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Articles from 2009 In February

GM: Too big to fail?

"Cash burn rate" was a phrase we heard often during the Internet’s heyday as startups burned their way through angel investors’ cash, typically with little to show for their efforts in the end except some great office furniture and a foosball table.  But in news reports this week, the phrase is being tossed about with regard to General Motors, and the rate apparently is so rapid that the company is in peril of bankruptcy – again – after a government cash injection saved it last year.

If GM were one of my customers, likely I’d be in the "too big to fail" boat. Certainly its bankruptcy would send massive tremors through an already shocked market.  With its stock trading at $2.55/share today, its market value is just $1 billion, according to Maybe it’s not then a question of whether it is too big to fail but rather whether it is too cheap to fail; at this price, it likely is getting its tires figuratively kicked by potential suitors. [email protected]

Names in the News, Feb. 16-20

Jeff Colman has been named president and CEO of hot runner temperature control supplier Gammaflux L.P. (Sterling, VA), replacing David Huntting, who will become Gammaflux’s chairman. The company also promoted Vince Leone to vice president, with Colman, Huntting, and Leone all to serve as company officers. Colman and Huntting, along with Pete Cullum who retired in 2007, were among the original purchasers of Gammaflux in 1991. Leone has been with the company since 1997, originally joining as a regional sales manager, and most recently acting as director of sales for the Western Hemisphere.

Absolute Green Energy Corp. (Worcester, MA), the recently launched supplier of products and services to promote energy efficiency, has named Fred Charpentier as its VP sales and marketing. Charpentier comes to Absolute Green Energy from machinery and component supplier, Milacron (Cincinnati, OH), bringing 25 years of plastics industry experience. In addition to helping customers reduce energy consumption and improve machine reliability, Absolute Green Energy is an authorized dealer for AEE Solar photovoltaic energy systems, as well as Oventrop USA solar-water heating systems.

Beaumont Technologies Inc. (Erie, PA), supplier of melt-rotation technologies, has hired Joe A. Huegel as a design engineer. A former Beaumont intern, Huegel earned a bachelor of science degree in plastics engineering in 2006 from Penn State Erie, The Behrend College.

Renewable chemical building block producer Segetis Inc. (Minneapolis, MN) has appointed Snehal Desai as business vice president; Cora Leibig as director of product and application development; and Steve Donen as director of process engineering and development. Segetis is working to combine biomass-derived carbohydrates that will enable it to commercialize a range of industrial chemicals and plastics that are ultimately derived from non-food agricultural and forestry sources. Desai comes from biobased resin producer NatureWorks LLC, where he was VP and chief marketing officer. Leibig comes from Dow Chemical where she worked in product development, while Donen also comes to Segetis from NatureWorks, and before that, Dow Chemical. 

In Brief; Feb. 23-27, 2009

Sartomer (Exton, PA), a producer of specialty resins, has opened a plastics lab at its headquarter to help develop its global plastics business.

A study conduct last year by Consultic (Alzenau, Germany) has concluded that 95% of all post-consumer plastics packaging is collected for recycling and 100% of all post-production plastics waste in the country is in some form reused rather than disposed of in landfill.

The German plastics processors’ association GKV (Frankfurt) is joining the country’s plastics producers (PlasticsEurope), and the producers of plastics and rubber processing machinery (VDMA) to create the WVK as a consolidated organization within the Federal Association of German Industry (BDI), so that it can better lobby the country’s federal government on issues such as energy costs and resource efficiency. The new organization will be introduced on June 18 in Frankfurt.

Sheet looks like granite

Korlux was developed by Bordener Engineered Surfaces (Midland, MI), a developer of decorative laminates. Bordener says the sheet can be laminated, for instance onto countertops and other home or office interior applications, and can also be thermoformed. [email protected]

PLA bottles pose no recycling problems

environmental organization and now being circulated by bioplastics supplier Natureworks, WRAP concluded that NIR (near-infrared) sorting systems can effectively remove polylactic acid (PLA) and carton board from a mixed packaging stream. A NatureWorks survey of automated sorting equipment performance with its Ingeo-brand PLA came to similar conclusions. The company says it surveyed equipment manufacturers that have systems with the potential to sort biopolymers from such other plastics as PET, HDPE, PVC, and PS, and identified a dozen companies offering systems than can potentially sort bioresins.

