey were often working on very similar things.We now have regular global technologymeetings and we share information across allthese groups. We prioritise the projects on whichwe are working on a global basis,” says Gaither.

Arkema, a global chemicals manufacturer, isfocusing on innovation and high value-addedspecialities to achieve growth goals of €8 billionand an EBITDA margin of 16% by 2016. Twothirds of the €150 million/year that the company

spends on R&D is devoted to sustainability andmegatrends, which present a golden opportunityfor a company with experience in bio-basedmaterials.

“One billion people in the world have noaccess to drinking water today, and we haveproducts which help to supply it. We are alsopresent in the field of environmentalsustainability,” says Bernard Roche, CEO ofArkema in the US.

Lord Corporation, a North Carolina-basedglobal manufacturer of speciality adhesives,coatings and electronic materials, invests 8-10%of turnover on R&D in any given year. A largeportion is devoted to the area of green chemistry.“Bringing green chemicals to the industry is anobjective of Lord. We have been working onproducts for several years, but the interest isdeveloping slowly,” says chairman, president andCEO Richard McNeel.

McNeel anticipates that Lord will be ready withgreen solutions when the market has evolved tomake the switch. “After years of improvements,our aqueous adhesive is now close to theperformance of our solvent adhesive,” he says.

“One of the challenges to convincingcustomers to switch to more sustainablesolutions lies in the initial capital investmentrequired to make this switch. As long as they donot have to switch, they do not want to, unlessthey are very dedicated to sustainability.”

According to Tony Stonis, president ofCardolite, a coatings manufacturer which usescashew nut shell liquid (CNSL) technology, theR&D business is a gamble. “It is easier to wait foropportunities to reverse engineer and then sellon price, although maybe not as profitable in thelonger term,” he says.

“This is especially the case in the coatings andfriction industry, where we are selling anengineered product rather than a specificmolecule. Unless customers are ready to take arisk, or they want to second-source, they willstick with the maker of a new product for years,as liabilities are very high in both of our endmarkets.”

However, Stonis adds that Cardolite wouldrather invest in R&D than acquisitions. CNSL isuseful for resistance and adhesion. The liquid isCardolite’s raw material, which is distilled in orderto condense cardanol, the raw material forcoatings products; anything left over is used infriction products.

Friction material end users are used to makebrake linings; for the coatings area, it is thepeople who make paints. The aliphatic portion ofCNSL, which provides flexibility and mobility,“has good water resistance, which is needed formarine coatings. In over 80 years of CNSLtechnology, there have only been two hugebreakthrough areas, so finding applications isclearly not easy,” says Stonis.

Contract and toll manufacturing has been aneffective strategy for companies with excesscapacity to weather the recent economic storm.For Chemtura, contract and toll manufacturing isnot core to any business units, but it was a timelysolution to the impact of market dynamics.

“Chemtura was put together by mergers andacquisitions, so with that we have a broadfootprint and many assets. Many of our plants

Cardolite’s plant in Newark, New Jersey

Outsourcing


are very specific intheir capability so it isdifficult to consolidatethem,” explainsRogerson.

“In the down partof the cycle that weare in now, we haveexcess capacity. Whilewe have a productdevelopment pipelinethat should put newproducts into theplants, there is a gap

in time, and our plan is to use those assets morefully by offering to contract and toll manufacture.The timing for this addition of services is goodbecause there is a lot of consolidation in theindustry and there is an increased need.”

While contract and toll manufacturing is astopgap measure for some, it is the bread andbutter of a booming services sector. Not only aremore contract services companies cropping up,but companies offering third party projectmanagement have also found a niche in themarket. The business model of RichmanChemical of Lower Gwynedd, Pennsylvania, forexample, revolves around developing partnershipsbetween clients and contract manufacturers.

“Historically, many companies approachedcustom manufacturing as a surplus business orfill-in. In the last 25 years, more companies havestarted to actually specialise in it,” says EdwardRichman, president of Richman Chemical.“Innovations in chemistry and life sciences areaccelerating and we are seeing increaseddemand for high-tech, high-value projects forthese markets.”

Innovations in the life sciences are particularlyaccelerating as Big Pharma confronts ongoingpatent expirations and biotechnology advancesspawn various and sundry start-ups. In thecustom research and manufacturing field,companies are ready and waiting to aid in newmolecule development.

“The patent cliff means that largepharmaceuticals companies will have to reducecosts in order to recoup lost revenues. It allowscompanies to turn a fixed cost with underusedcapacity into a variable cost, and use the demandwhen they have a requirement for a specificcapability,” says Tim Tyson, president and CEO ofAptuit, a pharmaceuticals services company.

“We have worked with everyone from virtualcompanies with no lab or chemistry capabilityright up to the biggest pharma companies in theworld,” says Robert Maddox, president of theNorth Carolina-based chemistry services companyPharmaCore. “However, it seems the biotechsand mid-sized companies have tremendouspipelines right now.

While activity spurred by the patent cliff islikely to have a significant impact on the serviceindustry, not all contract services companies havehigh hopes for business from Big Pharma. “Youwould expect the opposite, but many largercompanies do not seem to have a lot ofcompounds moving forward,” says Maddox.

US Special Report


Robert K. Maddox,president, Pharmacore



US Special Report

“Almost everyone we talk to has had theirbudget cut. The legal framework plays into it,but things also tend to grind to a halt whenthere are reorganisations, which we are seeing alot of right now. There can be a slowdown for acouple of years before everyone gets back intothe mode of discovering drugs.”

Yet in spite of budget constraints, moleculedevelopment opportunities coming from BigPharma cannot be discounted. Many companieslook offshore to outsource their contract researchand manufacturing needs, which has putpressure on Western-based CROs and CMOs todeliver more services at lower prices.

The Chemistry Research Solution(TCRS), a Bristol, Pennsylvania-based CRO thatentered the market in 2009, has based itsstrategy on recognition of these outsourcingtrends. “The type of work that companies haveoutsourced to China and India is, for the mostpart, routine chemistry,” says Michael Kirkup,president and CEO.

“A small biotech company is much moreinterested in complex, highly technical chemistrysince it cannot afford to lose its limited IP to anoutsourced company. These companies are alsonot as well-equipped financially to keep tabs onan overseas company.”

