Attempts To Unify German Chemical Industry Falter - C&EN Global

The collapse of the East European bloc and the subsequent unification of the two ... In addition, with literally hundreds of plants already operating ...
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Attempts To Unify German Chemical Industry Falter Environmental concerns and recession delay integration process, but industry's strength likely will overcome these obstacles Patricia L. Layman, C&EN London p

ust two years ago, there was a strong sense of optimism in Germany about the unification of the chemical industries of the eastern sector and the western sector. The collapse of the East European bloc and the subsequent unification of the two Germanys were expected to provide new markets for companies in the former West Germany. In addition, with literally hundreds of plants already operating in the eastern sector, there were opportunities for investment in alreadybuilt facilities. Since then, however, companies have been given a double dose of reality in the form of economics and environment. First came the possible environmental liabilities associated with plants in the eastern states. The conditions of these plants, long poorly maintained and often run with slipshod disposal practices, have been sobering, especially in a Germany that has become much more environmentally conscious as a result of the green movement. The second blow to the unification of the industry was recession. Quite literally, the eastern states did not have the money to support the anticipated demand in that sector. As a result, the companies in the western states did not have the outlet needed to offset lower exports caused by recession in the U.S. and other foreign countries. Thus, the drive for integration of the two chemical industries has been delayed. Although it will take longer than originally intended, the inherent strength of the German chemical industry is still such that the integration of the two industries will proceed. The German chemical industry currently has annual sales of about $105 billion, following only those of the

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Hilger: reorganization necessary chemical industries of the U.S. and Japan. It comprises about 1600 companies, with the six largest ones accounting for 40% of total industry sales. Its production is growing at a rate that is among the highest of the chemical industries in Europe. However, beyond these rather positive generalizations, the German chemical industry is facing a number of challenges that loom more negatively—challenges that the industry is tackling almost grimly in its determination to retain its importance in global standings. For example, annual production growth—an estimated 1.5% for 1992—is down significantly from the 2.5% increase posted in 1991 and the 2.0% in-

crease in 1990. Production in those years was fueled by high demand within the former East German states, once they were united with West Germany. That demand has dropped off some this year, however, as the German economy as a whole has slowed. Although chemical production has been rising steadily in the former West German states since 1985, prices have been falling, eating into profit margins and profitability. In the first half of this year, for example, the producer price index fell about 3% from the previous year. Different sectors show different results, of course. There has been a particularly sharp decline in prices for organic chemicals and plastics, according to economists with the Frankfurt-based Verband der Chemischen Industrie (VCI), the German equivalent to the Chemical Manufacturers Association (CMA). Only the producer prices for specialty, consumer-oriented chemicals show a small increase, 2%. The general assault on corporate profitability is a particularly serious problem as the German economy as a whole has slumped, while inflation has risen, following massive government expenditures to help integrate the eastern states into the federal whole. From a robust 4.5% growth in gross domestic product in 1990 from the previous year, GDP is forecast to grow only 1.3% this year, while inflation is running at a 4.5% rate, according to the Organization for Economic Cooperation & Development. In addition, interest rates have risen to 8.75%, the highest since September 1931. Environmental costs are also becoming an increasingly significant part of chemical industry expenses, further detracting from corporate profitability. In 1991, total environmental costs as a percent of sales averaged more than 9% for Germany's Big Three—BASF, Hoechst, JULY 27,1992 C&EN

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Production rose, while prices fell in western Germany Index, 1985 = 100

Chemical producer price 1982 83

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Note: For former West Germany. Source: Verband der Chemischen Industrie

