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November 08, 2010 01:00 AM

S. Korea's Songwon still growing globally

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    South Korean plastics additives maker Songwon Industrial Co. Ltd. continued its aggressive global march at K 2010 in Dusseldorf by launching an Indian joint venture, completing a previously announced Chinese joint venture and revealing a $20 million expansion of antioxidants production capacity in its home country.

    Next up: most likely more Chinese joint ventures and an additives plant somewhere in the Middle East.

    The fast-growing, publicly listed firm on Oct. 29 signed a letter of intent with India's HPL Additives Ltd. to form Songwon HPL Additives Pvt. Ltd. The Ulsan, South Korea-based company will own 60 percent of the new venture, which has a 22 million-pound-a-year polymer stabilizers plant in Dudhola, about 30 miles from New Delhi.

    In announcing the deal, Jongho Park, Songwon Group's chairman and CEO, said the venture “will allow the integration of production capabilities in India with Songwon's world-scale production capabilities in Korea.”

    Maurizio Butti, CEO of Songwon's unit headquartered in Frauenfeld, Switzerland — Songwon International AG — explained some of the rationale behind the deal.

    Songwon wanted to increase its production of one-pack system blends — customized blends that contain specific doses of various additives available in several different physical forms. HPL also was interested in getting into that type of product.

    The Middle East is a particularly hot market for one-packs, and “India is logistically well-positioned to serve the Middle East,” Butti said.

    So the new Songwon HPL joint venture is likely to devote more than half its production to manufacturing components for one-packs. And then, Butti said in a follow-up interview Oct. 31, Songwon will want to start producing finished one-pack blends at a plant in the Middle East, though the location has not been determined.

    HPL Managing Director Umesh Anand, who participated in the signing, said about 90 percent of the Indian plant's current output is antioxidants, with the balance being light stabilizers.

    Songwon, meantime, also announced it has reached a definitive agreement with China's Tangshan Baifu Chemical Co. Ltd. to establish a joint venture to make and sell thioester antioxidants in China. The new company, Songwon Baifu Chemical Co. Ltd., aims to offer a wider product range to Chinese customers, while also exploiting the South Korean company's global network for selling outside the Chinese mainland.

    Songwon initially purchased a 30 percent stake in the venture, but has the option to expand its share to 50 percent, Park said. The venture, expected to begin operating in the first quarter of 2011, will have a production capacity of 13.2 million pounds.

    The alliance is likely to be just the first of such Chinese joint ventures for Songwon, Butti said. The firm restructured its China operations earlier this year to facilitate future investments on the mainland. It formed Hong Kong-based Songwon China Ltd. as the vehicle for such deals. Butti said his firm is involved in several discussions with potential Chinese partners — one of which is likely to involve making antioxidants and another to make ultraviolet-light stabilizers.

    Meantime, its previously announced plans to buy out the remaining 40 percent stake in Shanghai-based Songwon Brilliant Chemicals Ltd., a manufacturer of liquid formulations, has been delayed but is proceeding and should be completed soon, he said.

    Songwon, which employs 420 worldwide, also is expanding the antioxidants production capacity again at its plant in Maeam, South Korea to 154 million pounds from 121 million pounds.

    That upgrade is expected to be on stream by next August, and will involve consolidating the output of Songwon's Songnox 1076 product at the fully backward-integrated Maeam facility.

    Butti said global demand for polymer additives has recovered sharply this year after slumping due to the recession. Capacity utilization rates have risen from 70-75 percent in 2009 back up to about 90-95 percent now. And he predicts global demand for such products will continue to rise by 4-5 percent a year at least until 2015.

    Songwon says its growth has established it as the “clear No. 2” in the polymer additives market, after Ciba Holding AG, which was acquired last year by Germany's BASF SE.

    Songwon projects its global sales this year will reach about $481 million, up from about $380 million in 2009. The firm's goal is to hit sales of $700 million by 2015, Butti said.

    After the HPL Indian deal was announced, Butti said Songwon's share price jumped 15 percent in one day, causing the Korea Stock Exchange to temporarily suspend trading of its shares. Trading resumed the next day and rose another 3 percent, he said.

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