For pharmaceutical CMOs looking to workwith big clients, the market is very competitive,according to Michael Staff, president of the USbranch of fine chemicals firm Minakem, whichhas been approached by large pharmaceuticalscompanies at Phase III with projects that havefailed in low-cost countries. “It is important that

we source some of our starting materials out ofChina and India, where we employ full time staffand carry out audits in order to ensure qualitycontrol (QC),” he says.

There is a perception that largepharmaceuticals companies are no longersearching for the blockbuster billion dollarproducts but introducing more niche therapies,according to Thomas D’Ambra, president andCEO of AMRI Global, a contract research andmanufacturing company for the pharmaceuticalsindustry. “In general, there is a redefinition of theindustry’s discovery and development strategy inwhich outsourcing will play a big part,” he says.

The supply chainThe globalisation of chemicals production has notonly impacted manufacturers but also,unsurprisingly, distributors. The large volumes ofproduction shifting to Asia and the worldwideconsolidation of suppliers mean thatmanufacturers’ representatives and regionaldistributors have fewer small companies torepresent and face increased competition fromnational and multinational players.

“The manufacturing base in the US has erodedand the distributors serving these industries nolonger have demand for their products,” saysMike Travers, director of new product researchand development at Morre-Tec Industries, aNew Jersey-based distributor of bromine

compounds and specialitychemicals.

For Thornley Company , adistributor in Newark, Delaware,industry consolidation haseroded their traditional supplierbase. “As a small, independentmanufacturer’s representative,we feasted on small,entrepreneurial business. Newcompanies neededrepresentation and wepresented a great opportunityfor low cost entry into themarketplace. Over the years,however, we saw a tremendousevolution in the marketplacethat caused us to reevaluate ourbusiness model,” says companypresident H. Douglas Thornley.

The company’s response wasto move into marketingproducts under their brand.“We source materials fromsupply partners and use theexpertise that we have gainedover the years to add value tothe supply chain,” explainsThornley. “While our salesdollars have gone down, ourprofitability has improved andwe have greater control andownership of our market.”

Distribution & supply

Aptuit focuses on the pharma industry

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US Special Report

“Almost everyone we talk to has had theirbudget cut. The legal framework plays into it,but things also tend to grind to a halt whenthere are reorganisations, which we are seeing alot of right now. There can be a slowdown for acouple of years before everyone gets back intothe mode of discovering drugs.”

Yet in spite of budget constraints, moleculedevelopment opportunities coming from BigPharma cannot be discounted. Many companieslook offshore to outsource their contract researchand manufacturing needs, which has putpressure on Western-based CROs and CMOs todeliver more services at lower prices.

The Chemistry Research Solution(TCRS), a Bristol, Pennsylvania-based CRO thatentered the market in 2009, has based itsstrategy on recognition of these outsourcingtrends. “The type of work that companies haveoutsourced to China and India is, for the mostpart, routine chemistry,” says Michael Kirkup,president and CEO.

“A small biotech company is much moreinterested in complex, highly technical chemistrysince it cannot afford to lose its limited IP to anoutsourced company. These companies are alsonot as well-equipped financially to keep tabs onan overseas company.”

For pharmaceutical CMOs looking to workwith big clients, the market is very competitive,according to Michael Staff, president of the USbranch of fine chemicals firm Minakem, whichhas been approached by large pharmaceuticalscompanies at Phase III with projects that havefailed in low-cost countries. “It is important that

we source some of our starting materials out ofChina and India, where we employ full time staffand carry out audits in order to ensure qualitycontrol (QC),” he says.

There is a perception that largepharmaceuticals companies are no longersearching for the blockbuster billion dollarproducts but introducing more niche therapies,according to Thomas D’Ambra, president andCEO of AMRI Global, a contract research andmanufacturing company for the pharmaceuticalsindustry. “In general, there is a redefinition of theindustry’s discovery and development strategy inwhich outsourcing will play a big part,” he says.

The supply chainThe globalisation of chemicals production has notonly impacted manufacturers but also,unsurprisingly, distributors. The large volumes ofproduction shifting to Asia and the worldwideconsolidation of suppliers mean thatmanufacturers’ representatives and regionaldistributors have fewer small companies torepresent and face increased competition fromnational and multinational players.

“The manufacturing base in the US has erodedand the distributors serving these industries nolonger have demand for their products,” saysMike Travers, director of new product researchand development at Morre-Tec Industries, aNew Jersey-based distributor of bromine

compounds and specialitychemicals.

For Thornley Company , adistributor in Newark, Delaware,industry consolidation haseroded their traditional supplierbase. “As a small, independentmanufacturer’s representative,we feasted on small,entrepreneurial business. Newcompanies neededrepresentation and wepresented a great opportunityfor low cost entry into themarketplace. Over the years,however, we saw a tremendousevolution in the marketplacethat caused us to reevaluate ourbusiness model,” says companypresident H. Douglas Thornley.

The company’s response wasto move into marketingproducts under their brand.“We source materials fromsupply partners and use theexpertise that we have gainedover the years to add value tothe supply chain,” explainsThornley. “While our salesdollars have gone down, ourprofitability has improved andwe have greater control andownership of our market.”

Distribution & supply

Aptuit focuses on the pharma industry

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US Special Report


Discuss your project today!

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Everywhere Performance Matters


US Special Report


While a shift into this business model incursgreater risk, many companies are finding it is wellworth it to have greater control over theircustomers and the speciality products that theyhave helped a supplier to develop. Just as somedistributors are readjusting their business modelsto play a more strategic role in the supply chain,others are seeing the start-up culture propelledby biotechnology and new moleculedevelopment as an attractive new frontier.

“We look at the ever-expanding group ofnewer start-ups that need distributors. There is arenaissance going on in the market right nowand smaller companies will continue to pop up,”says Vince D’Andrea, president of E.M.Sullivan Associates, a speciality distributorserving the Mid-Atlantic and Southeast.

The globalisation of the chemicals industry hascreated unique challenges for the distributionindustry. At the same time, access to low-costraw materials from emerging markets has alsobeen advantageous to the industry.