and Bayer—according to one estimate. By the same analysis, the comparable figure for ICI, the largest chemical maker in the U.K., was 2.8%, and for France's Rhone-Poulenc, 1.7%. The problem mirrors one with which U.S. companies are familiar: Different legislation passed by different states is sometimes complementary, far too frequently conflicting, and usually requires lengthy times to work out interpretation and enforcement. A critical public attitude toward the chemical industry is hampering the industry's ability to innovate, as well as to expand current operations. As Wolfgang Hilger, chairman of Hoechst and president of VCI, pointed out in the association's annual "political" press conference in Bonn earlier this month, "Due to the hesitant attitude taken, microelectronics in Germany have 'missed the boat' of international developments. In the research and development of genetic engineering, we are about to be left behind the world leaders, even though that technology is at least as important as microelectronics," for industry, national economies, and humankind in general. The country's strengths as an industrial competitor are being eroded gradually, as productivity, labor costs and salaries, working hours, and other social benefits increasingly raise the costs of production. Labor costs in the U.K. and France, for example, are estimated to be only about 60% of those in Germany; even in Japan they are only about 80% of those in Germany. And lower labor costs in the U.S. were one 8

JULY 27,1992 C&EN

significant factor behind the decision of BMW to build a new auto factory near Spartanburg, S.C. Moreover, German workers are entitled to six weeks' vacation and 15 holidays annually—more time off than anywhere else in Europe. The length of the workweek is shrinking as well, to an average, overall, of 29 hours in 1990, although admittedly higher in industry. Currently, in the chemical industry, it is 39 hours. Despite the problems it faces, however, the chemical industry has been in good enough health to weather the slowdown now, albeit not happily. As Hilger put it in Bonn, "Generally speaking, the economic development so far in 1992 has been unsatisfactory." VCI predicts that combined sales by companies in the western German states in the first half of the year were about the same as those in first-half 1991, just shy of $52 billion. "The strong price pressure persisted, and consequently, the earnings situation was strained," noted Hilger. Fibers were among the weak sectors, as were fertilizers and agrochemicals, which were affected by unfavorable weather conditions in the first half of the year. Synthetic rubber sales were lackluster, but sales of bulk plastics grew stronger in domestic as well as in export markets. According to VCI data for the dyes and coatings sectors, demand from industrial customers for construction materials dropped sharply, while the demand for paints increased. During the first half of the year the continuing strong area for the industry was in consumer-related products. Above-average growth was posted for both pharmaceuticals and amateur photography chemicals, for example. Production of personal care products decreased slightly, but showed a modest increase in value. And although the production of detergents and cleansers dropped, the value of production remained steady at 1991 levels. Production in general picked up, VCI economists say. Capacity utilization was higher than expected, and production overall rose 3% over first-half 1991 levels. Part of that production increase is serving the export market, which is starting to improve, said Hilger, in the rest of Western Europe and in the U.S. Domestic sales, on the other hand, "will hardly exceed the results of the previous year. On the whole, we are expecting a

gradual recovery during the further course of the year." The industry's capital spending is running at the same level as in 1991, and is expected to total about $7.83 billion, he noted. R&D spending, at $7.23 billion, will be up slightly from the year before. However, employment fell about 1% in the first half of 1992, to 588,000, and, according to VCI, is expected to drop slightly again in the second half of the year. Having worked for years with officials at the German federal statistics office, VCI economists exude nothing but confidence about numbers for the western German states. Since the unification of East Germany and West Germany, however, and the subsequent transfer of some of the statistics officials to Berlin, the association is scrambling to develop valid, reliable statistics relating to the industry in the eastern states. VCI already has formed an eastern section, consisting of about 150 member companies and enterprises in the eastern states. According to Hilger, the structural reorganization needed by the chemical industry in the eastern states continued in 1991—"a drastic but necessary process." That process has continued, as well, into 1992, but now is edging into a stabilization phase. A few companies in the eastern states are actually now showing profits, and although most of them are running losses, the losses are smaller. For chemical companies in the eastern states, "sales from trading with Western Europe slightly increased," Hilger said, while business with East-

