BUSINESS
creases have not been able to compen sate for raw material increases. We are still under the gun as our profit mar gins remain under pressure." Alan A. Yuzwa, a rubber product manager for Ameripol Synpol, also based in Akron, acknowledges raw material price increases have been dif ficult to pass along. The company hoped to gain some control over raw materials with its recent purchase of J. M. Huber's carbon black business. Even though the company must still purchase its styrene and butadiene raw materials from outside suppliers, it now has a captive source of carbon black. And as a supplier of SBR mixed with carbon black, called masterbatch black, it will have an edge over com petitors when it supplies industrial rubber and tire rubber producers with the SBR mixture, says Yuzwa.
Although prices have increased for polybutadiene and its raw materials, at least one producer is willing to expand its North American capacity. As part of a $47 million expansion of its rubber capacity, Bayer will add 350,000 metric tons of annual polybutadiene capacity in Orange, Texas, by mid-1996 to "strengthen its position" in the market, says John Swett, rubber group senior vice president. "The problem with the rubber indus try is that a lot of people in it tend to be cost- and not market-driven," says one industry source. It seems inevitable, however, in an industry where tire and industrial rubber products fabricators may have a degree of latitude in their choice of natural and synthetic rubber types, that pricing consideration will continue to drive the large-volume rub ber business. Π
Higher prices lift fertilizer producer earnings Worker monitors cured tires in Goodyear's Gadsden, Ala., plant.
markets grow and demand increases, new SBR capacity will come on-line in Asia soon. Dick says Goodyear has li censed Hyundai of South Korea to use Goodyear technology to build a 60,000metric-ton-per-year SBR plant, as well as a 40,000-metric-ton-per-year polybutadiene plant and an 11,000-metricton-per-year nitrile rubber plant. Dick wonders whether metallocene catalysts can help produce SBR with improved performance properties for tires. The mix of rubber used to manu facture a tire requires "engineering" the ratio of rubber types used to get a balance of properties such as traction, rolling resistance, and durability. Metallocene-based SBR, if it ever becomes a reality, could help tire producers de sign tires with fewer trade-offs. "We would invest in metallocene-based pro duction if it makes sense economical ly," he says. Polychloroprene demand has been strong, says Andrew Summerscales, a marketing manager in Bayer's fiber, organics and rubber division based in Akron. He says he has seen slight soft ening of polychloroprene demand in the second quarter "as auto sales slow." But EP sales have remained above 1994 levels in the North Ameri can markets. He adds, "Our price in 14
AUGUST 14, 1995 C&EN
Despite lackluster consumption in the U.S., higher prices and increased ex ports helped North American fertilizer producers make spectacular earnings gains in the 1995 growing season. An ticipated worldwide demand growth could push next year's earnings even higher. Mississippi Chemical, Yazoo City, Miss., reported a 94% increase in earn ings for continuing operations for its fis cal 1995, which ended June 30. Arcadian Partners, Memphis, reported net income for the first six months of 1995 at $136 million, compared with $45 million in the same period in 1994. And Potash Corp. of Saskatchewan (PCS), Saska toon, Saskatchewan, reported record earnings, with net income for the first six months up 123% over 1994 levels. Producers cite tight supplies and low raw material costs for improved operat ing margins. "The strong quarterly re sults reflect the continuation of favorable pricing trends for our key nitrogen products while U.S. natural gas costs re mained relatively low," says}. D. Camp bell, president and chief executive officer of Arcadian Corp., general partner of Arcadian Partners. "We expect this trend to continue to provide favorable results for the balance of 1995." Mississippi Chemicars president and CEO Charles O. Dunn also points to "fa vorable natural gas costs while product prices were buoyed by tight supply con-
