Chemtura deal boosts Lanxess additives unit

NAUGATUCK, Conn.—While Lanxess A.G. works toward fully exiting from the synthetic rubber business, the German-based firm can focus on specialty, high-margin business where its technological expertise can make a difference.

That includes its additives business unit—part of Lanxess' Specialty Additives group along with Rhein Chemie—a business that got a huge boost with the acquisition first of Chemtura in 2017 and then the phosphorous additives business of Solvay.

The Chemtura business generated annual sales of $1.6 billion, brought in 2,100 employees and 20 sites in 11 countries, and gave a particular increase in the areas of lubricant additives and synthetic lubricants for industrial applications.

"We are now one of the leading suppliers of industrial lubricants and possess an integrated value chain," Anno Borkowsky, head of the Lanxess additives business unit, said at a recent event at the firm's Nudenberg-Wheeler Technical Center in Naugatuck.

The research campus in Naugatuck came with the Chemtura deal and focuses on research and development and applications technology for lubricant additives, flame retardants and urethanes businesses. The center boasts 60 scientists and engineers and includes two buildings that Chemtura spent $10 million to refurbish earlier this decade.

After the Chemtura and Solvay deals, the additives business unit employs 1,900 worldwide, has about 2,000 customers in more than 100 countries and manufactures more than 1,100 products. Its goods go into a diversified array of end uses such as construction, transportation, industrial manufacturing, distribution and a number of others, none of which account for more than 15 percent of revenues.

North America is the top market for the unit, followed by the Europe, Middle East and Africa unit, with Asia-Pacific third, an area Borkowsky said the business needs to build up.

Borkowsky said the business expects a nice growth rate of roughly 3-4 percent annually. Much of that is coming from the Asian market, with 50 percent of construction going on there, mainly in China.

Evolving business

Lanxess itself was a spinoff from Bayer in 2004, with the synthetic rubber business taking a leading role. But after the chemicals firm dealt with some financial difficulties, Matthias Zachert was named CEO and set the company on a new course, according to Borkowsky.

The synthetic rubber business was put into a joint venture with Saudi Aramco (a JV Lanxess is now looking to exit), and Lanxess set to build up its other portfolios. For additives, this culminated with the Chemtura acquisition.

Borkowsky said the business concentrates on mid-size markets, quality over quantity, specialty goods and being in markets where it can take a leading position.

"After the acquisition, we have a very strong presence in North America, and that was a strategic goal because as a German company we were very much focused on Europe for a very long time," Borkowsky said. "The strategy was to clearly go out and first grow in North America, and then grow more in Europe."

While the Chemtura deal gets a lot of attention, he said the purchase from Solvay was smaller but strategically important, as Lanxess' phosphorous business was basically a European player. "We were very happy we were able to acquire from Solvay the Charleston (S.C.) site," Borkowsky said. "That was very important for us to be able to grow with phosphorous in the U.S."

Borkowsky said this is the first time in his career where he hasn't had a close tie to the rubber industry, most recently having global responsibility for the Rhein Chemie Additives business unit. "This is the first time I've run a business unit with such a diverse end-use application distribution, which gives the business resilience when it comes to fluctuations in the economy," he said.

Similar to what he experienced in the rubber industry, he said he found the lubricants market to be a small world. "All the people know each other, so it's just interesting to see how small these industries are at the end of the day."

He said the lubricants part of the business also is like what he had at Rhein Chemie, with specialty, custom-made products.

"Players in this industry are mid-size companies mostly," he said. "They're very focused on innovation, and that's fun. The same is true for the flame retardant industry as the innovative firms are really focused on new trends—what's coming in the industry and how we can apply that."

The biggest part of the Chemtura deal is how complementary the two businesses are. "To combine that is really fun," Borkowsky said. "Then you can get people really enthusiastic about the whole thing because all of a sudden they have a huge portfolio to play with."

Much of the product development work is aimed at improving fuel economy, energy efficiency and improvements in emissions, said Cyril Migdal, head of global application technology for the lubricant additives business. "Every little bit that can be extracted out of a lubricant to contribute to fuel economy is very valuable," he said.

Lanxess has identified some new technology that it plans to roll out commercially in the near future that provides lower coefficient of friction, which translates into more miles per gallon. "We've been able to get 5 percent fuel economy improvement over reference finished lubricants," Migdal said. "For an individual that is nice, but if you're talking about a whole country or the world, that becomes a significant amount of fuel savings."

Tariffs a wild card

With the North American business now in a strong position, Borkowsky said the focus will shift toward Asia, but the trade war between the U.S. and China could have an impact on those plans.

For example, while Lanxess is a competitor to the larger BASF S.E., the two also are suppliers to each other. "That is the world of the chemical industry," he said, "as we rely on integrated value chains. If there are breaks in this value chain, that is a problem."

Borkowsky said that of his business unit's U.S. plants, more than half of the products are exported, so tariffs could have a major impact.

"With retaliation from China and eventually from Europe, of course it will create problems," he said. "And that's why in today's world you have to have plants locally, and that's why we're very happy to now have higher U.S. exposure."

Thus far the impact has been minimal, but with the latest list of chemicals that may be subject to tariffs, there will be an effect. "With China, in their mind they have to do it," Borkowsky said. "They have to retaliate, because otherwise they will lose face, and that is the worst thing you can do in China."

Lanxess currently has a couple of sites that are wholly owned, but producing chemicals in China can be a tough proposition. With the nation starting to enact tough environmental regulations, it is difficult to find the right site because the government will shut down operations and sites that are not meeting the mandates.

"At the end of the day, China had to do something because they couldn't continue like they were," Borkowsky said. "On the other side, good companies with good track records that have high standards will get permits continued. But if you are in any kind of violation to any standard or permit, then you are gone. That makes it a little bit complicated right now in China."