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Alchemy at Chemtura


Early this year, Chemtura Corp. took on a new shape. On Jan. 31, it bulked up its specialty lubricants business with the assets of Kaufman Holdings Corp., parent company of Anderol and Hatco Corp. Anderol, which also owns the Royco brand, is known for its high-value synthetic lubricants for industrial applications, while Hatco is a global leader in polyolesters used for jet turbine engine oils and refrigeration lubricants. Chemtura paid $160 million for Kaufman, which had 300 employees and 2006 revenues in excess of $200 million – more than half the size of its own Petroleum Additives business. It then had to digest this tasty new possession.

That was made easier by a corporate restructuring, planned since November and unveiled in late March. The companys six business units were pancaked down to just four, and its command chain streamlined. Anderol and Hatco found their home in Chemturas newly created Performance Specialties business unit, along with a broad array of lubricant and fuel additives, sulfonates, greases, fire-resistant hydraulic fluids, PAOs and other diverse products.

Recruited as president of the Performance Specialties Group was Robert Wedinger, who had joined the company in 2006 and headed its rubber chemicals and EPDM polymers segment, and also served as chief of staff. With all aspects of the Performance Specialties business now under his control – production, sourcing, sales, marketing and technology – his aim is to mold it into a muscular, customer-focused enterprise.

In April, LubesnGreases met with Wedinger and other group executives at the companys headquarters in Middlebury, Conn. All the resources required to grow are being put into this business, said Wedinger. Were forming industry-focused units, with sales, marketing and technical all aligned to meet customer needs.

When Chemtura CEO Bob Woods arrived, in January 2004, his vision was to focus first on process and functional improvements in the company, explained Matthew Hellstern, vice president, Performance Specialties. Now were on the next step, to get more insight at the customer level, to understand their needs and their customers needs.

The new Performance Specialties segment includes petroleum additives and lubricants, urethanes, optical monomers used as protective coatings for lenses, and fluorines (an area where Wedinger has long experience). A peculiar mix, yes – but, he pointed out, all require a lot of technology.

Adding Anderol and Hatco to this collection is a relatively simple bolt-on, it seems. The product lines from the Hatco/Anderol acquisition and our Chemtura heritage chemistries are extraordinarily complementary, with almost no overlap, Wedinger indicated.

Structural changes

To fit the newly acquired Anderol and Hatco lubricants into this line up, the company realigned along end-user applications. It appointed Anderols chief operating officer, John Pannucci, as vice president for industrial lubricants and greases, while those sold into transportation markets such as marine, automotive and aviation are under Vice President Sean OConnor, who rejoined the business from Chemturas plastic additives side. Gerard Mulqueen was named vice president in charge of global business development for all lubricants and greases, while Rick Beitel became global sales vice president for the entire Performance Specialties group. Janet Mann, the former petroleum additives vice president, left in the March restructuring.

Indeed, the reshaping promised more job cuts, with about 10 percent of Chemturas total workforce of 6,200 to be trimmed in order to save $50 million a year in costs. Last month, the company said about 200 of those job losses would come from the closing of two plants that make antioxidants for plastics, in Pedrengo and Ravenna, Italy. (A plant in Latina, Italy, that makes ADPA antioxidants for lubricants was not affected.)

Despite the upheaval and threat of cuts, the mood of the Performance Specialties team was upbeat. Some on the team think more people, not fewer, will come into the lubricants and additives area.

On a global basis, Asia, Europe and North America can expect to get more capital and improved flexibility, Mulqueen predicted. Of course, we will look at any opportunity to achieve efficiencies, but our main focus is to serve customers, not just to rationalize our assets, added Wedinger. Meanwhile, Pannucci said hes exploring options to add capacity, prompted by the growth of industrial markets in India and China, where Anderol already has an office and recently opened a warehouse.

Renewal, again

This is not the first reorganization Chemtura has undergone; its getting to be routine. It revamped just two years ago, when the present company was formed by the merger of Crompton and Great Lakes Chemical Corp. Predecessor company Crompton had been forged out of the 1999 merger of Witco Corp. and Crompton & Knowles; three years earlier, in 1996, C&K had merged with Uniroyal Chemical. Throughout, lubricants and additives have been a common thread, becoming more specialized and less commodity-oriented at each step in the companys evolution.

In 2006, the companys sales of petroleum additives – including alkylated diphenylamine and phenolic antioxidants, petroleum sulfonates, Synton high-vis PAOs, phosphate esters and calcium sulfonate greases – were 9.5 percent of Chemturas total net sales of $3.7 billion.

Even among these holdings, high expectations are riding on the Anderol and Hatco acquisition. When we look at the largest growth areas for the next five years, the first thing that stands out is synthetic lubricants for refrigeration, Pannucci said in an interview last month. Theyll be growing in the double-digits range, driven by outcomes mandated by the Montreal Protocol. In the United States, refrigeration equipment manufacturers must stop using ozone-depleting HCFC [hydrochlorofluorocarbons] for factory fill by 2010. The substitute will be chlorine-free hydrofluorocarbons, HFC, which require synthetic lubricants based on polyolesters. Those are the products made by Hatco. This change cuts clear across the global refrigeration industry – manufacturers already have been switching to HFCs in Europe and Japan.

The lesser-developed countries, such as China and India, may take until 2020 to principally convert to HFC refrigerants and polyolester lubricants, but meanwhile were seeing another driver there, he added. Thats the need for energy savings, as these economies grow. China and India are starting to implement more stringent regulations that may require installation of equipment thats more energy efficient, and so HFCs will move sooner into these markets than expected, too.

