Volume 6, Number 3, July 2008
This newsletter is published in cooperation with the ISM Chemical Group.  

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In This Issue ...
  • Chemical Industry News
    • Thermoplastics Heat Up: Plastics have replaced metal in a variety of applications for their high strength-to-weight ratio, processing ease and corrosion resistance. While metals still reign in terms of thermal conductivity, Modern Plastics Worldwide writer Matthew Defosse says efforts are ongoing to "teach" thermoplastics to conduct more heat.  Read more.
    • Bio-Based Plastics Brought to the Forefront: In April, amid growing interest in bio-based and biodegradable packaging, Innovia Films Market Development Manager Andy Sweetman told Interpack delegates in Dusseldorf, Germany that the industry must address sourcing issues for future success. CosmeticsDesign-Europe.com reporter Neil Merrett details how this message was received.  Read more.
    • Leading U.S. Export, Chemicals Continue Gains: A recent report by PIERS Global Intelligence Solutions shows containerized exports of chemicals have been on the rebound in the U.S. since 2006 and should continue to see volume gains at an annual rate of nearly 8 percent in this year. Chief Economist Michael Andrews warns this forecast is highly variable given the nation's global economic slowdown; nevertheless, it is good news for this $120 billion-a-year exporting sector.  Read more.
  • Feature Article
    • 5 Key Energy Buying Strategies: Today's energy markets are extremely volatile and pose an incredible challenge to supply management professionals who need to manage these costs. The price volatility and risk exposure associated with purchasing energy — specifically electricity and natural gas — are tremendous compared to most other commodities. Creating a plan to identify and control these energy costs is imperative for successfully reducing an organization's level of risk exposure to the movement of energy commodities.  Read more.
  • Market Report
    • North America: Still Competitive? Balancing ethylene capacity additions against forecast demand growth has proven difficult for many years. The extent to which the major producing regions are affected by capacity increases is largely dependent upon their relative cost position. From region to region, the relative cost of energy — and the resulting costs for associated feedstocks — can vary greatly.  Read more.
  • Announcements: Mark your calendar now to attend the 2009 Winter ISM Chemical Group Conference, February 13-19, 2009, in New Orleans. Delegates will enjoy educational sessions hosted by industry leaders and a chance to earn up to 10.25 Continuing Education Hours (CEHs), as well as their stay at The Royal Sonesta, a grand hotel in the heart of the French Quarter on Bourbon street, plus a networking dinner and post-conference golf outing.  Read more.
  • Additional Resources: Check out these links to addition resources from the ISM Web site.  Read more.
  • Contact Us about ISM eDigest: Chemicals.

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Chemical Industry News

Thermoplastics Heat Up

Thermally Conductive Plastics Gain Momentum

While television screens get larger every year, the experts at Modern Plastics Worldwide (MPW) magazine observe that for other applications, small is definitely better.

"If a device is smaller than its predecessor, it becomes that much more difficult to fit in fans or other heat-removal equipment," explains staff writer Matthew Defosse. "Die casting of aluminum — the traditional heat sink material — generally costs more than injection molding, with the latter process also offering more design options."

As such, it is not surprising that developments in plastics' thermal conductivity are heating up. Defosse says the market for thermally conductive thermoplastic compounds is still a niche, but it is large enough that Warwick, Rhode Island-based Cool Polymers was formed in January 2000 to focus on it exclusively.

Cool Polymers Product Manager Jim Miller tells the magazine that the potential market for these compounds is huge. "Heat transfer shows up in practically every part's design," he explains — one reason courses on it figure so early in an engineering student's curriculum, he adds.

Miller says demand growth has been strong each year as an increasing number of designers take advantage of plastics' design flexibility. By adding fins and other structures, a plastic part can prove just as good as taking away heat as an enclosure made of aluminum, other metals or ceramic, and plastics create no interference problems, he explains.

"We estimate that about 100 million parts are out there that were made with our materials," he tells the magazine, citing electromechanical devices — encapsulation of motors, for example — as one major application field.

According to Willem Sederel, global technology leader for Pittsfield, Massachusetts-based Sabic Innovative Plastics (the former GE Plastics), suppliers measure differently to determine their compounds' thermal conductivity, although many market at least limited amounts of thermally conductive compounds. Sederel's firm measures plastics' conductivity "through the plane." As he explains, this makes the orientation of the conductive fibers a less critical factor.

Nishant Negandhi, technology manager at compounder Ovation Polymers Inc. in Medina, Ohio (Optem), tells MPW he sees the market for thermally conductive compounds as tailor-made for small-to-mid-sized compounders such as his, which began commercially marketing them last year.

