‘A Right to Play and a Right to Win’
Chemtura’s Organometallics Specialties Business is a Focal Point of Future Growth
Chemtura Corporation is a global specialty chemicals company with leading positions in diversified markets and net sales of $2.2 billion in 2014. Formed in 2005 through the merger of Great Lakes Chemical and Crompton, the Philadelphia, Pennsylvania-based company looks back on a history of almost 180 years. After the divestiture of its AgroSolutions business in 2014, Chemtura now focuses its business on two segments: Industrial Performance Products (IPP) and Industrial Engineered Products (IEP). Major industries served by IPP and IEP include transportation and energy & electronics. Within IEP, the Organometallics Specialties (OMS) business unit is slated to have a significant impact on the segment’s overall performance and profitability in 2015 and beyond. It has, thus, become a focal point for the company’s future growth. Ralf Kempf and Michael Reubold spoke with Alan M. Swiech, executive vice president and general manager of OMS, about recent achievements and his further strategy.
CHEManager International: In the past several years, Chemtura has invested nearly $80 million in OMS capabilities and infrastructure. What have been the key drivers for these investments?
A Swiech: The past several years have seen great change at Chemtura, and for our Organometallics business and its customers that change will be very positive. OMS supports a wide array of industries and markets. The cornerstone of our business – impacting both our base business and our growth opportunities – is the polymer industry, which includes the manufacturers of polyolefins and the producers of elastomers and rubber. We produce a number of metal alkyls for processes operated with Ziegler-Natta catalyst systems, but we see our best opportunities for future growth with the single-site catalysts designed for advanced engineered plastics. Our offerings for this growth market include proprietary and custom-made metallocenes and aluminoxane activators, which was a driver of our MAO investment. MAO is a critical component of our growth strategy going forward. Overall, our recent investments in the OMS business have been focused on products that support global megatrends like renewable energy generation and energy efficiency.
Which products and applications in particular?
A. Swiech: We are talking primarily about products like diethylzinc (DEZ ), trimethylaluminum (TMA), and methylaluminoxane (MAO). These specialty organometallic products are used – among others – in polymer production, in processes for production of semiconductor devices and photovoltaic modules. Electronics – optoelectronics in particular – and very-high-purity precursors that support the semiconductor market are important application areas for Chemtura Organometallics’ products. Right now, we are targeting the rapidly growing LED market – the future of energy-efficient commercial and domestic lighting. The market for photovoltaic applications, as well, is very important for us, especially solar panels. There are two different technologies being deployed in the photovoltaic area for thin-film crystalline solar panels – chemical vapor deposition and atomic layer deposition. The improvements in both technologies have created a demand for our TMA and DEZ investments. A large part of the investment we have made in the Organometallics Specialities business was to create those backbones – TMA in particular, but also DEZ capabilities. We are now positioned as a key supplier of precursors to both of those applications.
These products just mentioned and the acquisition of UP Chemical’s 50% stake in our joint venture DayStar Materials make up the vast majority of the recent investments. We have also made important investments in the next generation of tin intermediate feedstocks.
Talking about DayStar, can you share a few details of the transaction with us?
A. Swiech: Formed in 2011 as a joint venture of Chemtura and UP Chem, DayStar is a South Korean manufacturer and marketer of high-purity metal organic precursors for the LED market. We executed a buy-out of the JV partner in May of 2013. Chemtura now owns a 100% interest in the company, which has been integrated into the Chemtura Organometallics business. Our intention is to establish fully integrated manufacturing, quality, service and distribution capabilities in Asia supporting our electronic-grade trialkyl product portfolio of trimethylgallium (TMG), triethylgallium (TEG), and trimethylindium (TMI).
One of the reasons we chose to take full ownership of DayStar is the fast-paced nature of the electronics industry. Opportunities can appear and disappear quickly, and we felt DayStar would be more agile under Chemtura’s sole control. If you are positioned as a reliable, capable producer of these high-purity precursors, you have a great opportunity to make some money. But competitors jump into the arena very quickly, and things get commoditized. With the joint venture structure it was challenging to move quickly. One of the lessons we have learned was that the LED market for flat-panel backlight TV screens was a huge opportunity and we did not participate in that market at the point where we wanted to.
With full ownership of DayStar Chemtura is now better positioned to participate in the future growth of the LED market?