Another market where we see growth is in power generation, where growth in India and China means well see more demand for our Reolube fire-resistant hydraulic fluids, which are based on phosphate esters from the Great Lakes operations.

Finding the gems

One of the fun things about merging the companies and their product lines has been getting to see what everyone has on the shelf, Pannucci mused. Anderol is known for having lithium and aluminum complex thickened greases. Yet Chemtura has this calcium sulfonate complex grease which is a real gem. I think theres good opportunity to grow this product worldwide. It has good water resistance and mechanical stability, high antiwear and extreme pressure properties, and Chemtura is basic in the calcium sulfonate feedstock. Coming in and seeing this product and technology up-close, I think this has great potential to be further exploited.

Great Lakes phosphate esters are another pleasant find, he continued. This will be a drop-in product for our finished lubricants business. Anderol and Hatco have been longtime users of phosphate esters as antiwear additives in turbine oils, so we understand this chemistry through the viewpoint of end users. This chemistry and esters are very well known to us, and now we have this even greater portfolio of Factory Mutual-approved phosphate and polyolester hydraulic fluids. Our plan is to resource it and grow it.

Pannucci sees opportunities to rebrand such products within Chemturas stable, and also to offer private-label versions to other marketers. With the depth of products now in his pocket, he added, we can bring value and applications data to support the private-labelers efforts to bring their products to market, and show them how to promote higher performance. Theyll have access to major markets and distribution channels that werent available to independents. Remember, Anderol has been marketing private-label since its beginnings. That will continue. In fact, well be putting technology groups together to provide more value to customers. Well be able to save them development time, provide technology assurance, and where field performance is important we can target to bring more of that to the customer.

Filling the pipeline

Whether the product is an additive or a finished lubricant, the best tool for meeting customer targets will be investments in research and development, says Wedinger. He calls R&D a strategic weapon – as you might expect from a man who holds 10 patents.

Research is managed at technical centers in Middlebury, and in Trafford Park, U.K., where the Durad brand of esters and antiwear agents and Reolube fire-resistant fluids are developed, explained John Dennerlein, Performance Specialties former business manager, who is now in the urethanes area. In Ontario, theres manufacturing for detergents and greases, and also research too. Theres also R&D at Anderol in East Hanover, N.J., and at Hatco in Fords, N.J. And our newest technical center is in China.

Markets earmarked for growth include antioxidants and detergent components for engine oils. Engine oil standards are becoming harder to meet, more stringent, so we expect there to be greater uptake in ashless antioxidants, said Gerard Mulqueen. Global Technology Director Cyril Migdal explained that future antiwear additives also will need to be ashless, and non-phosphorus and non-sulfur containing, to avoid deposits seen with ash-containing components. This is the idea behind Naugalube 810, a new product developed for GF-5 engine oils and beyond.

Similarly on the detergents side, the endgame is to reduce ash, said Kirk Schlup, who heads up the detergents, emulsifiers and petroleum additives area. The box is getting tighter and tighter. When it comes to detergents, the SAPS box is the key now, he said, referring to limits on sulfated ash, phosphorus and sulfur.

In the area of sulfonates, Schlup high-lighted the introduction of Hybase C 500, a new 500 TBN overbased calcium sulfonate detergent suitable for marine engines and industrial applications. Creating it required using a special feedstock, and tight process controls, he said. In fact, were the largest independent supplier in the sulfonates area, Schlup said. Volume-wise were not big, but we have strong technology so we can deliver unique properties.

Raw realities

Beyond these technical needs, the company also faces a tough business climate. Raw materials are a challenge right now, said Bob Wedinger. Prices are increasing and were trying to gain efficiencies. Were using Six Sigma to take costs out, and lean manufacturing to take costs out. We are trying not to pass along the price increases, but we cannot absorb it all. Benzene is going up again, and energy costs continue to be a concern.

Were bringing value, and if we do, we need to be compensated, he emphasized.

Dennerlein offered more perspective: Theres a misperception now that raw materials costs have come down from 05. Our raw materials are up across the board. Benzene, the feedstock for several finished products, was $2.90 a gallon in fourth quarter 2005; then $3.25 in 06; and then $3.50 in first quarter 07. Costs for alkylates are another example – theyre up more than 28 percent.

This is a tough market, and our procurement and manufacturing groups are working to take costs out, Dennerlein said. But we dont see our costs relaxing.

On the plus side of the scale, Mulqueen said, were entering our third year with Chempoint, the e-distributor, which has eased some supply chain strains. In 2005, smaller accounts were apprehensive about doing business through Chempoint, rather than being handled directly, he said. To head off problems, Chemtura spent a lot of time teaching Chempoints technical support team and getting them data, Migdal said. Chempoint also has access to a library of technical questions, and can instantly search for an answer when a customer needs one.

The result has been increased business, Mulqueen reported. Initially, a lot of customers expressed angst, more over the uncertainty than with the level of service. As it turned out, weve seen very little issues coming from our customers. They seem to be well-served by the Chempoint business model. We surveyed our customers last year, and their response was positive.

Its all intended to bring value to the customer, concluded Wedinger. Were offering a very broad portfolio, with applications and technical expertise. We want to be our customers trusted problem-solver. Were looking to grow by making our customers products even better.

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