“Years ago, it was a challenge to marketproducts sourced abroad, but many of thechemicals we sell are not even made in the USany more,” says Ben Gutmann, managingdirector of BassTech International, a NewJersey-based supplier of speciality raw materials.“If a company can buy something from Chinathat is half the price and it can be assured it isof good quality, it will want to use it.Companies cannot ignore what is going onoutside the US.”

Customer acceptance of internationalprocurement has grown as distributorsstrengthen their quality control systems with on-the-ground agents, plant audits and qualityassurance (QA) and QC testing. “In this globaleconomy, we would be doing ourselves and ourcustomers a disservice if we did not keep anopen mind with respect to technologies offeredby Asia or South America,” says Sam Morell,president of S.P. Morell, a speciality distributorand manufacturer’s representative based inArmonk, New York.

“With many customers, we supply somestrategic raw materials that have actually kept

them competitive against the global market. Itcan continue to stay in manufacturing becausewe can give them alternative sources of rawmaterials at workable prices,” added BassTech’sCOO, Alan Chalup.

Value in specialtiesGlobal distributors of industrial and specialitychemicals have been actively pursuingopportunities in the speciality chemicals sector totake advantage of the high-value nature of thesector; a characteristic that enables it to be moreresilient against global downturns.

“The speciality sector is critically important toUnivar. It represents about half of our sales, andoffers high growth opportunities in many areas,”says J. Erik Fyrwald, president and CEO ofUnivar. The US market represents nearly 60%of Univar’s global sales revenue.

Brenntag has been active in the specialitychemicals segment directly since September2007, when it formed Brenntag Specialties.According to William Fidler, president and CEO ofBrenntag North America, “Many specialitychemicals firms are not currently in thedistribution channel because producers believethat they have the skill sets and equipment topenetrate the market. Smaller customers do notnecessarily have access to some of the technicalsupport capabilities that producers offer and sowe have started to fill this gap as a distributor.”

Distributors in particular are in the fortunateposition of being able to look inward at the

Laboratory at Helsinn’s site

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US Special Report


While a shift into this business model incursgreater risk, many companies are finding it is wellworth it to have greater control over theircustomers and the speciality products that theyhave helped a supplier to develop. Just as somedistributors are readjusting their business modelsto play a more strategic role in the supply chain,others are seeing the start-up culture propelledby biotechnology and new moleculedevelopment as an attractive new frontier.

“We look at the ever-expanding group ofnewer start-ups that need distributors. There is arenaissance going on in the market right nowand smaller companies will continue to pop up,”says Vince D’Andrea, president of E.M.Sullivan Associates, a speciality distributorserving the Mid-Atlantic and Southeast.

The globalisation of the chemicals industry hascreated unique challenges for the distributionindustry. At the same time, access to low-costraw materials from emerging markets has alsobeen advantageous to the industry.

“Years ago, it was a challenge to marketproducts sourced abroad, but many of thechemicals we sell are not even made in the USany more,” says Ben Gutmann, managingdirector of BassTech International, a NewJersey-based supplier of speciality raw materials.“If a company can buy something from Chinathat is half the price and it can be assured it isof good quality, it will want to use it.Companies cannot ignore what is going onoutside the US.”

Customer acceptance of internationalprocurement has grown as distributorsstrengthen their quality control systems with on-the-ground agents, plant audits and qualityassurance (QA) and QC testing. “In this globaleconomy, we would be doing ourselves and ourcustomers a disservice if we did not keep anopen mind with respect to technologies offeredby Asia or South America,” says Sam Morell,president of S.P. Morell, a speciality distributorand manufacturer’s representative based inArmonk, New York.

“With many customers, we supply somestrategic raw materials that have actually kept

them competitive against the global market. Itcan continue to stay in manufacturing becausewe can give them alternative sources of rawmaterials at workable prices,” added BassTech’sCOO, Alan Chalup.

Value in specialtiesGlobal distributors of industrial and specialitychemicals have been actively pursuingopportunities in the speciality chemicals sector totake advantage of the high-value nature of thesector; a characteristic that enables it to be moreresilient against global downturns.

“The speciality sector is critically important toUnivar. It represents about half of our sales, andoffers high growth opportunities in many areas,”says J. Erik Fyrwald, president and CEO ofUnivar. The US market represents nearly 60%of Univar’s global sales revenue.

Brenntag has been active in the specialitychemicals segment directly since September2007, when it formed Brenntag Specialties.According to William Fidler, president and CEO ofBrenntag North America, “Many specialitychemicals firms are not currently in thedistribution channel because producers believethat they have the skill sets and equipment topenetrate the market. Smaller customers do notnecessarily have access to some of the technicalsupport capabilities that producers offer and sowe have started to fill this gap as a distributor.”

Distributors in particular are in the fortunateposition of being able to look inward at the

Laboratory at Helsinn’s site

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domestic market for their growth; currently, onlyabout one in ten chemicals manufacturers usedistributors, making the potential to increasemarket share exponential. “The distributionindustry, and particularly speciality distribution, isnot even close to being mature and it is quiteexciting for us,” says Fidler.

With larger distribution companies refocusingtheir strategies to incorporate specialties, themarket is becoming highly competitive, forcingsmaller, family-owned companies such as NewYork-based Biddle Sawyer to adapt.

“There are greater profit margins in thespeciality chemicals industry, which causes eventhe big distributors to make inroads into theindustry. Biddle Sawyer competes in a differentarea; we see ourselves as a smaller subset ofspeciality chemicals,” says the company’spresident, Neil Chavkin.

“The market is consolidating and largedistribution companies are acquiring smaller,regional operations. A distributor must have theproducts in stock by having an inventory largeenough to cover orders. The speciality chemicalsindustry is rapidly evolving and the product mix isalways changing, which creates newopportunities. There will never be a substitute,though, for a relationship-based business, bothwith customers and suppliers,” says Len Glass,president of Morre-Tec.

Facilitating successBuilt up around the mammoth US chemicalsindustry is a healthy sector of supporting playersthat perform crucial services, from optimisingsupply chains to filling the industry’s talent pool.For logistics providers, the chemicals industry isan attractive but challenging market.

