BUSINESS A LINK IN THE CHAIN Fibers are produced in DAK's Charleston, S.C, plant near the Cooper River.
DAK TAKES PLUNGE INTO POLYESTER Firm sees back-integration to terephthalic acid as key to long-term profitability and growth MARC S. REISCH, C&EN NORTHEAST NEWS BUREAU OT MANY COMPANIES ARE EAAlfa's Alpek petrochemical and fibers unit. ger to get into the U.S. polyester With PTA capacity of 4.4 billion lb per business. It's not just a slow year, Camberos boasts, Alpek is now the business, like so many others second largest global producer after BP. It today, because of economic will seek to realize a profit based on growth conditions. In some sectors, such as textile in demand for this feedstock, which, along fibers, it's downright moribund because of with ethylene glycol, is essential to polyapparel and fiber imports. ester production. So observers are likely to take notice Alpek took on some $180 million in when a firm takes over a huge slug of polydebt in July to purchase DuPont's assets, ester business. That firm is DAK AmeriCamberos says. Those assets include a $1.3 cas, which last July acquired DuPont's business in polyester resins and purified terephthalic acid (PTA). By April, it will own DuPont's Dacron polyester staple fiber business outright, too. W h a t differentiates this polyester maker from others is its vertical integration from feedstock to fiber and a strategy to measure its profits on the success of its entire business rather than on the individual units. Hector R. Camberos, 53, president and director general of DAK, a part of Mexican conglomerate Alfa, explains: Camberos Walker "We are players in the PTA value chain. Resins and fibers are the distribution chanbillion-lb-per-year PTA plant in Cape Fear, nels." Camberos understands the dynamN . C . ; a 2 8 0 million-lb polyethylene ics; he was a textile executive with DuPont terephthalate (PET) plant in Fayetteville, N.C.; and polymerization facilities in Cape for 30 years before joining DAK. Fear and in Charleston, S.C. The assets alDAK started in 1999 as a joint venture, so include DuPont's U.S. polyester staple called DuPont Akra, between DuPont and
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operations and the well-known Dacron staple trademark. The deal with DuPont provides rights to DuPont's technology in polyester, but not PTA. Parent Alpek already has PTA expertise in-house through a Mexican producer, Petrotemex, that includes partner BP. W h e n Alpek announced the acquisition of DuPont's assets last June, it said it would use its own expertise at the U.S. PTA plant to "improve its competitive position." WHEN ALL the pieces are finally assembled, DAK will be a company with 1,500 employees at the former DuPont sites in the U.S. and Alpek's fiber plant in Monterrey, Mexico. Camberos, a chemical engineer with a degree from the University of Florida, says the company, based in Charlotte, N.C., will have sales this year of about $650 million and earnings before interest, taxes, and depreciation of $50 million. Though DAK is also a merchant marketer of PTA, it plans to use most of the feedstock to supply its P E T packaging resins business, which has annual capacity of 350 million lb, and the staple fiber business it will soon own outright, which has capacity of 700 million lb. The staple fiber business is the most troubled. U.S. manufacturer shipments of textile polyester were down 14% to 1.8 billion lb for the first 11 months of 2001, according to the most recent statistics put out by the Fiber Economics Bureau. Meanwhile, US. imports of polyester staple through the first 10 months of 2001 were 522 million lb—about the same as in the comparable period in 2 0 0 0 —according to the Fiber Economics Bureau. It's no wonder then that Wellman, a major DAK competitor, has idled fiber capacity And even Kosa, the former Hoechst polyester business now owned by Koch Industries, has been hurt by fiber and finished fabric imports. Kosa let go 110 employees at its Shelby, N.C., polyester plant in November. DAK has a strategy to prop up the fiber business. Basil B. Walker, a 26-year veteran of DuPont who is now DAK's vice president of sales and marketing, says the company will continue to sell a "competitive"
We are players in the PTA value chain. Resins and fibers are the distribution channels/' 16
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commodity staplefiber—hecalls it the flywheel of thefiberbusiness—to home furnishing and nonwoven fabric makers. But DAK will also sell "differentiated" fibers to apparel makers. For instance, DAK is offering a fiber called Dacron Plus for apparel. "It is a patented oval-shaped fiber that blends more easily and feels softer than most other polyesterfibers,"Walker says.