Winkhaus: production close to customers

invested in modern environmental protection measures," Hilger continued. And since 1990, air pollution has been reduced about 50%, and water pollution 70%. About half the chemical enterprises in the eastern states have been privatized, VCI estimates. The success rate varies from state to state. The major chemical complex at BunaLeuna in the state of Saxony-Anhalt, for example, is only about 20% privatized. However, the Treuhandanstalt is expected to decide by the end of summer on privatizing large parts of Strenger: facing up to responsibility the Buna complex, which ern European countries "is becoming would bring the overall success rate more and more difficult. Deliveries closer to 65%. Thus far, most of the investors in the from last year's contracts have been completed or will be completed soon. eastern states have been western GerFuture exports to Eastern Europe are man companies, perhaps not surprisuncertain, because there are consider- ingly, although the Treuhandanstalt has made a point of encouraging bids able financing problems." Employment continues to fall in the from companies outside Germany. Last eastern states' industry as well. Accord- year, West German companies invested ing to VCI, the average number of staff about $600 million in the chemical inper factory is now about 400, compared dustry in the eastern states—money with approximately 680 in January 1991. spent mostly on modernizing existing Indeed, more than half of the chemical plants and demolishing closed-down companies now employ fewer than 100 facilities. And long-term commitments tend to be substantial. people, the association calculates. A case in point is BASF's investment The chemical industry had been one of the last sectors to see much privati- in Synthesewerk Schwarzheide, one of zation action by the Treuhandanstalt, the first large-scale chemical investthe agency set up by the federal Ger- ments in the eastern states, in October man government after unification to 1990. After renaming the unit BASF privatize or sell off state-owned land Schwarzheide, the company is spending $360 million to modernize and exand enterprises in the eastern states. One of the reasons for the slow take- pand the urethane production facilities up of chemical properties has been the there. It has also committed another perception that various sites in the east $120 million for plants that will prowere highly contaminated. As Western duce waterborne auto coatings, extrudcompanies and investors have gone in, ed polystyrene foam, and expanded however, a better assessment of the en- polypropylene foam. vironmental damage has been made. Henkel has acquired three units in the Officials at the Treuhandanstalt orig- eastern states. One, a detergent plant in inally thought about 15% of the sites Genthin, is being refurbished to Western were contaminated. Closer inspection, standards, costing about $25 million, however, reveals that of those sites, said Hans-Dietrich Winkhaus, chairman 60% are not contaminated, and another of Henkel. The firm also has acquired a 25% only slightly so. Some 5% of the small adhesives plant near Dresden, and worrisome sites are in need of a small Hartol, a metal treatment company at amount of cleanup, and only the re- Magdeburg. Hartol had lost practically maining 10% are highly contaminated all of its markets to Eastern Europe, Winkhaus notes, and Henkel was runand in need of major cleanup. 'In 1991 alone, some $120 million was ning short of capacity for metal treat-

ment specialties, such as lubricants. The result: The firm is transferring some of its production to the eastern subsidiary. At its Guben subsidiary, where it has some 1300 employees, Hoechst produces polyester and nylon fibers, and plans a modernization program to cost about $60 million over the next few years, part of an anticipated $300 million investment in the eastern states. Other operations include a clutch of sites acquired when its Messer Griesheim subsidiary bought Technische Gase Leipzig in 1991 and two sites purchased earlier this year to make industrial paints. Many other companies, of course, have also invested in eastern Germany. The trick has been to balance commercial interests with moral obligation. As Hermann J. Strenger, recently retired chairman of Bayer, pointed out, "We are expected to help rebuild the eastern German economy." For Bayer, the investment plans began last year, when the company announced its intention to acquire a site at the Bitterfeld chemical complex. Total investment planned was nearly $400 million. "In this way, we are contributing to the economic regeneration of this region, and it is a gesture that should give the people of the area some hope and encouragement. The Bitterfeld project is proceeding according to plan, and we expect the first plant to come on stream there in mid-1994," said Strenger. Products planned for the site include personal care formulations, over-the-counter pharmaceuticals, coatings resins, and methyl cellulose.