Given the nature of their products, thechemicals industry faces high logistics costs,technological challenges and complexregulations. For third-party logistics providers(3PLs) with the supply chain and transportationexpertise, it is an industry where the opportunityis ripe, if complicated.

Carrier capacity was whittled down over thecourse of the financial crisis as shipment volumesdropped. As volumes improve in the recoveringclimate, there is a need for creative solutions tolingering capacity problems that have beenfurther constrained by the dramatic increase inshale play.

“The shale gas boom has caused us to thinkoutside the box,” says Stephen Hamilton,president and CEO of ChemLogix, a 3PL basedin Blue Bell, Pennsylvania. “A lot of capacity,especially for tank trucks, has been consumed byshale gas and oil. This increased demand hasexacerbated an already existing shortage ofdrivers and equipment.”

With carrier capacity tight and their clientsdownsising, 3PLs have stepped up and takenmore active roles in managing supply chains.“Companies are smartly evolving in how they

US Special Report


Support services


Can you provide us with a briefintroduction to ACC and an overview ofthe range of services that you offer toyour member companies?

ACC’s mission is to deliver business valuethrough exceptional advocacy. Our priority isto advocate for sound government policiesthat preserve and promote competition andinnovation. We are America’s oldest tradeassociation of its kind, representing more than160 companies engaged in the business ofchemistry, an innovative, $760 billionenterprise that is helping solve the biggestchallenges facing our nation and the world.

Our members are the leading companiesengaged in all aspects of the business ofchemistry, from the largest corporations to thesmallest, and everything in between. For morethan 140 years, companies have joined ACCbecause we provide access, expertise,information and opportunities.

Our offerings include everything fromadvocacy to business opportunities andnetworking, economic and industryintelligence, research and benchmarking,specific product and market sector support,professional and technical conferences andChemtrec, the industry’s foremost emergencyresponse initiative.

How has ACC’s membership evolved inrecent years?

Representing more than 85% of US chemicalsmanufacturing capacity, ACC has threecategories of membership: regular, affiliate,and associate. We also continue to grow ourbase of small- and medium-sized enterprises.

In these uncertain times, companies of allsizes want to know that membership deliversresults and value. Our continued growth isproof of our effectiveness when it comes tostrategic advocacy, product and market sectordefence, compliance assistance and businessnetworking opportunities.

It is critical that today’s policymakersunderstand the scale and scope of theeconomic and societal contributions ourindustry makes, both directly and indirectly, sothe addition of our value chain partners to ourmembership continues to strengthen ourability to provide exceptional advocacy at alllevels of government.

ACC’s mid-year 2012 Market Situation &Outlook reported slow growth and softerdemand for US exports in 2012. Whatexpectations do you have for 2013?

We are anticipating sub-par economic growthinto 2013 as the economy continues to face

strong headwinds and concerns around thefiscal cliff crystallise. We are also seeing thisyear’s economy repeat the pattern of 2010and 2011. Just as the Q1 discussion abouteconomic recovery is finally gaining traction,the recovery disappears; if this trendcontinues, it is likely that job creation andgrowth in income, sales and production willcontinue, but at a very slow rate.

Given ACC’s high prioritisation ofregulatory reform, please elaborate onyour efforts to represent the industry’sinterests regarding the ToxicSubstances Control Act (TSCA) reformon Capitol Hill. Can we expectregulatory reform in 2013?

ACC strongly supports legislation andregulatory action on TSCA that furtherenhances the safety and health of people andthe environment. However, new approachesmust be based on reliable scientific datawithout creating burdens that stifle innovationand reduce global competitiveness.

Although the partisan divide in Congressthis year prevented a sound bi-partisan bill forTSCA modernisation from advancing, we willcontinue to work with Congress to craft anew proposal that will attract bipartisansupport and create a world-class regulatorysystem that provides for the safe use ofchemicals, protects American jobs andmaintains US global leadership in innovation.A strong foundation has been laid for bi-partisan chemicals management reform in2013.

Moving forward, we will continue to buildupon these successes by working with federalagencies, Congress, our coalition partners andother stakeholders to pursue additionalregulatory reform initiatives that improveeconomic models used in regulatory impactanalyses, assess the cumulative andcompetitive impacts of regulations, createconsistent standards for considering scientificdata used in rulemakings and ensure greatertransparency in the rulemaking process.

The boom in US shale gas developmenthas spurred renewed investment in thechemicals sector. What activities hasACC undertaken to foster this growthand ensure positive downstream effectsfor the industry?

Energy demand continues to increase andregulatory policies are creating uncertaintyabout future supplies. Yet after years ofdebate, America lacks a national energystrategy. In order for our economy to grow, USindustries to innovate and compete globally,

and businesses tocreate new jobs,our nation musthave a trulycomprehensiveenergy policy.

In early 2012,ACC launched acampaign topromote andadvance specificpolicy outcomesthat support, among other things, theproduction and use of shale gas. With theheightened awareness of shale gas productioncame increased scrutiny of hydraulicfracturing. Lawmakers in 19 states introducedbills to regulate fracking.

ACC was active in promoting reasonableapproaches to addressing these issues. A billpromoting the right to know while protectingconfidential business information regardingfracking fluid disclosure was passed in Texaswith industry support. We also supported theefforts of the governors of West Virginia andOhio, as well as policymakers in Michigan,Pennsylvania and Texas, to shine a spotlight onthe role of energy in economic developmentand job growth.

With a focus on the Marcellus and Uticashales, we advanced the understanding andappreciation of how appropriate regulationand new infrastructure can return economicgrowth and competitiveness to USmanufacturing, including petrochemicalsproducers, helping to create a supportiveclimate for increased access, supply andproduction of natural gas.

How do you expect the US chemicalsindustry to perform in comparison toits Chinese and Indian counterparts inthe medium-term?

Output of chemicals in emerging markets willcontinue to outpace production in developedcountries. China, with the world’s largestchemicals sector, will continue to growstrongly, but at a slower pace than in theprevious decade. India and other emergingmarkets in the Asia-Pacific region will continueto expand. Over the next several years,chemicals output in the dynamic economies ofChina and India are expected to grow by 9-10%/year.

