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Special Effects


IN 1998, ANNO BORKOWSKY LEARNED HE WAS BEING MADE CHIEF TECHNOLOGY OFFICER OF BAYERS RHEIN CHEMIE SUBSIDIARY IN MANNHEIM, GERMANY. ALTHOUGH HE HAD WORKED AT BAYER FOR NINE YEARS, HE HAD NEVER HEARD OF RHEIN CHEMIE. Back then, Rhein Chemie was easy to overlook, a supplier of niche industrial specialties representing a small part of Bayers farflung holdings.

Both Borkowsky, now CEO and president, and the additive company he leads are front-and-center these days. After more than 30 years as part of the Leverkusen-based Bayer Group, Rhein Chemie became an independent business unit of the new chemicals group Lanxess in July 2004. As part of Bayers reorganization process, most of its chemical activities and about a third of its polymers operations were placed in a new company named Lanxess Deutschland. This was subsequently spun off from the Bayer Group to Lanxess AG.

In 2004, the four segments that make up Performance Chemicals represented 28 percent of Lanxess consolidated 2004 revenues of 6.8 billion. Rhein Chemies own sales that year, the last available, were 313 million. However, none of the Lanxess segments dominates, and each is expected to pull its weight in making the company profitable.

Indeed, according to Lanxess CEO Axel Heitmann, a key operating mandate for every business unit is price before volume. In a presentation to analysts last June, Heitmann said every one of the companys businesses must be profitable on its own – and even forgo market share if thats what it takes to improve their earnings picture. That may sound like extreme pressure, but it seems to be working. Lanxess stock price, which opened at 15.75 in January 2005, was above 28 last month.

Even before, though, Rhein Chemies own value-building strategy was in line with its parents. Rhein Chemie is a mid-size company, and not large enough to play in the field of scale effects, of volume effects, Borkowsky told LubesnGreases in January. Thats a good business model, if youre big enough. But we focus on special effects, on adding value. We are too small to play on the volume field, so we focus on innovation.

We differentiate ourselves with an emphasis on high performance technology and technical support, solving customers problems, versus other chemical and additive companies, added Joachim Korff, executive vice president for Lubricant Additives. We are one of the leading companies in our niche, and especially number one in light-colored sulfurized products for metalworking.

Rhein Chemies lube additives, sold under the Additin brand, include corrosion inhibitors, sulfur based extreme pressure agents, antiwear agents, and additives for greases, hydraulic oils, gear oils, and metalworking fluids. It also supplies additives for making plastics, polyurethanes and rubber (the last being its largest-volume market). Its production sites in Europe, Asia and the Americas make more than 80,000 tons of products a year, and lubricant additives, although one of its lower-volume markets, are among the highest in value.

A Value Proposition

Rubber additives usually involve taking pure chemicals and converting them, Borkowsky pointed out. On the lubricant additives side, we produce chemicals via reaction, and so theres a lot more chemistry involved. Reaction processes also typically involve greater investment in environmental controls and materials handling.

Rhein Chemies sulfurized extreme pressure agents have been strong sellers for more than a decade in Europe, as metalworking fluid formulators turned away from chlorinated paraffins, which have disposal and environmental disadvantages there, Korff pointed out. Additins light-colored sulfurized products continue to see good growth in North America and especially Asia as well, he added.

Even in the United States, where customers are very price sensitive, were seeing more interest in chlorine-free products, said Thomas Rossrucker, manager of technical services for lubricants. Additin products cost more than chlorinated agents, he says, but economics can justify their use, especially if users use life cycle analysis in their purchasing decisions.

Most of the time, the guy who buys the lubes is not the guy who buys the machines, nor the guy who pays for the disposal. So theyre not seeing the real cost, Rossrucker said. When you look at the cost-per-part-produced, and waste disposal issues, quality of the part, and other factors, it can be cheaper to use our products and eliminate chlorinated paraffins. When the customer understands all the factors involved, they see it.

Rhein Chemie tends to focus its research and development efforts on optimizing products at the application level, he went on. The goal is to operate very closely to the markets served, even working on joint projects with customers. Our technical people travel and talk to lube blenders, and to a few end users sometimes, Rossrucker said. All of our labs, in the United States, China and Mannheim, are connected by computer, so they can work with each other in real time. If a customer in one region has a problem or a question, the other laboratories can see it exactly at the same time, to come up with a solution.

