After deals for nylon 6/6 with Ascend performance materials Inc. and in PPS with China's Zhejiang NHU Co. Ltd., Royal DSM is now planning to consolidate on its market strengths, says Roeland Polet, the new head of DSM's engineering plastics business for this Q&A feature for Plastics News Europe.
Q: In Q3 2015, DSM said Engineering Plastics sales volumes were “slightly down”, but EBITDA “was substantially up due to higher margins and lower costs”. Is it a big concern for you that sales seem to be softening, or is it more important to maintain higher profit margins?
Polet: After deals for nylon 6/6 with Ascend performance materials Inc. and in PPS with China's Zhejiang NHU Co. Ltd., Royal DSM is now planning to consolidate on its market strengths, says Roeland Polet, the new head of DSM's engineering plastics business for this Q&A feature for Plastics News Europe.
Across Performance Materials — which covers Engineering Plastics, DSM Dyneema, and DSM Resins & Functional Materials — sales in Q3 were 1 percent less than in Q3 2014, as a result of overall soft volumes (although specialties were strong) and lower prices reflecting lower input costs. EBITDA in Performance Materials for the quarter increased by 17 percent vs. Q3 2014. On a structural base, good margin management and efficiency & cost savings programs that we have implemented over recent years contributed positively. The increase in EBITDA was, however, also enhanced by positive foreign exchange effects, as well as strong margin improvements due to low input costs.
As announced at our capital market days in November, the strategy between now and 2018 will be to focus on well-defined, higher-growth specialty segments, while maximizing returns in nylon 6 polymers. So the focus will stay on higher profit margins while boosting sales volumes.
Q: How is the slowdown in China affecting DSM Engineering Plastics?
Polet: The slowdown in China was most noticeable in Q3 in the building & construction sector (residential and commercial buildings) and in the automotive and electronics industries. We saw it in the form of fewer cars being built and electronics devices being shipped, particularly personal computers and tablets. Mobile phone sales are still rising though.
As a result of this, DSM in engineering plastics — in common with most companies — experienced a slowdown of its sales: there was lower demand and also temporary stock adjustments downstream. At the same time, DSM has been experiencing a strong interest for its Innovative Product Portfolio, examples being Akulon XS nylon 6 for flexible food packaging and Stanyl nylon 4/6 for the new USB Type C connector. So even in somewhat adverse economic circumstances, DSM believes it can grow due to its Innovative Product Portfolio.
Q: Where is DSM Engineering Plastics targeting its investments, in terms of products and global locations?
Polet: DSM has recently broadened its portfolio in engineering plastics. With the global strategic alliance with Ascend, our customers all around the world now have access to a full portfolio of Akulon nylon 6/6 compounds, together with enhanced application development and innovation capabilities from both Ascend and DSM. With its joint venture with NHU [in China] focused on the market development and manufacturing of compounds based on polyphenylene sulphide (PPS), DSM will further enhance its offering in the high performance engineering plastics space.
DSM in engineering plastics is a global player with a broad range of value-added nylons and polyesters and is very well positioned to thrive from its application know-how-based relationships and growth in metals substitution. To generate further value creation towards 2018, the focus will be on organic growth, supported by cost reductions and strict capital allocation.
Q: In the alliance with Ascend Performance Materials, what's in it for DSM? Wouldn't it have been better to acquire Ascend for its nylon 6/6 polymer capacity?
Polet: Under the agreement between Ascend and DSM, Ascend becomes the strategic supplier to DSM for nylon 6/6 base polymer used as raw material for Akulon nylon 6/6 compounds for engineering plastics applications. Our alliance combines the best of both companies; high quality products with security of supply and excellent application support when and where it is needed. All our customers now have access to a full portfolio of Akulon nylon 6/6 materials, together with enhanced application development and innovation capabilities from both Ascend and DSM.
It is a long term contract providing competitive pricing, allowing us to further utilize current application, business and sales development resources to expand our growth. It also complements very well the family of nylons we currently supply — Akulon PA6, Stanyl PA46, Stanyl ForTii PA4T, and EcoPaXX PA410 — so everybody wins!
Q: In what ways will DSM Engineering Plastics be affected by the fall-out from VW's diesel emissions scandal? For example, will your business in charge air duct applications suffer?
Polet: I estimate that the impact will be very limited in our DSM automotive business. The total number of cars sold will not be significantly affected. With our unique Diablo technology, which improves heat resistance of nylon parts under the hood, we are indeed active in hot charge air ducts and other parts of the turbo system. However, our share of sales is well balanced across various OEMs, so I am not particularly concerned.