By comparison, US chemistry is expected togrow by 2% to 3%, slightly ahead of GDPgrowth as the renewed chemicalscompetitiveness boosts exports. From aproduct standpoint, the strongest growth willcontinue to be in specialities, consumerproducts and agricultural chemicals.

US Special Report


Interview with Cal Dooley, ACC president


Can you provide us with a briefintroduction to ACC and an overview ofthe range of services that you offer toyour member companies?

ACC’s mission is to deliver business valuethrough exceptional advocacy. Our priority isto advocate for sound government policiesthat preserve and promote competition andinnovation. We are America’s oldest tradeassociation of its kind, representing more than160 companies engaged in the business ofchemistry, an innovative, $760 billionenterprise that is helping solve the biggestchallenges facing our nation and the world.

Our members are the leading companiesengaged in all aspects of the business ofchemistry, from the largest corporations to thesmallest, and everything in between. For morethan 140 years, companies have joined ACCbecause we provide access, expertise,information and opportunities.

Our offerings include everything fromadvocacy to business opportunities andnetworking, economic and industryintelligence, research and benchmarking,specific product and market sector support,professional and technical conferences andChemtrec, the industry’s foremost emergencyresponse initiative.

How has ACC’s membership evolved inrecent years?

Representing more than 85% of US chemicalsmanufacturing capacity, ACC has threecategories of membership: regular, affiliate,and associate. We also continue to grow ourbase of small- and medium-sized enterprises.

In these uncertain times, companies of allsizes want to know that membership deliversresults and value. Our continued growth isproof of our effectiveness when it comes tostrategic advocacy, product and market sectordefence, compliance assistance and businessnetworking opportunities.

It is critical that today’s policymakersunderstand the scale and scope of theeconomic and societal contributions ourindustry makes, both directly and indirectly, sothe addition of our value chain partners to ourmembership continues to strengthen ourability to provide exceptional advocacy at alllevels of government.

ACC’s mid-year 2012 Market Situation &Outlook reported slow growth and softerdemand for US exports in 2012. Whatexpectations do you have for 2013?

We are anticipating sub-par economic growthinto 2013 as the economy continues to face

strong headwinds and concerns around thefiscal cliff crystallise. We are also seeing thisyear’s economy repeat the pattern of 2010and 2011. Just as the Q1 discussion abouteconomic recovery is finally gaining traction,the recovery disappears; if this trendcontinues, it is likely that job creation andgrowth in income, sales and production willcontinue, but at a very slow rate.

Given ACC’s high prioritisation ofregulatory reform, please elaborate onyour efforts to represent the industry’sinterests regarding the ToxicSubstances Control Act (TSCA) reformon Capitol Hill. Can we expectregulatory reform in 2013?

ACC strongly supports legislation andregulatory action on TSCA that furtherenhances the safety and health of people andthe environment. However, new approachesmust be based on reliable scientific datawithout creating burdens that stifle innovationand reduce global competitiveness.

Although the partisan divide in Congressthis year prevented a sound bi-partisan bill forTSCA modernisation from advancing, we willcontinue to work with Congress to craft anew proposal that will attract bipartisansupport and create a world-class regulatorysystem that provides for the safe use ofchemicals, protects American jobs andmaintains US global leadership in innovation.A strong foundation has been laid for bi-partisan chemicals management reform in2013.

Moving forward, we will continue to buildupon these successes by working with federalagencies, Congress, our coalition partners andother stakeholders to pursue additionalregulatory reform initiatives that improveeconomic models used in regulatory impactanalyses, assess the cumulative andcompetitive impacts of regulations, createconsistent standards for considering scientificdata used in rulemakings and ensure greatertransparency in the rulemaking process.

The boom in US shale gas developmenthas spurred renewed investment in thechemicals sector. What activities hasACC undertaken to foster this growthand ensure positive downstream effectsfor the industry?

Energy demand continues to increase andregulatory policies are creating uncertaintyabout future supplies. Yet after years ofdebate, America lacks a national energystrategy. In order for our economy to grow, USindustries to innovate and compete globally,

and businesses tocreate new jobs,our nation musthave a trulycomprehensiveenergy policy.

In early 2012,ACC launched acampaign topromote andadvance specificpolicy outcomesthat support, among other things, theproduction and use of shale gas. With theheightened awareness of shale gas productioncame increased scrutiny of hydraulicfracturing. Lawmakers in 19 states introducedbills to regulate fracking.

ACC was active in promoting reasonableapproaches to addressing these issues. A billpromoting the right to know while protectingconfidential business information regardingfracking fluid disclosure was passed in Texaswith industry support. We also supported theefforts of the governors of West Virginia andOhio, as well as policymakers in Michigan,Pennsylvania and Texas, to shine a spotlight onthe role of energy in economic developmentand job growth.

With a focus on the Marcellus and Uticashales, we advanced the understanding andappreciation of how appropriate regulationand new infrastructure can return economicgrowth and competitiveness to USmanufacturing, including petrochemicalsproducers, helping to create a supportiveclimate for increased access, supply andproduction of natural gas.

How do you expect the US chemicalsindustry to perform in comparison toits Chinese and Indian counterparts inthe medium-term?

Output of chemicals in emerging markets willcontinue to outpace production in developedcountries. China, with the world’s largestchemicals sector, will continue to growstrongly, but at a slower pace than in theprevious decade. India and other emergingmarkets in the Asia-Pacific region will continueto expand. Over the next several years,chemicals output in the dynamic economies ofChina and India are expected to grow by 9-10%/year.

By comparison, US chemistry is expected togrow by 2% to 3%, slightly ahead of GDPgrowth as the renewed chemicalscompetitiveness boosts exports. From aproduct standpoint, the strongest growth willcontinue to be in specialities, consumerproducts and agricultural chemicals.

US Special Report


Interview with Cal Dooley, ACC president


US Special Report

engage third party logistics companies,” saysFrank McGuigan, senior vice president ofoperations for Transplace, a 3PL andtechnology company that expanded into thechemistry market just 18 months ago.

“Some of our strongest relationships are builtupon the foundation of value that is identifiedand created through a Transplace Consultingengagement. Our consulting group engages inbenchmarking, network analysis and optimisationas well as procurement for customers, creatingan early understanding of the value that a thirdparty relationship delivers, and the problems itsolves downstream,” says McGuigan.