New products are steadily introduced, he said, such as biodegradable additives based on vegetable oils, including sulfurized ones, and a unique cross-linked chemistry for safely making polyurea grease without any need to handle dangerous isocyanates or have expensive, dedicated grease reaction vessels. This grease base is a powder that can be used in any base oil – PAO, rapeseed, mineral oil, or polyglycol. Using a piece of equipment similar to a homogenizer, the components are blended and sheared under high pressure, and the energy imparted completes the reaction. This is good for the grease or lube manufacturer who isnt able to invest in special reaction equipment, or in places like India where you cant get permission to handle isocyanates, Rossrucker pointed out.

100-plus Years

Rhein Chemie traces its history to 1889, when chemists Hermann Dubois and Albert Mueller founded the Mannheim firm of Mueller & Dubois. A year later, they moved their operation to the Rheinau district on the south side of the city, where it is still headquartered today. The young companys first successes came in rubber chemicals, using sulfurized fats, accelerators and zinc dialkyldithiophosphates.

The Rhein Chemie name was adopted in 1941, and in the 1950s the company used its ZDDP chemistries as a spring-board into lubricant additives. Acceptance was rapid, and most of its chemistries now find uses in the lubricants area.

In 1971, Bayer purchased Rhein Chemie, and held it for the next three decades. When Bayer began to reinvent itself a few years ago, however, it decided chemicals were not part of its future. It put Rhein Chemie on the block in 2002; unsold two years later, Rhein Chemie was added to the assets being molded into Lanxess.

Those were not easy years, concedes Borkowsky, who by then had become CEO. But he focused on the companys strengths and structure. We used the time to set up as a stand-alone unit. Thats also when the new Rhein Chemie logo and corporate identity were developed. Unveiled in October 2003, the new identify made no reference to Bayer or anyone else. The message was clear: Rhein Chemie was going to be self-sufficient, with Bayer or without it.

A lot of people didnt believe we could exist without Bayer, recollected Joachim Hegmann, the Lubricant Divisions vice president, manufacturing. When we were for sale, everyone was concerned. Even so, Bayer continued to invest in upgrading Rhein Chemies manufacturing plants and laboratories, hes pleased to say.

Plant Upgrades

Rhein Chemie has plants in Europe, the United States and Asia, and two of these – Mannheim and Antwerp, Belgium – make most of its lube additives. Additin products are also made at toll manufacturers in North America and China.

All of the companys sulfurized hydrocarbons are made in Antwerp, where three continuous production lines are maintained under strict environmental and manufacturing controls, Hegmann said. In Rheinau, batch processes are used to turn out 300-plus products, and the focus is natural raw materials, such as natural fatty acids. This is where most of the companys EP additives come from.

Previously, the Mannheim and Antwerp plants had mixed batches, Hegmann said. Now, we have many dedicated, single-product lines. Rheinau increased lube additive capacity 40 percent last year, and at the same time it upgraded controls and process lines.

The buildings may be 20 years old or more, Hegmann said proudly, but the average age of the equipment inside is less than five years old.

Looking for Growth

As part of Lanxess, Rhein Chemie has more direct responsibility for all of its functions than it had under Bayer. The Lubricants Divisions prior regional organization has been replaced with a tighter-knit divisional arrangement, including manufacturing, sales, marketing, technical and administration, Korff said. We now have more people who are 100 percent devoted to lube oil additives than ever before, he said.

Rhein Chemie is now working its way through Lanxess four-step improvement process. First was to improve performance through measures such as cost management and process improvements; step two was to restructure itself. Step three was portfolio management – divesting that which doesnt fit. In Rhein Chemies case, this meant divesting a subsidiary, iSL-Chemie, which made color pastes for plastics but wasnt really core to its operation. That sale netted 20 million, and was completed in December.

Rhein Chemie also is restructuring and consolidating its U.S rubber business, closing its production facility in Trenton, N.J. by the end of 2006. By moving its U.S. headquarters, production and laboratories to Chardon, Ohio, the company expects to save money and improve operations. The Chardon laboratory already gives technical support for lube oils additives in North America.

Stage four – the one Borkowsky says Rhein Chemie is nearing – is to look forward strategically, and to grow through acquisitions, alliances, or finding synergies with other Lanxess units.

This is expected to include more manufacturing capacity for lube additives, starting with China. The location is being scouted now, and may be a rubber chemicals plant Rhein Chemie operates in Qingdao or another Lanxess site there.

It is unlikely, though, that Rhein Chemie will build its own North American plant, Korff said, since the regions overall lubes market is flat and can be met from current production. Toll manufacturing is the U.S. strategy that we think is a better option.

On the other hand, demand for products in Asia is growing rapidly, so we have to manufacture there.

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