"We not only supply thermal conductivity, but can couple it with other functional requirements," he says, citing processability, chemical resistance and heat stability as examples. He adds that Optem's compounds are all based on thermoplastics, with melt compounding via twin-screw extrusion.

Negandhi points out that most programs for these materials are in developmental stages, but the volumes for his firm's Nemcon H thermally conductive compounds should be in the range of 20,000 to 25,000 pounds per year by the end of 2008 for use in automotive, electronics, medical and aerospace applications.

Processing Proves Simple

Graphite and other fillers used for conductivity can take a toll on a processing machine, Negandhi adds. While his firm's extruders do see screw wear, he says customers have not experienced such wear problems, post-compounding.

Cool Polymers' Miller says his firm understands that thermally conductive plastics are relatively new to many. For this reason, it offers a complete set of services — design help, mold design and manufacturing, and even prototype production and short-run molding — on six presses. While minor tweaks are required, he insists that designing injection molds for thermally conductive compounds is not rocket science.

"There are some basic design rules to follow," he says. "[Y]ou're molding a material that throws off heat, so the cooling time, and cycle time, is much lower." But processors also need to design so that this exothermic behavior does not cause freeze-off, he adds: It requires "nothing fancy," and processors can be off and processing.

To learn more, visit the Modern Plastics Worldwide Web site.

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Bio-based Plastics Brought to the Forefront

Packaging Industry Delegates Have Mixed Reviews

At the Interpack trade show in Dusseldorf, Germany in April, Innovia Films Market Development Manager Andy Sweetman predicted that a similar trade show — this one devoted solely to bio-based packaging — could be on the horizon in coming years. But Neil Merrett of CosmeticsDesign-Europe.com, who was on site covering the event, said delegates had mixed feelings about the feasibility of this claim for a "relatively fledgling" industry.

"Biodegradable plastics, which are often produced from renewable sources, are being increasingly sought after by food and consumer goods processors as part of a solution to environmental concerns over waste and use of fossil fuels," Merrett writes. He calls to question Sweetman's claims that despite concerns among the packaging industry regarding the impact of renewably sourced packaging on growing food prices, steps must nevertheless be taken toward a renewable future.

"Bioplastics is a young industry, so it's possible we won't be using the same materials in another five years," Sweetman reportedly told delegates. "Nonetheless, we have no choice to move away from nonrenewable sources, so we must not put barriers on renewable products that do not exist on nonrenewable packaging."

Sweetman also reportedly told delegates that imposing restrictions on biopackaging — by preventing processors from using packaging materials sourced from food crops or requiring them to use 100-percent renewable materials, for example — would only stifle innovation.

Despite Sweetman's predictions, Merrett says other packagers were not as convinced of the effects biodegradable packaging could have on the industry. For instance, representatives from polymer and chemicals supplier BASF told Merrett that while the organization is actively ramping up its production of bioplastic products, the segment remains a small part of its wider operations.

Additionally, he reports, another BASF spokesperson told a CosmeticsDesign-Europe.com sister Web site that consumers and processors demand many different properties from their packaging, and not all would be possible.

"It is company policy that bio-based materials should not compete with food production," the source reportedly explained. "The packaging materials must also have significant environmental benefits for us to move ahead with any concept."

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Leading U.S. Export, Chemicals Continue Gains

Trade Data Predicts Volume Gains of Nearly 8 Percent This Year

U.S. containerized exports of chemicals have been on the rebound since 2006 and should continue to see volume gains at an annual rate of 7.9 percent in this year, according to a recent report by PIERS Global Intelligence Solutions.

While Chief Economist Michael Andrews cautions that while the forecast is subject to an unusually high degree of uncertainty as the U.S. and global economic slowdown continues this year, the positive trend revealed by the firm's waterborne import-export trade statistics is good news for one of the top U.S. exporting sectors by value.

Chemicals exports average almost $120 billion annually and account for 10 cents of every dollar in U.S. exports, according to Andrews. He includes in this category synthetic resins and plastics, synthetic rubber, polyethelyne, melamine and urea resins.

PIERS statistics show trade volumes are growing fastest in commodities categorized as vinyl alcohol and PVC resins, with imports up 134 percent and exports up more than 500 percent between 2000 and 2006.

Andrews cites PVC — or polyvinyl chloride — which is used in a variety of applications, including gramophone records ("vinyl records") as a prime example.

"More than half of PVC around the world is used in construction in the form of plumbing, siding, window frames and as a replacement for more traditional building materials such as wood, concrete and clay," he says. "While new housing starts have been plunging in the U.S., the global building boom — especially in Asia and the Middle East — will continue to drive demand."