Concerns about the affects of PLA packaging on recycling streams have hindered the material’s acceptance, as have the material’s availability and pricing, as well as performance concerns for certain types of packaging.

Dell, Coca-Cola, Dow, DuPont, NatureWorks and many other companies are working together on the Future 500 pilot project, a broad-reaching focus on sustainability that includes, among other projects, work to evaluate mechanical processing in the separation of bioresin and other plastics from both PET and high density polyethylene (HDPE). The bioresin separation pilot study is being funded in part by the California Department of Conservation, which in November 2008 awarded $1,047,000 toward the 18-month project. Businesses are contributing an additional $800,000.

The project will compare the effectiveness of automated sorting technologies with the goal of showing where and how bioresin can most efficiently and economically be sorted prior to being reformulated and reused. [email protected]

India: One million more tonnes of PP, but it’s already claimed

In the next weeks, plastics supplier Reliance Industries expects to bring online its most recent plant, a one-million-tonne/yr polypropylene facility, but processors interested in the new material will have to take a number: the new capacity for its Repol-brand PP already has all been claimed, according to Kamal Nanavaty, president of the supplier’s crackers, polymers and chemicals sector, who met with MPW during the Plastindia trade show earlier this month.

At Plastindia, Hall 11 – with processors’ booths only, no machinery or materials suppliers – was jammed during the entire show.

Although Reliance is active internationally, the vast majority of the new PP capacity will stay in the country. “Every major end-use market (in India) is on a growth curve,” Nanavaty said. “We saw the dip in October-November 2008, but now everybody’s plants are running flat out,” he added. Compounders, formerly not as prevalent, moved in to support India’s growing automotive market –  Ford and Daimler both announced plans in the past weeks to increase capacity in the country –  and have since branched out to other industries. “The growth driver here is our young population,” Nanavaty said. Every day, by Reliance’s count, about 11,000 TVs and refrigerators are bought in India; 500,000 cell phones are too, daily.

The new capacity will bring Reliance to about 2,835,000 tonnes/yr of PP capacity, enough to raise it from seventh into the top five rankings of global suppliers. By its own reckoning, it controls about 80% of its domestic market and about 3% of global demand for PP. Reliance recognizes it must stay “lean, thin and mean” as India’s growing domestic market poses a rich target for its competition. “For (plastics suppliers in the Middle East), my customers are just one week away,” noted Nanavaty. He added that India’s government plans to invest some $515 billion in the country’s infrastructure, with much of that related to the agricultural industry, including about $100 billion tagged for water and irrigation projects. Feeding a population of more than a billion clearly is no easy task, but India’s government wants to ensure its farming industry has the wherewithal to do just that.

Reliance keeps tabs on the local machine market, much as trade groups do elsewhere, and reckons sales in India since about mid-2008 have included 739 extruders, 1448 injection molding machines and about 150 blowmolding machines. According to Nanavaty, these new machines, coupled with improved management practices and growing economies of scale, have helped processors leap forward. Efficiency has improved, so that EBITDA for leading Indian plastics processors has climbed to 17%, up from about 10% just five years ago, he said. [email protected]

After rosy 2008, German processors hit hard this year

Despite a severe downturn in the fourth quarter, German plastics processors came through 2008 on the positive side, but the first word on the situation this year points straight toward the iceberg in the ship’s path. The German Plastics Processors’ Association (GKV, Frankfurt) reported this week during its traditional Ash Wednesday press conference that total turnover from German processors reached €54 billion, a plus of 2% from the previous year (in 2007 they saw an increase of 7.5% compared to 2006). The number of workers in the sector rose by 2.9% to 292,000 while the number of plastics processing operations increased to 2890, up 4% from the previous year.