A. Swiech: Yes. The next wave of LED growth is with the growing global substitution of traditional lighting with LED technology. Solid-state household applications, automotive and general lighting – we see these segments growing at 12 to 14% a year. What is also developing now are several advanced LED technologies: UV LED, purification through lighting rather than conventional methods of killing pathogenic germs, is rapidly evolving. And that has the potential for significant double-digit growth rate over the next years. So we have huge expectations and are very bullish on the LED portion of the semiconductor market over the next five to ten to fifteen years.
The growth prospects of the LED market have been the reason for our DayStar investment including the full range of LED precursors in Korea with complete backwards integration into the essential TMA feedstock that we produce at Bergkamen, Germany. From TMA we create the whole family of high-purity electronic-grade products—TMG, TEG and TMI—to satisfy the optoelectronics markets.
Thus, the technologies where we have focused most of our recent investments tie back to these global megatrends we have been talking about. The significant investment in these technologies and product lines has increased our capability to address what we believe are major growth areas for the next decade and beyond.
Besides the megatrends mentioned, what other applications is Chemtura Organometallics serving?
A. Swiech: The market for pharmaceuticals and fine chemicals represents a smaller portion of our overall portfolio, but they are important parts of our growth initiatives. Our metal alkyls like DEZ and also our organotin compounds are used as reagents to make active ingredients or key building blocks for both industries. I believe that we have the broadest portfolio of precursors that are qualified in the pharma drug master file. The pharma industry is far different compared to the electronics industry, but there are attributes of this market that are very encouraging for us and that fit what we do well.
Finally, less profitable but important to base load and important to our overall business structure, are the vinyl additives producers, in particular manufacturers of PVC tin stabilizers.
The increase of the production capacity at your Bergkamen site in Germany has been a key investment?
A. Swiech: Yes, the expansion of our methylaluminoxane production in Bergkamen, Germany has been a key investment for us. MAO is a critical component to our growth strategy going forward. It is fairly difficult to produce and to transport, and it is extremely customized for the application and the system in which it is used. In Bergkamen, we are fully backwardly integrated with new highly efficient manufacturing lines for TMA from which MAO is synthesized. From TMA we create the whole family of high-purity electronic-grade products, TMG, TEG and TMI, to satisfy the optoelectronics markets. TMA is produced in Bergkamen, but we have created stocking and handling capabilities across our global footprint, including DayStar in Asia. One of the advantages we have at Chemtura is that we have more than 55 years of experience in producing, handling, shipping and in helping our customers handle and store these types of materials. So the investments in this area are centered around creating and enhancing our capabilities to support this very challenging product.
MAO is a main component of single site catalyst products that enable the customization of polymer properties. These superior performing products allow manufacturers who use MAO-based catalyst systems in their products to better differentiate themselves in the marketplace; as a result, the market demand for MAO continues to grow.
In terms of geographies, what do you see as your most important markets?
A. Swiech: One of our most important markets is certainly Europe. We have a significant presence there and we like to think that this is our backyard and that we should be a predominant player in the industries that we support in Europe. We consider the Middle East as part of our European region, particularly the polyolefin business in the Middle East, that is a key area for us as well. We have a smaller presence in North America, but there are significant growth opportunities there, so we also consider North America an important region. As such, we have made recent investments and production site upgrades in our Mapleton, Illinois faciltilty to better position ourselves for the projected growth in NA due to shale gas. But, if you are talking electronics and photovoltaics, and even pharma, you are talking Asia. Therefore China, India, Korea, and Japan are also all very important countries for us.
What is your strategy for further growth and supporting the growth of the OMS business?
A. Swiech: Our focus is on emerging growth markets such as the ones discussed. I think we very much have a right to play and a right to win in these areas. Focusing on these markets where there is substantial growth gives us a very good position to win. We believe that we are positioned very well to take advantage of those opportunities. So we have high hopes and expectations for our ability to succeed there.
Another strength of Chemtura Organometallics Specialties is our R&D expertise. We do not have a big R&D center; we are fairly “lean and mean” but very effective. 30% of our revenues are from products released in the last five years, and we expect to be able to continue that for the next few years.
Does your strategy also include that you look after acquisition targets or potential partners?
A. Swiech: For the near term the answer is no. Over the last several years we had been exploring many such partnerships and strategic alliances to a level that was distracting for the organization and resulted in an underperformance of the business. Therefore, we have refocused ourselves on what we do and the investments that we have made, and we have taken an honest assessment of our strengths and opportunities. Particularly in 2015 we are going to focus more on the things we can control and the things that we do best, and then start to open our minds more to other strategic alternatives. We are always scanning the environment and we are always willing to explore options, but at this point our focus is on our core capabilities.