A runner-up in the fastest-growing import category: toilet preparations, which grew 125 percent from 2000 to 2006. As Andrews points out, this provides some evidence of the ongoing structural shift in production facilities from higher- to lower-cost countries.

"So far, portions of the chemicals industry have been affected by these trends to a lesser extent than other industries," he adds. "But as China and other countries move up the value-added chain in chemicals production, imports which we now forecast will drop in the near term could grow at a more rapid pace."

The PIERS trade data ranks Dow Chemical as the top exporter, with E.I. Dupont de Nemours in the number-two slot. Dupont is also the second-ranked U.S. importer of chemicals; the top importer is Lanxess.

These findings based on PIERS trade data through fourth-quarter 2007 are included in the latest PIERS Sector SnapShot, a periodic summary of containerized import-export trade in bellwether commodities.

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Feature Article

Energy Buying

Creating an Energy Purchasing Plan: 5 Strategies

By Rob Barkley

Through various legislative and regulatory actions over the last 30 years, the traditional delivery model for natural gas and electricity to the consumer has changed dramatically. It has set in motion a series of battles and opportunities between the "traditional" players and the "new" players in both industries as their roles continue to evolve, providing a new playing field for energy consumers.

This increasingly complex realm is full of both opportunities and potential problems for the often inexperienced and uneducated consumer. The new world of "energy choice" has brought with it many challenges — as well as rewards — as organizations attempt to manage their purchasing risk in an ever-changing energy landscape.

Fortunately, there are five key elements to creating an effective energy purchasing strategy:

1. Senior Management Support

Senior management must buy in, with periodic review, on the amount of risk the organization is willing to take, the roles each functional area of the organization (finance, purchasing, risk management, plant operations and so on) will assume and the role of a third-party adviser and/or supply manager. Management must also appreciate the impact of these factors on the organization's bottom line.

2. Centralization

Centralization is one of the keys to a successful energy purchasing strategy. Although many companies pride themselves on the level of autonomy within business units, this is one area in which the benefits of a more uniform energy purchasing strategy outweigh the value of perceived independence — especially when energy is a relatively larger share of the budget. At the very least, centralization allows for more cross-fertilization or expertise-sharing within the organization. Most important, it provides a full view of the organization's true risk exposure.

3. Determine the Risk Profile

Some companies address risk from the top down, but many use a survey method to support their decisions, probing the stakeholders with questions like, "Can you pass unfavorable energy variances to your customer?" or, "What is the maximum premium you would pay to assure stable energy rates in the future?" or, "Is a monthly unfavorable variance acceptable if it is necessary to achieve an annual savings?"

4. Create a Database

In many cases, buyers are not in a position to create an energy purchasing strategy because they do not have sufficient information to know how much they spend on energy — natural gas, electricity, water and so on — nor do they know where it is spent. To create, implement and execute a strategic purchasing plan, a buyer must work with someone inside or outside his or her organization to build a comprehensive database.

This database should include:

  • A library of all supplier/utility/pipeline agreements;
  • Copies of utility and supplier invoices;
  • A list of primary operations contacts;
  • Historical and forecasted use profiles; and
  • An understanding of fuel switching and alternate fuel opportunities by each location.

Ideally, this information should be accessible by a third party who would be required to review it and assist the organization in creating its energy purchasing strategy.

5. Prioritize Opportunities

Many filters that can be used to prioritize an organization's opportunities. Among the most common are:

  • The size of the location's energy budget;
  • Identification of deregulated purchasing opportunities;
  • Aggregation opportunities;
  • Timing of the termination of existing deals; and
  • Strategic importance of a location or business unit to the overall organization.

The price volatility and risk exposure associated with purchasing energy — electricity and natural gas in particular — is extremely complex and difficult to manage. However, if companies are willing to take the time to better understand the specific risk components, create, implement and execute a comprehensive energy purchasing strategy, and be more proactive and thoughtful when purchasing these commodities, then their organizations will benefit from greater market visibility and the ability to better control and/or reduce these costs.

Rob Barkley is the vice president, strategic accounts, at World Energy in Columbus, Ohio. To reach this author, please send an e-mail to author@ism.ws.

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Market Report

North America: Still Competitive?

Mike Kelly and Nick Vafiadis

The cyclicality of the ethylene business has been an industry constant for many years. Balancing capacity additions against forecast demand growth has proven to be a difficult task. The profitability associated with recent peak-cycle conditions resulted in an acceleration of new projects in the Middle-East and Asia. Many of the projects in the Middle East will benefit from access to feedstocks that are priced well below prevailing market rates. The low-cost feedstocks will allow these Middle East-based producers to be competitive in markets around the world. The anticipated ramp-up of Middle East-produced ethylene derivative exports will fundamentally alter the current balance of trade associated with these products.

