IHS Chemical: DuPont spinoff represents next step in its strategic transformation into a more stable growth company
4:23 PM MDT | October 30, 2013 | By IHS CHEMICAL
DuPont’s July 2013 announcement that it would explore strategic options for its $7-billion/year performance chemicals business unit, as part of its transformation to a “higher growth, less cyclical company,” is a bold, but necessary, strategic move by company leadership, according to new analysis by IHS Chemical. DuPont announced last week that it would spin off the company within 18 months. The move, IHS says, allows DuPont to refocus its resources on core businesses in agriculture and nutrition, as well as biobased and advanced materials, where DuPont has a carved a scientific niche, and businesses that offer both higher margin potential and a more consistent revenue stream.
The DuPont Performance Chemicals report - a special edition of IHS Chemical’s Chemical Company Analysis - provides a comprehensive analysis of the specific product sectors and business positions for DuPont’s performance chemicals business unit, as well as an assessment of its financials, facilities, technology and integration. In addition, the study by IHS includes analysis of key competitors to DuPont within the major product markets, a global operation and market outlook, and a market forces analysis.
“This is a smart move by DuPont executives, who are playing to the company’s strengths by refocusing its portfolio on higher value products where they have a technical or market advantage — products that offer a more stable revenue stream in long-term, growth-oriented markets,” said Bill Brophy, managing director, global specialty chemicals for IHS Chemical Consulting and principal author of the report.
DuPont’s performance chemical products include titanium dioxide (TiO2) technologies, fluorochemicals and fluoropolymers, sulfuric acid, sodium cyanide, hydrogen cyanide, aniline, methylamines and dimethyl ether (DME). Key end markets include plastics and coatings, textiles, mining, pulp and paper, water treatment and healthcare.
“DuPont has relied on its performance chemicals business to provide major cash flow for the company,” said Brophy. “However, the products and mature markets in this segment generally have experienced lower growth, and the recent, enduring global economic slowdown negatively impacted earnings. This resulted in volatility that has driven investors to push for more stable, long-term growth. The leadership has responded and is taking action to focus on new technology offerings oriented toward bio-materials, life sciences, agriculture, nanoscale science, health and energy.“
This decision is consistent with DuPont’s history, Brophy added. He described DuPont as a “technology-based company with an extensive research and development organization,” that traditionally has divested materials, products and businesses it considers mature or having low-growth margin. “Much of their higher-value products are downstream from traditional, high-volume chemical intermediates, “he said. “The company has developed a number of new products and the revenues from these products are continually growing, which is positive news for DuPont.”
Although the recent highly cyclical earnings profile will likely moderate with more stable economic growth worldwide, said the IHS report, the near-term outlook for the major products of DuPont’s performance chemicals segment combines both opportunities and risks. The segment’s largest product group, Titanium Dioxide Technologies, accounted for 46 percent of DuPont’s Performance Chemicals segment sales in 2012, and faces possible growing global oversupply conditions, particularly if demand in China continues to slow. Tight feedstock supplies and the resulting elevated (and still rising) prices for mineral ores could exacerbate the situation in the near-term by depressing both operating rates and profit margins, said IHS.
However, faster economic growth projected for the next several years should allow pigment producers to pass on feedstock price increases and also absorb new capacity projects scheduled to come on-stream during the next five years; primarily in China. DuPont’s product group in particular will also be able to benefit from its unique position as the dominant global producer, large economies of scale and leading proprietary process technology.
According to Eric Linak, the TiO2 expert at IHS Chemical, “the resulting favorable cost position has allowed the unit to maintain higher profit margins, when compared to global competitors, and to reap a large share of TiO2 industry profits.”
The fluorochemical business area, which represents 33% of DuPont’s performance chemicals segment sales, continues to be subject to tight government regulation requiring the replacement of older hydrochlorofluorocarbons with more environmentally friendly hydrofluorocarbons, hydrofluoroolefins, or alternatives to fluorochemicals, said Ray Will, fluorochemicals expert at IHS, and contributing author to the report.
“DuPont has been at the forefront of new product development as exemplified most recently by the commercialization of HFO-1234yf, which is replacing HFC-134a in mobile air-conditioning systems in new cars and light vehicles in Europe per directive of the European Commission,” said Will. “In addition, DuPont’s investment in fluorochemical production in Asia has positioned the product group well to participate in the fast-growing Asia Pacific region. DuPont also occupies a dominant position in the fluoropolymer and fluorinated fluids markets, based on a broad range of higher value brand-name products, such as Teflon coatings and Krytox lubricants.”
In contrast to titanium dioxide and fluorochemicals, the position of the Chemical Solutions business - the third product group within DuPont’s Performance Chemicals segment - is generally limited to North America. With products ranging from sulfuric acid, cyanides and chlorine dioxide solutions to aniline, methylamine and DME among others, a portion of the Chemical Solutions output is used internally for products in the agriculture, and electronics and communications segments. The aniline derivative p-phenyleneamine, for example, is an intermediate for the company’s production of aramid fiber (Kevlar), polyimides and other specialty products.
These derivative production assets are part of the safety and protection business (Kevlar) or the electronic and communications business (polyimides). As a result, noted the IHS report, the supply of key strategic feedstocks needed by the remaining DuPont organization after any spin-off of the involved performance Chemical assets could result in the retention of specific production units currently grouped with the performance chemicals segment.
In addition to the DuPont Performance Chemicals report - a Special Edition of IHS Chemical’s Chemical Company Analysis report, IHS offers company analyses for other key chemical producers. For more information on this report or other company analyses, please contact firstname.lastname@example.org. To speak with Bill Brophy, Eric Linak or Ray Will, please contact email@example.com, or firstname.lastname@example.org.
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