BDP International, a leading logisticsprovider for the industry, is another example of a3PL constantly looking to bring more value to thesupply chain. Global COO Michael Andaloro says:“BDP has become more extensively involved inproduct classification and determining on theimport side which government agencies need tobe involved. Increased focus on safety has also ledto intense focus on the whereabouts of products.We have designed our technology so that we cantell our customers where their goods are while intransit.”

Faced with intense competition from lower costmarketplaces, chemicals companies need morefrom logistics providers to keep their supply chainsglobally competitive. “Now the impetus in the USchemicals sector is staying competitive withoutbuilding up inventory globally. BDP has evolved tooffer clients an array of value-added supply chainservices focused on shortening transit time,shortening inventory cycle time and reducing coststo help our customers meet their end customers’required delivery dates,” says Andaloro.

Staffing the industryAnother key to staying globally competitive, achallenge that cannot be met with a smartoutsourcing decision like logistics, is finding theright people. Many outside sources are offeringadvances to staffing problems.

Access to a highly educated workforce andglobally-leading research centres is part andparcel to the US chemicals industry’s continuedsuccess. While on one hand industryconsolidation has freed up a rich talent pool ofexperienced executives, companies have alsovoiced concern that new talent is not as profuseas it once was.

“We have heard from companies that theycannot find the scientists that they need. Theparadox is that if youlook at the manpowerthat is produced by thegovernment orindependent agencies,there is no shortage,”says Tritton of theChemical HeritageFoundation.

“There is a lot ofuncertainty in themarketplace but onething that is consistentis that the supply anddemand for mid- tosenior-level executivetalent is increasinglybecoming more

misaligned,” says Jason Hersh, managingpartner at Klein Hersh International, anexecutive search firm dedicated to the lifesciences.

Chemical Search International, anexecutive search firm solely dedicated to thechemicals industry, has opened offices inPhiladelphia, London, Singapore and Mumbai.“Companies are coming to us because they canno longer find people using their ownresources,” says Ronald Thompson, principalconsultant.

“Prior to the great recession, you could counton picking up the phone and finding peoplefrom colleagues in the industry. This is dryingup because the well of university feedstock is

drying up. We plan to grow our business throughacademic partnerships, in essence filling thepipeline of talent for years down the road.”

The future of the industry’s talent pool is alsolooking stronger thanks to the shale gas boom.The optimism surrounding the US natural gasreserves is not only bringing new investment intochemicals plants, but many industry leaders areforeseeing renewed interest in chemicals industrycareers.


Ronald Thompson,principal consultant,Chemical Search

Mike Andaloro, global COO, BDP International

Chemical transportation from 3PL company Transplace

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Industry lobbyists and associationsfeel that TSCA needs to be reformed,not overhauled. What are some ofthe reasons for the stalemate?

The EPA implements a range of keyenvironmental statutes. Operating underTSCA, EPA’s Office of Pollution Prevention &Toxics has the authority to assure chemicalsafety. TSCA provides authority to requirereporting, record keeping and testing, and toreduce risks from chemicals. The agencyremains committed to working with Congress,industry and the environmental community toreform or reauthorise TSCA, in addition topositioning chemicals safety as a key agencypriority.

On 29 September 2009, EPA administratorLisa Jackson announced the release of a set of‘Essential Principles for Reform of ChemicalsManagement Legislation’. These principleswere provided to help guide efforts underwayin Congress to reauthorise and strengthen theeffectiveness of TSCA. There are certainlydifferent views among stakeholders andimportant details to be worked out, but thereis significant common ground that reform ofTSCA is necessary.

What is the EPA currently doing tobalance the needs of the industrywith that of the wider public towardsa smooth outcome?

One example is EPA’s policy toward

confidential business information (CBI):balancing the public’s right to know aboutimportant health and safety data on chemicalsused in consumer products and proprietarybusiness information essential for companiesto maintain a competitive edge in themarketplace. A key hurdle in the agency’sability to assess and potentially regulatechemicals is the availability of health andsafety data.

Much of data submitted to EPA is claimedas CBI, restricting rigorous scientific review bythe EPA and the public’s ability to obtaininformation on chemicals that they and theirfamilies are exposed to every day. EPA hasinitiated numerous efforts to voluntarilyencourage and formally require the release ofCBI claims on health and safety studies.

EPA maintains rigorous and transparentpolicies to ensure the protection of legitimate,substantiated confidential businessinformation. As a result of these efforts,hundreds of documents covering hundreds ofchemicals have now been made publiclyavailable while valid confidential businessinformation remains protected.

What are some of the near-termgoals of the EPA with regards to thechemicals sector?

The EPA remains optimistic that TSCA reformcan be achieved. In the interim, the agencyendeavors to strengthen existing chemicals

management using authorities under TSCA toprotect human health and the environment. InMarch, EPA posted its existing chemicalsstrategy and a work plan identifying 83chemicals for risk assessment and an initialgroup of seven from this list for riskassessment under TSCA in 2012.

On 1 June, EPA identified an additional 18from the work plan for assessment in 2013and 2014. These efforts are part of EPA’scomprehensive approach to enhance itscurrent chemicals management programme.The agency also intends to expand use ofadvanced scientific tools, such ascomputational toxicology, to predict develop acost-effective approach for prioritising thethousands of chemicals that need safetyassessment.

EPA hopes that the industry will continue tosupport TSCA reform as well as the need toprioritise and assess the safety of chemicals,and to provide EPA with the data needed tocarry out assessment. Pending TSCA reform,industry will likely be required to comply witha variety of state chemicals laws.

Industry is also likely to receive increasingdemand from customers to provide them withsafer chemicals. Ensuring the safe use ofchemicals in this country is a priority for theagency. While we continue to support TSCAreform, the agency is using the tools availableunder TSCA to the fullest extent possible.

US Special Report


Interview with Wendy Cleland-Hamnett, Director of the Office of Pollution Prevention & Toxics, EPA


Industry lobbyists and associationsfeel that TSCA needs to be reformed,not overhauled. What are some ofthe reasons for the stalemate?