Despite the rise in sales, broken out as €34.8 billion domestic and €19.2 billion export, Michael Rathje, managing director of the GKV, told MPW that 2008 was the first time ever that German plastics’ export sales dropped, albeit by just 1% for the year. The last quarter of 2008 saw a double digit decrease in exports from Germany. The year started off at a high tempo but literally crashed in the fourth quarter, he said, a situation that has continued through this year and promises big problems for processors in 2009.

One area that has consistently remained on a high is plastics packaging, which in 2008 grew by 3% in the number of tonnes processed and a whopping 6% in revenue. Surprisingly resilient was building and construction, which registered a 2.5% increase in turnover, much of it due to renovation work of existing housing. It was also the only sector that showed no decrease during the fourth quarter of 2008. In the category "other plastics products," which includes household products, consumer goods, medical devices, sports equipment, and leisure articles, a 2% increase in sales was reported last year compared to 2007. Reinhard Proske, GKV president, says this reflects that consumers are willing to make minor purchases of goods containing plastics, but are putting off larger purchases.

Now the bad news: Automotive, electronics/electrical, and industrial equipment saw a 3% drop in resin tonnage converted and a 3.5% decrease in sales last year. Proske points out that German automotive vendors make up a significant portion of the GKV membership. In a single month – December 2008 – automotive orders dropped by more than 20%, and from there they’ve fallen further. “This sector has been squeezed by automotive producers in the past, and many plastics processors serving this market have been unable to develop a reserve to tide them over in tough times,” notes Proske. He is expecting significant consolidation in the field as automotive EOMs and major Tier suppliers further squeeze their suppliers, or simply find themselves not in a position to order parts.

Power suppliers, who generally come in for a good drubbing by the GKV due to high energy prices compared to surrounding West European countries, got off easily this year. Instead, the bankers and banks that no longer offer reasonable loans to small- and medium-sized (SME) processing operations took it on the chin, as did politicians on both sides of the Atlantic for propping up failing banks with taxpayers’ money while overlooking their SMEs.

Most frightening are the results of the GKV members’ survey of the situation in the coming year and how they see the market. Capacity utilization has dropped from 85.5% in 2007 to 73% so far this year, and the backlog of orders from 7.9 weeks in 2008 to just 6.5 weeks now, reports the survey. Processors who expect their turnover this year to dip reached 58%, compared to only 7% last year. Sinking export sales in 2009 are expected by 34% of GKV members compared to only 4% last year. Still, 55% think their export sales will remain stable this year without growth. On the investment side, expansion of operations is planned by 14% of all respondents compared to 26% in 2007. [email protected]

As BASF nabs Ciba, Songwon sees opportunity

The acquisition-in-progress of Swiss chemicals and plastics additives supplier Ciba by BASF, an even larger chemical and plastics supplier, could work in favor of Songwon (Ulsan, Korea), the world’s second-largest supplier of antioxidants, and one of the leading suppliers of light stabilizers and other additives, according to Phillipe Schlaepfer, Songwon’s VP corporate strategy and business development, who spoke with MPW at the Plastindia trade show in New Delhi in early February.

Schlaepfer, whose background includes more than a decade in management at Ciba’s plastics additives business, reckons some customers in the compounding and resin supplier world may be reconsidering Ciba as a supplier if they see themselves supporting a potential or real competitor in BASF.

Schlaepfer says Songwon is fully back integrated, enabling it to compete on price, with a recently completed expansion at the Korean headquarters also giving it the output necessary to support its global expansion. The company recently signed distribution agreements with two businesses in India, and has doubled its sales in the last few years as it develops its own sales network in Europe and North America. The company previously had been active primarily in Asia, with Clariant its distributor for antioxidants in the rest of the world, but that agreement ended in early 2008. Songwon last year added an agent in Russia to its network, and Schaepfler said it is considering adding another in the Middle East. [email protected]

Xaloy adds new faces, new sales strategy

Plasticizing systems manufacturer Xaloy has made some major changes in its management lineup and in the organization of its sales force. The company’s new president and CEO, Ron Auletta, joined Xaloy in late 2008, after holding the same position at GED Integrated Solutions. In late 2008, Baird Capital Partners (Milwaukee) sold Xaloy (New Castle, PA) to Industrial Growth Partners (IGP), a San Francisco-based private investment firm, for an undisclosed price. Xaloy has facilities in the U.S., Germany, and Thailand.