Prices stable, output volatile in eastern Germany Index, June 1990 = 100 Chemical producer price

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Source: Verfoand der Chemischen Industrie

JULY 27,1992 C&EN 9

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"I think our commitment in Bitterfeld, which was not easy for us in the present economic climate, shows we are facing up to our responsibility/' Strenger added. Much of the investment spending in the eastern states is going toward environmental cleanup and modernization— steps the German chemical industry is already familiar with in the western states. Hoechst is a typical example. Its operating costs for all units involved in environmental protection last year were $662 million, with another $125 million invested for the purpose. More than 680 employees work full-time in the environmental protection sector, the company reports. In Germany alone, Hoechst is operating 22 large-scale wastewater treatment units. At the company's home complex near Frankfurt, it will soon be installing a further cleaning stage for the flue gas from its residue incineration plant and it is working to set up material recycling schemes. It has already started projects to recycle polypropylene, polyvinyl chloride, polyacetal, and polyester, and its chlorofluorocarbon refrigerants are to be marketed with a "take-back" guarantee. After considerable debate, the German chemical industry has adopted the rubric of the Responsible Care program to cover its industrywide environment, health, and safety program. Among the reasons for the debate and delay is the firm belief among many German chemical manufacturers that the Responsible Care program, sponsored by the U.S/s CMA and similar associations in other countries, represents an actual lowering of standards from the German "Chemie im Dialog" public commitment. The industry is proud of its pollution reduction record. For example, it has reduced organic contaminants and heavy metals in its effluents by more than 90% during the past 25 years, although production of all chemicals has almost tripled. Between 1979 and 1990, sulfur dioxide emissions to the atmosphere were trimmed 69%, nitric oxide emissions 54%, and organic compound emissions 66%. In 1990, companies created an association to develop a recycling system for plastic materials and to promote recycling and the marketing of recycled products. Despite the current low prices of petroleum and natural gas, the industry has not suddenly developed wasteful habits, squandering energy in its processing and plant operations. 12

JULY 27,1992 C&EN

Considering the chemical industry's past efforts, many in the industry feel a sense of aggrievement as state governments pass more and more regulations and laws concerning environmental standards. Bayer's Strenger, for one, has called for a period of consolidation for laws to be sorted out and implementation plans developed. As he told shareholders in April, "I am worried about the disproportionate rise in environmental protection costs, which no longer bear any relation to the benefits they bring and are endangering our competitiveness. We are not asking for standards to be lowered—we want to see further progress in this field. But we do need a different environmental policy if we are to achieve this." Among the environmental moves affecting the industry is the campaign of the federal environment minister, Klaus Topfer, to transform the German society from a "throwaway" society to one devoted to recycling. Key to his campaign is a new set of laws that force manufacturers and distributors to take back the packaging for their products, and the products themselves at the end of their useful lives. By the beginning of next year, for example, 50% by weight of all packaging

Strube: innovation stifled

must be collected, with 30% of the plastics, 70% of the glass, 65% of the tinplate, and 60% of the aluminum, paper, and cardboard recycled. That effectively translates to about 2.4 billion lb per year of plastics alone, if the targets are met. Moreover, by July 1995, the totals increase to 80% of packaging materials to be collected, with the reprocessing of 80% of plastics, and 90% of glass, tinplate, and aluminum. Incineration will not count as a reprocessing method, although the German government accepts the concept of chemical recycling, if it can be worked out economically. Incineration of plastic waste would have been the answer to meeting the target date, chemical companies believed—BASF, for one, was developing a scheme for deriving energy from the incineration of plastics. Now, the industry— as the ultimate supplier of plastic materials—is turning to developing technology for chemically recycling polymers for reuse. Under the aegis ofthe German Association for Recycling Used Plastic Packaging, the chemical industry recently sponsored what was termed a "successful large-scale experiment," at a coal-oil installation in Bottrop, Germany, where oil residues from crude-oil refineries are processed. The mixed and soiled plastic waste from household garbage was converted by hydration into high-quality oil that in turn was treated at the Ruhrol Refinery in Gelsenkirchen, for use as plastics feedstocks. The green dot system—devised by Duales System Deutschland for recovering packaging waste and by which a green dot is placed on recyclable packaging—still has a long way to go to meet the targets set by Topfer, who has ruled out any time extensions. Current recycling capacity is being swamped, and even the prospect of constructing several new recycling plants won't help all that much—the total capacity by year's end is expected to be about 220 million lb per year, or only about one tenth of what is needed. One result is a slowdown through the chain of product manufacture, distribution, and sale. Another is the export, still legal, of collected wastes to other European countries, in turn overwhelming recycling facilities and markets for recyclable waste in those countries. Another major concern for the industry is the threat of a federal carbon tax, a levy on carbon dioxide emissions, which would be significantly higher than the tax proposed by the Commission of the