The EPA implements a range of keyenvironmental statutes. Operating underTSCA, EPA’s Office of Pollution Prevention &Toxics has the authority to assure chemicalsafety. TSCA provides authority to requirereporting, record keeping and testing, and toreduce risks from chemicals. The agencyremains committed to working with Congress,industry and the environmental community toreform or reauthorise TSCA, in addition topositioning chemicals safety as a key agencypriority.

On 29 September 2009, EPA administratorLisa Jackson announced the release of a set of‘Essential Principles for Reform of ChemicalsManagement Legislation’. These principleswere provided to help guide efforts underwayin Congress to reauthorise and strengthen theeffectiveness of TSCA. There are certainlydifferent views among stakeholders andimportant details to be worked out, but thereis significant common ground that reform ofTSCA is necessary.

What is the EPA currently doing tobalance the needs of the industrywith that of the wider public towardsa smooth outcome?

One example is EPA’s policy toward

confidential business information (CBI):balancing the public’s right to know aboutimportant health and safety data on chemicalsused in consumer products and proprietarybusiness information essential for companiesto maintain a competitive edge in themarketplace. A key hurdle in the agency’sability to assess and potentially regulatechemicals is the availability of health andsafety data.

Much of data submitted to EPA is claimedas CBI, restricting rigorous scientific review bythe EPA and the public’s ability to obtaininformation on chemicals that they and theirfamilies are exposed to every day. EPA hasinitiated numerous efforts to voluntarilyencourage and formally require the release ofCBI claims on health and safety studies.

EPA maintains rigorous and transparentpolicies to ensure the protection of legitimate,substantiated confidential businessinformation. As a result of these efforts,hundreds of documents covering hundreds ofchemicals have now been made publiclyavailable while valid confidential businessinformation remains protected.

What are some of the near-termgoals of the EPA with regards to thechemicals sector?

The EPA remains optimistic that TSCA reformcan be achieved. In the interim, the agencyendeavors to strengthen existing chemicals

management using authorities under TSCA toprotect human health and the environment. InMarch, EPA posted its existing chemicalsstrategy and a work plan identifying 83chemicals for risk assessment and an initialgroup of seven from this list for riskassessment under TSCA in 2012.

On 1 June, EPA identified an additional 18from the work plan for assessment in 2013and 2014. These efforts are part of EPA’scomprehensive approach to enhance itscurrent chemicals management programme.The agency also intends to expand use ofadvanced scientific tools, such ascomputational toxicology, to predict develop acost-effective approach for prioritising thethousands of chemicals that need safetyassessment.

EPA hopes that the industry will continue tosupport TSCA reform as well as the need toprioritise and assess the safety of chemicals,and to provide EPA with the data needed tocarry out assessment. Pending TSCA reform,industry will likely be required to comply witha variety of state chemicals laws.

Industry is also likely to receive increasingdemand from customers to provide them withsafer chemicals. Ensuring the safe use ofchemicals in this country is a priority for theagency. While we continue to support TSCAreform, the agency is using the tools availableunder TSCA to the fullest extent possible.

US Special Report


Interview with Wendy Cleland-Hamnett, Director of the Office of Pollution Prevention & Toxics, EPA


US Special Report

“It will be a boost for the right kind of high-skill, high-value jobs in the US that we needmore of,” says Sandifer of FMC. “The USchemicals industry has a maturing workforce andthere are tremendous long-term careeropportunities for young people.”

Not only does the US chemicals industry faceheightened competition from emerging markets,but the lack of regulatory modernisation placesthe sector in the uncomfortable position ofuncertainty. Regulatory restrictions are growingtighter worldwide, most notably in the wake ofEurope’s REACH regulations, and the US isstruggling to follow suit with a reformedregulatory policy that clears political divisions ingovernment, industry approval and publicconcern.

The law at the centre of the debate is the ToxicSubstances Control Act (TSCA). Enacted in 1976,the law empowers the Environmental ProtectionAgency (EPA) with the authority to requirereporting, record-keeping and testingrequirements for new and existing chemicalssubstances and mixtures.

Since TSCA was passed, it has not beensignificantly amended. As such, it has beencriticised by industry stakeholders andpolicymakers alike as inefficient and unable toprovide the EPA with the necessary resources andauthority to adequately impose controls.

The piece of legislation to advance furthest inthe way of TSCA reform, Senator FrankLautenberg’s Safe Chemicals Act, was moved tomark-up in July 2012 by the Senate Environment& Public Works Committee. The committee’sapproval of the proposed reform was the firstvote of its kind in 35 years. Historic though itmay be, the question of whether Lautenberg’sbill is the way forward is still a matter of debate.

The SafeChemicals Actargues that EPA isoverburdened,citing the fact that ithas only been ableto require testingfor 200 out of theover 80,000chemicals in TSCA’sinventory. The billproposes shiftingthe burden of proofof a chemical’ssafety to the

chemicals companies themselves and increasingEPA’s authority to evaluate this safety on the basisof sound science.

Industry stakeholders have voiced concernsthat the bill would deal a severe blow to theindustry, imposing costly data requirements forexisting chemicals and impacting their ability tobring new products to market. Lawrence Sloan,president of the Society of ChemicalsManufacturers and Affiliates (SOCMA), the tradeassociation representing the batch, custom, and

speciality chemicals industry, described the draftbills promulgated by the Democrats as non-starters.

“What they mandate is an inconceivably highbar in terms of the definition of risk,” says Sloan.“You have to calculate permissible risk from thecontext of the hazardous nature of the chemicals,plus the exposure potential of the chemicals.”

While industry opposition is strong,stakeholders have been brought to the table inhopes that reform can be achieved in the nearfuture. “It is a possibility that we will see reformin 2013, but it will be an uphill battle to see anylegislation pass. There is still no consensus, butprogress has been made through dialoguebetween legislators, NGOs and industryrepresentatives,” says Mark Duvall, principal atthe environmental law firm Beveridge &Diamond.

One thing is clear: the government’s failure toreach consensus with regards to chemicalsregulation modernisation is doing nothing toimprove the confidence of the post-crisis industry.Understandably, many chemicals industry playersare unwilling to invest in the capital necessary forgrowth.


