European Chemical Market Attempts to Stop Decline in Sales

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Researched by Industrial Info Resources (Sugar Land, Texas)--With the global economic downturn leading to a decline in the sales of chemicals, several companies are turning to collaborative schemes to ride out the crisis rather than sell off assets or cut back on production. With the downturn causing a weakening in demand for chemicals, many companies have considered selling production facilities. But the crisis means that there are not as many buyers with the capital available.

The utilization of chemical plant capacity in Europe has fallen to a record low of 70% since 1990. Many companies are attempting to combat the crisis by specializing in compounds that will offer premium returns or by cutting back on unprofitable products. However, another option is collaboration between companies by temporarily mothballing some plants and combining production at other plants to achieve economies of scale.

An example of this trend is the decision recently made by BASF SE (OTC:BASFY) (Ludwigshafen, Germany) and Fabricca Adesivi Resin SpA (FAR) (Cologno Monzese, Italy) to collaborate in the production, marketing and sales of polyalcohol trimethylolpropane (TMP).

According to the terms of the agreement, FAR will be responsible for the production of TMP for both companies at its factory in Vercelli, located near Milan, Italy, while BASF will undertake marketing and sales of the product.

BASF currently produces TMP in its home location of Ludwigshafen, but under the agreement with FAR, this plant will be mothballed and the employees transferred to other duties within the complex. The full terms of the agreement are still to be agreed by the respective antitrust authorities, but it is planned to take effect in July of this year.

BASF is the world's largest international chemical company, with approximately 97,000 employees and more than 100 sites worldwide. Although its home market is Europe, the company is placing increasing importance in the North American, Asian and South American markets. BASF produces a range of chemicals including solvents, resins, electronic grade chemicals and petrochemicals, with polyalcohols forming one of its core business areas.

FAR was established in 1963 and is now a major producer of polyvinyl and phenolic resins. The company has a total production capacity of about 61,000 tons per year of vinyl resin, 35,000 tons per year of acrylic resin, and 28,000 tons per year of phenolic resin. BASF and FAR have already worked together to optimize the Vercelli plant to ensure that the TMP produced meets the standards expected by both the companies. By consolidating the manufacture of TMP at a single site, both companies expect to benefit from the use of FAR's manufacturing expertise and BASF's business activities in the marketing and sales sectors.

TMP is an important member of the polyalcohol group of chemicals and is used in the production of polyurethane, industrial coatings and adhesives. Polyalcohols include neopentyl glycol, hydroxy pivalic acid neopentyl glycolester and hexanediol. These intermediates are a key ingredient in the manufacture of polyester resins and adhesives.

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