Xaloy's Tom Bametzrieder

Since then, the company has restructured its North American sales organization so that every sales representative can sell all of the products supplied by Xaloy; formerly the sales personnel were specialists in either injection molding or extrusion products. This change is also being implemented in the Asian and Europe sales and customer service offices.

In January, Xaloy named Tom Bametzrieder as its VP global marketing. He joined the firm from AMI Doduco, a manufacturer of electrical components and materials. Also new to Xaloy is Bernd Höhn, named the new managing director of Europe and Asia; he works out of the Xaloy office in Neckarsulm, Germany.  Höhn joined Xaloy from Breeze Industries, a manufacturer of hose clamps and fittings. 

Leaving the company have been two prominent plastics industry veterans, Randy Pearson, president of Xaloy North America, and Günther Hoyt, executive vice president.

Said Auletta, “While many companies are spending the first quarter trying to survive economic turmoil, Xaloy is outlaying resources and managing organization change geared toward the delivery of exceptional customer care. …Over the years Xaloy has grown through technological and product advances as well as through acquisitions. That aggressive growth needs to be tied together and synchronized so that all our global facilities, products and technological expertise are synched up together.” [email protected]

Abu Dhabi's IPIC bids for NOVA Chemicals

Abu Dhabi’s International Petroleum Investment Company (IPIC) will acquire NOVA Chemicals (Calgary, AB) for $6/share in a deal valued at $2.3 billion, including NOVA’s debt. The parties said NOVA Chemicals’ operations are geographically complementary to IPIC’s, and NOVA, primarily based in North America, will join IPIC’s existing petrochemicals investments in Europe, the Middle East, and Asia.

NOVA Chemicals CEO Jeffrey Lipton rang the closing bell at the NYSE on July 2, 2008, to mark the 10th anniversary of the company's listing on the exchange.

In a Feb. 23 conference call with investors, Jeffrey Lipton, NOVA’s president and CEO said the company had weighed a number of options before promoting IPIC’s offer to its shareholders, including private equity, public equity, continued borrowing, and considering the probability that bond markets might open up.

“When compared to the wide range of alternatives our company has explored over the number of months,” Lipton said, “the IPIC agreement was the best alternative to NOVA Chemicals, its shareholders, bondholders, and other stakeholders.”

Responding to a question on the deal’s valuation, Lipton pointed out that while $6/share seemed low, it represented a premium of four-and-a-half times Friday’s close and three times the stock’s 30-day average. NOVA’s 52-week high-low range spans from $1.05 to $32.46/share.

“When you’re selling for $1.30 something on the NYSE [New York Stock Exchange] and somebody proposes a huge premium to that, with all those facets considered, I think the board has to deal with the time and the place,” Lipton said. “It can’t just say, ‘We thought, a while back, that we were worth something different.’ You have to deal with today, and that’s what they did, and I think came to the right decision for today.”

As part of the deal, IPIC will supply NOVA with a $250-million credit backstop facility to provide it with liquidity over the short-term. In addition, IPIC said it will allow NOVA to operate as an independent chemicals and plastics company and continue to invest in the company’s Canadian operating sites in Alberta and Ontario, as well as its research and development facilities in Calgary. Saying in a release that it “encourages significant management autonomy” in its investments, IPIC said it has no plans to change NOVA’s current operations, including executive leadership, with current president and COO, Chris Pappas, expected to still take NOVA’s reins when Lipton retires on May 1, 2009.

The deal is still subject to court, regulatory, and shareholder approval, with an information circular expected to mail to NOVA shareholders in March, and a special meeting of shareholders planned for April.

