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October 03, 2005 02:00 AM

Market bodes well for DuPont

Miles Moore
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    WILMINGTON, Del.—Officially in existence for only three months, DuPont Performance Elastomers is looking toward a burgeoning future, according to President Jack Lewis.

    "We are very, very well-positioned for future growth," Lewis said. "In five to 10 years, we will be a growing company, creating value for customers and shareholders alike."

    Lewis sees sales rising for DuPont Performance Elastomers—formerly part of DuPont Dow Elastomers L.L.C.—at 4 to 6 percent annually over the next several years, roughly double the projected increase in the gross domestic product.

    "We´re not talking a growth rate like cell phones here," he said, "but with our customer base, patented technologies and technical service, 4 to 6 percent is doable."

    According to Lewis, several "global drivers" for the elastomers market—both in specific product segments, such as automotive and electronics, and specific regions, such as Asia and Eastern Europe—will ensure DuPont Performance Elastomers´ prosperity into the next decade.

    In the beginning

    DuPont Dow Elastomers, DuPont Performance Elastomers´ predecessor organization, dissolved July 1 by mutual agreement of the parent companies. DuPont bought out Dow Chemical Co.´s share of the 9-year-old joint venture for $87 million, leaving a wholly owned subsidiary of DuPont that operates separately from the parent company, according to Lewis and other company spokespeople.

    In the breakup, Dow exercised its option to acquire assets related to DuPont Dow´s Engage polyolefin elastomer, Nordel EPDM and Tyrin chlorinated polyethylene product lines, as well as the Insite metallocene technology it brought to DuPont Dow in 1996.

    This leaves DuPont Performance Elastomers with six plants, 1,200 employees worldwide—including an unchanged corporate management team—and a portfolio of high-performance elastomers including Hypalon chlorosulfonated polyethylene, Kalrez perfluoroelastomers, Neoprene polychloroprene and Viton fluoroelastomers.

    In the late 1980s and early 1990s, DuPont took a heavy turn into biotechnology and agricultural chemicals, downplaying its traditional strengths in high-performance elastomer development, according to Balaji Singh, president of Chemical Market Resources Inc., a market research firm in Houston.

    "They were emphasizing marketing and stock price at the expense of product innovation," Singh said. In that atmosphere, he said, the time was ripe for executives of DuPont and Dow to create a joint venture specializing in high-performance elastomers.

    Launched in 1996, DuPont Dow from the beginning drew its assets 80 percent from DuPont and 20 percent from Dow, according to Singh. Global sales of about $1 billion annually split roughly along the same proportions. Combining the synergies of the DuPont elastomers with the innovation of Dow´s Insite metallocene catalyst technlogy, DuPont Dow soon established itself as a world leader in high-performance materials.

    However, unforeseen events transformed DuPont Dow into—borrowing a line from a report Singh wrote about the breakup—"the Cinderella who missed her midnight coach ride."

    DuPont and Dow never meshed well as corporate cultures, and difficult economic conditions meant the company never quite achieved the sales growth it sought, Singh said. The loss of visionary executives such as Chris Pappas, global business vice president in charge of Insite elastomers, also hurt.

    The straw that broke the camel´s back, he said, was the investigation of DuPont Dow for price-fixing. In January 2005, the company pleaded guilty to price-fixing of polychloroprene rubber, agreed to an $84 million fine and set aside $36 million to settle civil suits pertaining to polychloroprene price-fixing. Three months later, the company proposed a $25.4 million settlement of a class-action suit for alleged EPDM price-fixing.

    In any case, according to Singh, DuPont Performance Elastomers is a strong company with an enviable market position.

    "I´m not seeing any problems," he said. "DuPont historically is a materials expert. The company is now making a shift back to materials, and DuPont Performance Elastomers should do very, very well."

    In a question-and-answer session earlier this year, a DuPont Performance Elastomers spokeswoman said that while DuPont Dow didn´t achieve its goals for growth—the partners projected in 1996 the venture would double in size by 2000-01 to $2 billion in sales—it nevertheless enjoyed steady progress with revenues for 2005 at an annual rate of $1.4 billion.

    "There are probably a number of reasons why the growth came over a longer period of time, including the lingering economic downturn of earlier this decade," she said. "The important point is that the new technologies we introduced and (DuPont Dow´s) approach to the market created demand that yielded above-market growth."

    Forces driving the elastomers market

    DuPont Performance Elastomers has strong synergies with other DuPont businesses, particularly in technical issues, according to Lewis.

    "Having similar end-use markets, such as automotive and construction, we´re able to talk with colleagues and make sure our products are absolutely up to speed," he said. "That will also help our move into China, because DuPont already has a strong presence there."

    The company´s goals are now tightly focused on the high-performance elastomers that have been a traditional DuPont strength, Lewis and other spokespeople said. DuPont Performance Elastomers may add to its current portfolio, they added, but it´s too early to say precisely how.

    The company has centers in Akron, Switzerland, Japan, China and Singapore as well as its headquarters in Wilmington to serve its global markets, Lewis said. The "global drivers" to DuPont Performance Elastomers´ business will dictate the way the company serves its markets, the executive said.

    In the automotive industry, for example, China is adopting European emissions standards, which will mean big opportunities for the company. "We´re already positioning Viton products for this market," Lewis said. "They´re cut out for it, thanks to their low permeability and excellent low-temperature performance."

    Similarly, in the electronics industry, Kalrez already plays a major role as a material for semiconductor chips, according to Lewis. And Neoprene and Hypalon are well-known, established materials in the burgeoning health and safety protection field.

    Catering to the global shift in customers is a key part of DuPont Performance Elastomers´ marketing strategy, according to Lewis.

    "Traditionally, our markets have been in North America, with lots of business in Western Europe as well," he said. "But we´re seeing them expand into Eastern Europe, India and especially China.

    "This shift is going to continue for some time. When it stabilizes, we´ll see more even demand for elastomers around the world. If we don´t go where our customers are now, it will be much harder later."

    The geophysical shift in customers also will allow DuPont Performance Elastomers to seek out local business it wouldn´t otherwise have had access to, such as roofing and construction in the chemical industry, Lewis said.

    In any case, according to Lewis, DuPont Performance Elastomers will continue to do what DuPont Dow Elastomers always did: create product innovations that meet the needs of both new and long-standing customers.

    "It´s a matter of looking at the overall marketplace—the way you compound, the way you cure," he said. "Today in business, companies are constantly reviewing their portfolios and their options. The only way you can do that effectively is to support business that supports customers."

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