ditions and strong international de mand." Nitrogen fertilizer prices rose 12% with sales volumes up 3%; potash fertilizer prices increased 3% with vol umes down 11%; and diammonium phosphate fertilizer prices jumped 22% with volumes up 10%. But higher prices for raw materials sulfur and ammonia offset gains in phosphate products, says PCS, which acquired phosphate fertilizer producer Texasgulf in the second quarter of this year. Volumes for potash and phos phate were down, reports the compa ny, "but prices were up considerably." Worldwide demand for fertilizers grew significantly. Fertilizer sales have been growing rapidly in China and In dia and at double-digit rates in Brazil, says Douglas Groh, vice president and analyst at investment bank Merrill Lynch in New York City. In the global fertilizer market, exports of U.S. phos phate fertilizers and Canadian potash fertilizers have been strong. PCS says record potash fertilizer sales to China helped the company to a new six-month sales tonnage record. North American volumes were up 8%, reaching 2.9 billion lb for the first six months of 1995, and offshore volumes were up 9%, reaching 4.8 billion lb. And new contracts between China and producers of diammonium phosphate were announced in May. Meanwhile, in the U.S., fertilizer de-
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mand was down. Among the reasons for the decline: Some growers shifted corn acreage in the Southeast to cotton because of its higher prices; other acreage was shifted to soybeans, which use less of the now-pricey fertilizers; and, although corn inventories were already at low levels at the beginning of the 1995 growing season, the U.S. government instituted an acreage "set aside" of 75%, up from none in 1994. Next year, U.S. and worldwide demand for fertilizers is likely to rise. Worldwide grain inventories are at their lowest levels in two decades. "Wheat is at a record low, corn is at a 22-year low," says Groh. "Low grain stocks worldwide should stimulate increased plantings and fertilizer use," says Donald Carson, vice president at investment firm J. P. Morgan Securities, New York City. Carson anticipates pricing to be very strong for 1996, rising soon from the summer cyclical lows as winter wheat plantings start in Texas. "Expect a strong fall season," he states.
Shutdowns and outages kept supplies tight. Terra Industries' December 1994 explosion at its Port Neal, Iowa, complex eliminated capacity for 154 million lb per year of merchant ammonia, for 900 million lb per year of nitrogen solutions, and for 130 million lb of urea. Air Products & Chemicals shifted a nitrogen facility over to hydrogen production. And poor market conditions prompted IMCFertilizer use is projected to rise in the U.S. next year. Agrico—the joint venture of IMC-Global and Freeport McMoRan neering, and restarting plants. With Resource Partners—to suspend produc- profits as good as they are, says Groh, tion of diammonium phosphate at its "for any producer who isn't debottleTaft, La., plant in May and led Arcadian necking, the question is, 'Why aren't to shut its Savannah, Ga., nitrogen fertil- they?' " izer plant in April. IMC-Agrico brought its Taft plant Nitrogen fertilizer profits are ap- back into operation on Aug. 7. Arcadiproaching reinvestment levels, says an is reengineering its 3.7 million-lbGroh. Many producers are tending to- per-day plant in Trinidad. And Terra's ward process improvements, reengi- Port Neal plant is expected to be pro-
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AUGUST 14,1995 C&EN
15
BUSINESS
Fertilizer prices trend up, despite recent seasonal dip $ per ton, composite price
ducing fertilizers for the 1996 spring planting season. Analysts see growing market savvy in producers worldwide that could help them maintain prices at new, higher levels. Prices have already bene fitted from industry consolidation and more disciplined pricing among pro ducers, Groh says. And producers are acquiring more dealerships. With fewer producers and fewer sellers, he says, no longer are a multitude of traders and brokers underbidding each other to cause a downward spiral in price trends. Producers are managing inventories rather than unloading them at rockbottom prices. "Supply management is becoming more of a tool/7 Groh says. In addition, countries of the former Soviet Union have learned the laws of supply and demand. As the world's largest producer, Russia has accepted the role of "swing" producer of nitro gen fertilizers—idling units when sup plies swing above demand. PCS, mean while, is the swing producer of potash
F 1993
M A M J 1995
1994
Note: Composite price is nonweighted average of prices for urea, anhydrous ammonia, diammonium phosphate, potash, and sulfur. Prices are for first week of each month. Source: Merrill Lynch
fertilizers. IMC-Agrico is the swing producer of phosphate fertilizers. Carson suggests that ammonia fertil izer prices may have found a new floor. Although down from the $260-per-ton level of March, he says prices are likely to rise in a seasonal swing, staying well above earlier $100-per-ton levels.
But the low grain stocks are the most important price drivers, says Carson. In the early 1970s, it took growers three years to restore world grain stocks to adequate levels, he explains, so look for a multiyear period of strength for fertil izer prices. Elisabeth Kirschner
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