BASF AG is considering the future of its struggling styrenics division and plans to negotiate with a company that once made an offer for some of the division's units.
The unnamed bidder, described as ``a company experienced in the global commodities sector'' by BASF's plastics business head, John Feldmann, is interested in buying the giant chemical group's styrene monomer, polystyrene, styrene copolymer and ABS businesses.
Posting annual sales last year of 3.2 billion euros ($4 billion), those operations run plants in Antwerp, Belgium; Altamíra, Mexico; São José dos Campos, Brazil; Ulsan, South Korea; and Dahej, India.
BASF, based in Ludwigshafen, Germany, disclosed that it received the offer as it evaluates options for parts of the styrenics division. In the future, the company wants to focus its styrene units on foams and specialty products for construction, automotive, packaging and sport and leisure markets, division President Hans Reiners said.
Styrenics activity earnings improved after BASF worked on optimizing efficiency, but Feldmann said ``further repositioning steps'' are needed to meet ``appropriate profitability levels.'' Feldmann is group executive director responsible for BASF's plastics and oil and gas divisions.
``We will begin talks to examine this initial offer as well as consider other options,'' Feldmann said in a news release.
He said BASF is looking for a buyer with a global commodities portfolio that can tap the potential of the division's various styrenics activities in a highly competitive market.
There is industry speculation that Lyndhurst, England-based Ineos Group may be the interested company. Other potential buyers might be Riyadh, Saudi Arabia-based Saudi Basic Industries Corp. and Reliance Industries Ltd. of Mumbai, India.
BASF has reshaped its operations, particularly in styrenics, in recent years. Closures and disposals included the elimination of ABS and polystyrene plants in the Netherlands and Spain, respectively, and the sale of a Joliet, Ill., plant to Ineos in 2005.
Earlier this month at a news conference in Germany, Feldmann said market price hikes in styrene raw materials, due to the cost of benzene, have led to the substitution of other products.
``Polystyrene has priced itself, to some extent, out of the market, which we see with the shrinking market for PS, for example in North America, and a stagnating market in Europe,'' he said. ``Especially in styrene plastics, we have distanced ourselves from locations and activities [that] were no longer competitive or could not be operated profitably for us in the long term.''
BASF is investing in innovative styrene-based insulation materials as that demand is driven by world energy-efficiency programs in construction. The firm plans to triple capacity of its insulation material Neopor, produced at its Ludwigshafen plant. Capacity there will reach 419 million pounds annually by the end of 2008, up from 132 million pounds now, said styrenics division chief Reiners at a recent news conference in Frankenthal.
BASF sees good growth potential for Neopor in Western Europe, where some countries are pushing energy efficiency, and the company expects to launch its products in other markets, including Asia.
Neopor is a silvery-gray material based on very small graphite particles that reflect radiation like a mirror, Feldmann said.
``We are starting plants [for Neopor] in Asia. One was started in [South] Korea in March-April this year. We are launching products first in Korea and then in other markets,'' Reiners said. ``[Also], we are studying opportunities in North and Latin America, but we are not there yet.''
BASF has been preaching the merits of energy efficiency in house building for seven years, and suddenly it has taken off, according to Feldmann.
``Suddenly, we see even in the U.S., but everywhere in the world, there's now an increasing interest in building energy-efficient houses,'' he said. He added that China is a key target country.
In addition, BASF has been strengthening its engineering plastics and polyurethane specialties by investments and acquisitions. Its sales of engineering plastics are growing at an average of 9 percent a year - faster than the market, Feldmann pointed out.
BASF, he said, is about to double capacity of high-temperature engineering plastics, which are proving important and highly profitable.
Feldmann said BASF is satisfied with its PBT capacity and has developed a series of new grades, despite the suggestion that some polybutylene terephthalate producers are complaining the business has become difficult.
One grade, a high-speed PBT marketed as Ultradur High Speed, offers more efficient injection molding processing.
Looking forward, Feldmann said BASF recognizes the big growth rate of plastics demand in Asia - expected to be 6.3 percent annually through 2015, when it will reach 330 billion pounds. This year, he noted, Asian demand is greater than that from Europe and the North American Free Trade Agreement states combined.
Global consumption of plastics materials is set to increase from 458 billion pounds in 2006 to 723 billion pounds by 2015. Growth in North America is predicted to be 4.2 percent, while Europe will rise by just 2.9 percent, according to BASF figures.
Feldmann's group plans to develop new capacity in Asia, but Europe still represents BASF's biggest investment area.
``We invest in Asia to serve the Asian market. We still develop our portfolio and invest in Europe and the U.S., but the focus will be on Asia,'' he said. He denied any plans to downsize materials production in Europe in favor of Asian expansion.
China and the wider Asia market remain a net importer of plastics and chemicals, Feldmann said.
``I don't necessarily see China as a net exporter of plastics, but certainly a net exporter of products made from plastic. [It's] simply due to the cost situation that you have in terms of energy costs, the cost of land and construction,'' he said.
BASF's goal is to grow its key plastics segments by 2 percent above market growth, but in certain areas like PU and engineering plastics the company expects the advance to be even greater, Feldmann said.
He said BASF is not planning any major acquisitions, partly because this would be difficult when it is already a leader in its markets. Also, he said the firm is not interested in deals at a time when plastics businesses are being purchased at such high prices.
However, Feldmann did not rule out acquisitions of smaller businesses in highly specialized product areas where BASF wants to grow.