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NEWS FOCUS European Community, which would ef­ fectively add $10 to the price of a barrel of oil by the end of the century. "The energy consumption of our in­ dustry—the energy consumption per thousand deutsche marks of gross value added—has been strongly reduced dur­ ing the past 30 years: with electricity, it dropped by 40% and with fuels, by 75%," according to Hilger. 'To bring about such achievements, we do not need any targets stipulated from the outside," particularly as part of a national, rather than international or global, effort to tackle environmental problems, he said. Other industry executives join Hilger in his arguments against such a uninational tax. It is scientifically irrational, they say, and economically unworkable. However, privately, others in the indus­ try gloomily expect a carbon tax to be passed anyway. The prospect of hand­ some tax revenues will be too enticing for politicians to turn down on mere sci­ entific grounds, they predict. If such a tax is passed, it will be just one of the burdens with which the Ger­

man chemical industry will have to cope. Another is the increasing challenge to prevent erosion of the country's hardearned productivity through escalating social and employment costs. For example, VCI began its rounds of negotiations with labor unions shortly af­ ter Germany was racked by public-sector labor strikes that were settled with con­ tracts featuring a 5.4% wage increase. VCI, working through the Bundesarbeitgeber Verband Chemie—the Association of Chemicals Employers—reached a basic 5.1% settlement with the chemical union, the IG Chemie. Included was an agree­ ment to trim the workweek gradually from 39 hours to 37.5 hours by 19%. "There has been a very realistic rela­ tionship between the chemical industry and the union, for a very long time," observed one industry executive. "Our workers have benefited from this." It remains to be seen, however, whether this "realistic relationship" changes in the future: IG Chemie is in the process of merging with the union of miners, considered a highly aggressive

union. Said another negotiator: "We are anxious to see what culture emerges. What we have had so far is a good, re­ sults-oriented relationship. Efficiency has been very important on both sides." Such challenges are encouraging the German chemical industry to proceed in its shift within Germany from bulk and basic chemicals to higher value-added and fine chemicals. Pharmaceuticals, for example, now make up the largest single sector in the German industry. Bulk plastics are being de-emphasized in fa­ vor of more specialty polymers. And the industry has almost completely phased out its fertilizers operations. Of Germany's Big Three companies, only Bayer—with the largest involve­ ment in pharmaceuticals—-did not trim its dividend to shareholders in 1991. Al­ though its profits dropped slightly, the drop was not so large as the profit de­ clines from 1990 were for the other two. And Henkel, with its extensive consum­ er-product businesses in detergents and personal care products, showed an in­ crease in profits for the year.

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When We Recommended Hydrogen Cyanide To Synthesize A Specialty Amino Acid, You Should Have Seen Their Reaction. I CH COOH

RCHO

RRtNH

RNH2 v

RN(CH2COOH)2 aminodicarboxylic acids

aminocarboxylic acids

Consider the molecular utility of hydrogen cyanide. This major petrochemical firm did. The result: significant improvements in process efficiency and cost. We'd like to see your reaction. Call us at W.R. Grace & Co.-Conn., Organic Chemicals Division, 55 Hayden Avenue, Lexington, MA 02173, (617) 861-6600, ext. 2506.

GRACE ORGANIC CHEMICALS CIRCLE 6 ON READER SERVICE CARD

16

JULY 27,1992 C&EN

Compiled by Chem ADVISOR, Inc.

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NH 2 R

REGULATED CHEMICALS DIRECTORY 1992

• Integrates key federal, state, national and international regulations •

Includes proposed regulations and advisory changes



Lists over 8,000 substances and 11,000 synonyms from over 100 separate listings



Extensively cross-referenced chemical names, synonyms, common names, and CAS Numbers

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