Started in 1984, IPIC is wholly owned by the Emirate of Abu Dhabi’s government with a stated mandate to invest in the hydrocarbon sector outside Abu Dhabi. IPIC has equity stakes in European firms Borealis, OMV, CEPSA, Energia De Portugal, and MAN Ferrostaal, as well as other investments in the Middle East, Japan, and Australia.

NOVA has five manufacturing sites in Canada, including three in Ontario (Corunna, Moore Township, and St. Clair River) as well as one in Alberta (Joffre). It has three production sites in the U.S. (Monaca, PA; Painesville, OH; and a tolling venture with LyondellBasell in Channelview, TX). It also has two sites in Chile (Quilicura and El Tepual). NOVA’s Canadian operations are devoted to polyolefin production, with the other global sites focused on styrenics production, including polystyrene (PS), expandable polystyrene (EPS), and styrene maleic anhydride (SAM).

In January 2008, NOVA announced plans for a series of PE plant modernization and expansion projects in the Sarnia, ON region. The projects would add a total of up to 250 million lb/yr of new PE capacity in stages over the next two years. The company’s Corunna site is located in Sarnia-Lambton’s Chemical Valley, about 180 miles southwest of Toronto, and employs 500. The site includes a refinery and is capable of producing in excess of 6.5 billion lb of basic petrochemicals and 3 billion lb of refinery and energy products annually.

Nova describes its Joffre site, north of Calgary, as the largest ethylene and PE complex in Canada, consisting of five manufacturing facilities: three for ethylene production and two for PE production, with more than 700 employees and annual production capacity of 2.2 billion lb. The Moore site, in St. Clair Township, ON, has 220 employees and rated annual PE capacity of about 830 million lb (375 kilotonnes). St. Clair River employs 190 and has the capacity to produce 395 million lb (180 kilotonnes) of PE/yr, utilizing the company’s proprietary Sclairtech catalyst technology. In 1995, the company built a pilot plant to test new PE catalysts in St. Clair.

In Pennsylvania, NOVA manufactures polystyrene (PS) and expandable polystyrene (EPS), as well as several of its Performance Products, including Dylark styrene maleic anhydride (SMA). This site, which NOVA idled on Nov. 21 of last year, also houses a Styrenics Technology Center, which was inaugurated in 1998. NOVA Chemicals purchased the operation from ARCO Chemical in 1996. The facility employs 340 and has the capacity to manufacture roughly 475 million lb 
(209 kilotonnes) of resin annually. In Painesville, OH, northeast of Cleveland, NOVA has annual capacity for 85 million lb (40 kilotonnes) of EPS and 47 employees. In South America, NOVA’s sites in Quilicura, near Santiago, and El Tepual, near Puerto Montt, Chile, are former Shell Chemicals operations, purchased by NOVA in early 2000, with 3.5 and 2.1 kilotonnes/yr capacity for EPS, respectively.

In its Jan. 29 release of fourth-quarter earnings, NOVA announced a net loss of $214 million for the final three months of 2008. The company’s styrenics joint venture with INEOS posted a $77 million loss for the quarter, with Performance Styrenics down $35 million.

PE sales volume was 747 million lb in the fourth quarter versus 864 million lb in the previous quarter. After weak sales volumes in October and November, NOVA sold 345 million lb of PE in December, the highest volume for any December and the second highest monthly sales volume on record. For the full year, adjusted EBITDA from polyethylene was $33 million, compared to $196 million in 2007.

NOVA Chemicals’ 50% share of INEOS NOVA provided an adjusted EBITDA loss of $78 million for 2008, compared to an adjusted EBITDA gain of $17 million for 2007. Nova and Ineos merged their North American styrenics operations in 2007.

The Performance Styrenics segment reported an adjusted EBITDA loss of $45 million for 2008, compared to an adjusted EBITDA loss of $5 million for 2007. NOVA generates approximately 45% of its revenue in the U.S., 35% in Canada, and the remaining 20% globally. [email protected]