SHELL BUILDS UP IN ASIA-PACIFIC Petrochemical company's new structure emphasizes big, low-cost operations JEAN-FRANCOIS TREMBLAY, C&EN HONG KONG
ANOTHER ADVANCE isafiberblend called Hydrotec, for use in active wear and school uniforms. Walker calls it a 'Smashable wooL,, Hydrotec is a blend ofpolyester, wool, and acrylic that yarn spinners make using technology licensedfromDAK. Ultimately, DAK is counting on expanded trade with South America to fuel demand for U.S.-producedfiberand fabric that is assembled in South America and sold back to the U.S. and to other countries. In the resins business, DAKis counting on a return to historic growth levels for PET of 8 to 10% annually in the U.S. and 20% in Mexico and South America. Camberos says he knows those growth rates will vary up or down in any one year. "Volatility is typical of this market. We don't see it going away" So DAK will cope with the volatility; it still plans to spend $50 million over the next year to double PET resin capacity at its Charleston site and to increase efficiency and give a marginal boost to PTA capacity at Cape Fear. DAK has only about a 5% share of the PET market, but it envisions strong growth, especially for custom packaging of such items as beer, health drinks, beauty products, and pharmaceuticals. Tom Sherlock, thefirm'sresins business director, expects the conversion in these markets from glass and other plastics to PET to drive growth as high as 15% annually Camberos says R&D spending, at about 3% of revenues, or $20 million annually, will help DAK to expand its PTA,fiber,and PET packaging resins business. It is especially important that research help keep the domestic PET business strong. "We want to make sure Asian producers do not gain a significant position in packaging, as they have done in textiles," he says. Where DuPont saw a mature business that no longer had the growth potential it sought, DAK sees growth opportunities. Sure, Walker admits, "we operate in a tough environment, and it has been tough, too, for our customers." But Camberos vows that DAKwill maintain profitability in the PTA value chain by taking the technical lead and becoming the lowest cost producer of monomers, resins, and fibers. • HTTP://PUBS.ACS.ORG/CEN
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HELL CHEMICALS IS ABOUT TO
make its presence felt more forcefully in Asia. It is preparing to build a large petrochemical plant at Nanhai in southern China and is considering another complex in Singapore. The company's competitors in Asia not only will see more of Shell, they will face a less costly Shell. The firm's new organizational structure stimulates its managers to minimize costs of production. The growing presence in Asia of multinational petrochemical companies is putting local companies under pressure. Unlike Shell's, most Asian petrochemical plants are not integrated with refineries, and they use production processes licensed from other companies. "The money in chemicals is in buying cheap," says Rein Willems, head of global procurement at Shell Chemicals. "Ifou buy feedstock cheap. If you look at where the costs ofpetrochemicals are, 70% of that is hydrocarbons." Although they buy some feedstock from third parties, most Shell Chemicals plants source their material from Shell refineries located nearby According to Willems, a petrochemical producer trying to contain costs will meet with far more success by
sourcing feedstocks skillfully than by cutting staff. Salaries, he adds, represent no more than 15% of the cost of production. "I am telling you all the secrets," he jokes. Under the structure Shell Chemicals implemented just over a year ago (C&EN, Dec. 18,2000, page 12), some of its top managers are simultaneously responsible for product lines, business functions, and geographical territories. FROM HIS BASE in Singapore, Willems oversees operations in the Asia-Pacific region and the Middle East. In addition to managing the procurement needs of the entire company Willems oversees four of Shell Chemicals' seven product lines: lower olefins, aromatics and phenol, glycols, and solvents. In London, Scott Roberts, a Shell executive with seniority and professional scope similar to Willems', oversees Europe and Africa and Shell's global manufacturing operations. In Houston, Fran Keeth manages the Americas, global customer fulfillment (delivering goods and receiving payment), as well as higher olefins, styrene and propylene oxide, and propanediol (C&EN, July 2,2001, page 15). l b preserve its market share as the overall market grows, Shell will have to invest
Asian operations Shell Chemicals' presence is growing LOCATION Ellba Eastern
Singapore
Ethylene Glycols Singapore
Singapore
Petrochemical Corp. of Singapore
Singapore
Polyolefin Co.
Singapore
Saudi Petrochemical Co. Saudi Arabia Seraya Chemicals
Singapore
Shell Chemicals Japan
Japan
PRODUCTS Styrene and propylene oxide Japanese consortium Ethylene glycol and headed by Mitsubishi ethylene oxide Chemical, 30% Japanese consortium Olefins headed by Sumitomo Chemical, 50% Sumitomo Chemical, Polyolefins 70% Sabic, 50% Olefins, ethylene dichloride, caustic soda, ethanol, and styrene Styrene, propylene oxide, and polyol Showa Oil, 25% Wide range of basic
VENTURE PARTNER BASF, 50%
industrial chemicals
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