The regulatory climate

Lawrence Sloan, president,SOCMA

Toll milling at Custom Milling & Consulting

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US Special Report

“Because this is a presidential election year inthe US, nothing that should get passed tostimulate the US economy is getting passed inCongress,” explains Madeleine Jacobs, executivedirector and CEO of the American ChemicalSociety. “Companies are understandably notsure about what is going to happen, and whenthey are not sure, they do not take action. Theydo not invest, they do not build new plants andthey do not hire more people and that’s what isgoing on right now.”

Another key regulatory issue for the chemicalsindustry is the Department of HomelandSecurity’s (DHS) Chemicals Facility Anti-TerrorismStandards (CFATS). The programme has yet to bereauthorised for the long-term, causing concernfor many companies who have invested millionsof dollars in meeting these security requirements.

“The CFATS programme has beenextraordinarily successful, even though theimplementation of CFATS has been controversialbecause of how DHS has carried out itsresponsibilities in evaluating informationsubmitted by companies,” says Duvall. “Overall,the industry itself has done a good job of lookingat its own vulnerabilities and it is better atmaking the safety-related decisions than thegovernment is. “

“Chemicals security is a huge issue for ourmembers,” says Chris Jahn, president of theNational Association of Chemicals Distributors(NACD). “Although CFATS got off to a rockystart, DHS has done its best to identify issueswith the programme that need to be fixed.NACD believes that CFATS as a whole isfundamentally solid and the law itself needs tobe extended for the long-term and fullyimplemented. We do not think it is necessary tostart over and waste all of the work that hasalready been done.”

Mergers & acquisitionsLarge chemicals companies are acquiringspeciality companies to enable them to movefurther downstream and get closer to thecustomer. According to Telly Zachariades, partnerat the Valence Group, agrochemicals andfertilisers will have to feed more people withlimited resources and there is a strong trendtowards foods that are more functional.

“Firms acquire companies that have synergieswith their current portfolio or are focused withincertain sub-sectors that have good long-termfundamentals. Personal care chemicals is a majorarea of focus as it relates to an ageing populationand the increasing purchasing power ofemerging markets for products with higher profitmargins, which include high end skin creams andmoisturisers,” says Zachariades, who predicts thesame level of billion-dollar deals in 2013.

In July 2012, Eastman Chemicals acquiredMissouri-based Solutia, a global manufacturer ofperformance materials and speciality chemicals,for $4.8 billion, and Arkema has also made two

big acquisitions in the last two years, one third ofit in the US: Dow Chemicals’ US acrylics business,then the coatings activity of its former parentTotal. The acquisition market has extended to thedistribution sector as well.

“We have an active acquisition candidatepipeline and a successful track record ofacquisitions supporting our organic growth thatputs us in a leadership position in the distributormergers and acquisitions field,” says Brenntag’sFidler. “We look to fill voids in geography,industries, skillsets and product lines. The companyplans to spend an average of €250 million/yearout of our free cash flow on acquisitions.”

For pharmaceuticals companies facing thepatent cliff, groups are highly motivated to filltheir pipelines, but the financial crisis has createda shortage of new investment funds. Thisshortage has created a bottleneck in M&A activity.

“We see a backlog of companies that shouldhave been bought in 2010 or 2011. Until thisbacklog is worked through and those dollars arefreed up, we have an environment that iskeeping some capital from being invested in thissector,” says Wofford of Hutchison Law.

While chemicals companies indeed have cashin the bank, uncertainties in the current USpolitical environment and tax policies plus the USand European economic climate are all holdingback the deployment of resources to go aheadwith acquisitions, according to Mike Shannon,global and US leader, chemicals and performancetechnologies at KPMG. “There have been veryfew closed deals but once the catalyst of M&A isrealised there will be a plethora,” he says.

Towards green chemistryOne of the key trends to emerge in the chemicalsindustry over the last few years is sustainability,and the US has pioneered the shift in directiontowards green chemistry. According to Ehle, ofBASF, chemistry and sustainability will play keyroles in solving the demands for food,transportation and energy that currently exist.

“We need to do things differently, whichdrives us to look into niches. Big-volume, classicalchemicals do not solve key issues, such as waterand heat management, but more sophisticatedhigh-tech chemistry combined withinterdisciplinary activities can help to addressthese concerns.”

The importance placed on these issues isbecoming increasingly evident not only intraditional sourcing and manufacturing strategiesbut also, as with DSM, in their business models.“DSM is one of the only listed companies thathave a substantial component of our businessmodel dedicated to our sustainabilityperformance indicators,” says Wessels.

“A lot of products need to be converted fromtraditional chemicals processes to bio-chemicalsor pure biotechnology processes. We make a lifecycle analysis of every development product thatwe manufacture; each product must have a lifecycle that is at least 20% more efficient than thedriver in that category.”

Companies are also striving to develop newand more efficient manufacturing processes.Croda has a 305 kW solar array system thatprovides roughly half of the electricity needs forthe office and labs at its New Jersey site.Gallagher describes solar panels as “a major partof our effort to lower our carbon footprint andmake us more sustainable”.

“We have initiated another sustainabilityproject that is much bigger in size and scope,which is a landfill gas project at our Atlas Pointplant in Delaware. The project will provide morethan half of the electricity and steam generationneeds for the manufacturing site from landfillgas. Our US initiatives are part of a global goal tosupply 25% of our energy needs from non-fossilsources by 2015.”

The future of the US speciality chemicalsindustry rests heavily on its ability to react to thechanging global market dynamics while retaininga strict focus on leadership in R&D. By virtue oftheir targeted business model, specialitychemicals companies are well positioned tocapitalise on the evolving demand cycles that areproving challenging to their commodity-focusedcounterparts.

Mathias Greger, local business unit managerof performance materials at DKSH, a Swisscompany specialising in market expansionservices, comments: “While US growth rates arerelatively stagnant in comparison to Asia, it isstill possible to achieve double-digit growth herein niche and speciality areas. The growth andinnovation coming from the US will alwaysmake it attractive, even key for a company’ssurvival.”


Outlook

Lonza’s cell biology facility at Walkersville

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special report - us specialty chemicals: east coast

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