PITTSBURGH (July 26, 1:35 p.m. ET) — At Bayer MaterialScience LLC, the firm's polycarbonate business is finding a life beyond compact discs.
For many years, CDs, DVDs and other forms of optical media dominated the PC market and provided double-digit growth. But changing technology and customer preference has greatly diminished CD sales, leading PC makers such as BMS to look elsewhere.
BMS executive Jim Chrise — who serves as senior vice president of the firm's commercial PC operations in North America — believes there's good reason for optimism at BMS, which is a unit of plastics and chemicals giant Bayer AG of Leverkusen, Germany.
“The economy was relatively strong in the first quarter,” Chrise said in a recent interview at BMS North American headquarters in Pittsburgh. “Manufacturing is strong, so we're pretty bullish on polycarbonate.”
The U.S. automotive market has played a big role in improving the fortunes of the region's PC market. After bottoming out at less than 9 million vehicle builds in 2009, the market has snapped back quickly and could approach 15 million vehicles this year.
“Auto continues to be very strong,” Chrise said. “There's more polycarbonate being used per vehicle.”
Bruce Benda, automotive market development vice president, added that the industry's build numbers are up because of pent-up consumer demand.
“We thought [automakers] might have been building inventory, but that's not the case,” he said.
Benda said that because of interest in fuel economy and lightweighting, PC has a strong hold on headlamp assembly covers that incorporate LED technology, where PC provides good optical clarity. PC now is making inroads into rear lamps and wheel-house applications, he added.
Window glazing remains a large potential auto market for BMS, although it hasn't developed as quickly as the company had hoped. PC “is a value proposition on windows, because it's a better insulator than glass,” Benda said.
“It can reduce the load on air conditioning, and that would reduce energy and carbon dioxide emissions.”
Earlier this year, BMS bought Arkema Inc.'s North American PC sheet business. That deal included a PC sheet plant in Kensington, Conn., that will remain open for now. “The sheet market is still a good market for us,” Chrise said. “We had been competing with Arkema in some areas. Their sheet has good optical quality, and the business fits into our strategic growth.”
Recent commercial launches for BMS includes new PC/ABS blends with high dimensional stability for thin-wall auto applications. Chrise said the firm needs application development to sustain its growth rates.
Benda said the auto comeback has allowed auto suppliers “to spend a lot more energy in innovation.”
“Now that the [auto] Industry is back, suppliers want more differentiation,” he said.
Chrise cited direct skinning/coating, where PC auto parts can be covered in polyurethane, also from BMS, as a new method that could save time and increase efficiency. The process, developed in conjunction with machinery firm KraussMaffei, also would eliminate potentially hazardous and costly painting. The method could have applications in consumer applications, tools and auto parts.
In non-automotive markets, except medical, development work also slowed down during the financial crisis, said George Paleos, global medical and consumer industrial marketing vice president. “Companies reduced the size of their [research and development] staff, and product engineers were asked to focus on re-engineering and cost reduction,” he said.
But R&D work now is coming back, as a result of what Paleos described as “market-driven innovation,” in a range of markets including medical, electrical/electronics, energy management and renewables. BMS even has seen new applications in point-of-sale packaging for smart phones and other portable compact devices.
U.S. PC sales and distribution Vice President Sam Stewart said BMS, like numerous other firms, is seeing some business start to reshore its way back to North America. Work returning in the packaging and electrical/electronics sectors has been handled “pretty seamlessly” by BMS because of its global position in manufacturing, Stewart said. Some reshoring from China has happened as business there has moved inland from coastal regions, making it more difficult to export.
Chrise added that rising labor and transportation costs, as well as concerns about quality, also have helped BMS in gaining reshored business.
As a unit of a European parent firm, BMS is paying close attention to the ongoing financial crisis in that part of the world. Chrise said BMS' North American PC business could be affected in the form of its U.S. customers that export products into Europe. “We're hoping for a soft landing,” he added.
In the sustainability arena, BMS has materials available that are both bio-based and that have post-consumer recycled content. “Everyone is focused on products life cycles and having less of a carbon footprint,” Paleos said. “But the industry isn't all on the same page of understanding what sustainability is. Bio-based products are good, for example, but they can use a lot of energy to produce.”
At its main North American PC production site in Baytown, Texas, BMS since 2008 has made incremental changes that have increased capacity by about 10 percent. Chrise said these moves have improved the quality of material made there as well.
Increased use of new-found natural gas should help BMS both from a utility standpoint and from the construction of new crackers making plastic feedstocks. “The price of natural gas is way down, and that's an energy cost benefit for us,” Chrise said. “And when these crackers start to get built, there will be an impact on the whole plastics value chain.”
North America “is going to have low-cost polyethylene, but some of that will be shipped elsewhere,” he added. “At some point, molders are going to use engineering thermoplastics [like PC] to build their fixed costs.”
The medical market will remain an important one for BMS. The firm has been a leading supplier to that sector for 20 years, Paleos said, with a focus in the areas of blood and renal dialysis. “Being in medical is a long-term commitment,” he said. “With some applications, you have to wait five or six years for them to become commercial.”
BMS and other PC suppliers also are still dealing with fallout from alleged health risks that have surrounded bisphenol A feedstock in recent years. “There's still a lot of interest in the topic of BPA,” Chrise said. “We stand by our safety record and we're confident that the product is safe.”
“There's been some consumer deselection in products like baby bottles and sippy cups, but replacement materials aren't living up to standards. The problem [with BPA] is a lot of media hype. There's been research not based on sound science and that affects consumers. It's a shame that so much negativity can be sustained.”
In R&D, BMS is increasing its global spending, and recently moved its global PC R&D headquarters from Germany to Shanghai because of the growing size and growth rates of the Asian market. “We have good core R&D in Germany and the U.S., but we wanted to be closer to customers,” Chrise said of the move. The BMS PC business employs almost 30 R&D personnel in North America.
North America generated almost $3 billion — about 21 percent — of BMS global sales in 2011. In addition to PC, the business's main products are PU and several specialty resins, as well as coatings and adhesives. North American sales for BMS grew almost 10 percent in 2011.
Globally, BMS brought in $14.1 billion — almost 30 percent — of Bayer AG's sales in 2011. That total made BMS the second-largest of the firm's three business units, trailing only health care.
For the next five-year period, BMS officials are expecting global PC demand to grow 5-6 percent per year, with 6-7 percent growth in the Asia-Pacific region and growth of 4-5 percent in North America.
For his part, Chrise is looking ahead while trying to learn from the past.
“There's a reason that polycarbonate had the growth it did in optical media before it started to shrink,” he said. “It's got clarity and other unique qualities that other materials don't have.
“We've got eight or nine [PC] growth initiatives, and we're looking for more. The main driver [for PC] will be part integration and design freedom.”