The expected rate of capacity growth is certain to outpace demand growth over the next few years. The resulting supply/demand imbalance will trigger the next industry downturn and encourage Middle East-based producers to export product to nontraditional destinations such as North and South America. Regional responses to the approaching downturn are expected to vary.

In North America, the strategy includes a significant slowdown of new capacity investments, market consolidation and asset rationalization. The extent to which the major producing regions are affected by the referenced capacity increases depends largely upon their relative cost position versus other regions. Nothing impacts production economics more than energy costs. The relative cost of energy, and the resulting costs for associated feedstocks, can vary significantly from region to region.

Ethylene production in North America and the Middle East is largely from natural-gas-based ethane feedstock. Most of the rest of the world relies heavily on crude-oil-based naphtha feedstock. As a result, the relationship between crude oil and natural gas price is a significant factor in determining a region or facility's relative position on the global cost curve.

Energy: Greatest Challenge for the Ethylene Industry

North American ethylene producers are forecast to remain relatively competitive in the global marketplace due to the anticipated production cost advantage associated with ethane-based production versus naphtha. This is especially true in Western Canada, where some producers have access to ethane based on price formulas that result in a significant discount to prevailing market prices. These expectations are the result of the underlying crude oil and natural gas price assumptions. Current projections suggest the BTU value of natural gas expressed as a ratio to crude oil will be lower than at any point in the last decade. Assuming crude oil prices remain at elevated levels in relation to natural gas, naphtha-cracking cash margins are expected to continue to fall under significant pressure. The anticipated crude-to-gas ratio should allow North American ethylene producers using ethane feedstock to maintain a competitive advantage versus almost every producing region around the world with the exception of the Middle East.

Middle East Crackers Enjoy Huge Production Cost Advantage

The cost curve analysis above illustrates the relative positions of key ethylene producing regions around the world in 2007 and projects relative regional positioning in 2011.The analysis estimates the cash cost of production for every steam cracker around the world and aligns them in order of increasing cost on the y-axis, with cumulative capacity displayed on the x-axis. A comparison of 2007 to 2011 demonstrates the significant advantage available to Middle East producers in a high-energy environment. The low-cost position of Middle East producers ensures that their ethylene derivatives will flow to areas that offer the most profitable net backs. For those regions or producers that currently depend on exports to optimize their production rates, the next few years will prove quite challenging as Middle-East-based producers are certain to increase their share of a very competitive global market.

Chemical Market Associates, Inc.'s (CMAI) current forecast assumes that North America's market share for net ethylene equivalent trade will decline over the next few years. Our forecast also assumes crude prices will remain high relative to natural gas. Consequently, North America's position on the global curve is expected to remain favorable; as such, exports from the region should remain viable. Regions such as Northeast Asia and Europe that rely primarily on naphtha feedstock are expected to experience more severe operating rate reductions.

US Ethylene Equivalent Exports

The table above reflects the historical and anticipated level of ethylene equivalent exports from the U.S. through 2012. As is evident, polyethylene exports represent the largest portion of these exports, and we anticipate total exports will decline as the previously referenced wave of new capacity is brought into production around the world.

We continue to believe that North America will remain a net exporter of polyethylene for the next few years, but the volume of exports is anticipated to diminish. We expect polyethylene exports from the U.S. and Canada to target Latin American destinations and be less competitive in Asian and European markets.

Mike Kelly is a consultant for CMAI focusing on North American Olefins. He contributes to CMAI's Monomers Consulting Service — North American Light Olefins and the World Light Olefins Analysis.

Nick Vafiadis is the Business Director for Polyolefins and serves as Service Leader for CMAI's Global Plastics & Polymers Consulting Service. Additionally, he provides analysis for the World Polyolefins Analysis.

To reach these authors, please send an e-mail to author@ism.ws.

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2009 Winter ISM Chemical Group Conference

Mark Your Calendar to Join Us in the Big Easy!

Hotel reservations can now be made for the 2009 Winter ISM Chemical Group Conference, February 12-13, 2009, at The Royal Sonesta in New Orleans' French Quarter. The discounted nightly rates of $199 (February 11 and 12) and $229 (February 12 and 14) are available by calling (504)586-0300 and identifying yourself as part of the ISM Chemical Group. Availability is limited at this grand hotel on Bourbon Street.

Industry leaders will lead educational sessions, and attendees can earn as many as 10.25 Continuing Education Hours, or CEHs. A luncheon and keynote speech, networking dinner and other meet-and-greet opportunities are planned, as well. The conference will wrap up with a golf outing.

Stay up-to-date on the Chemical Group and 2009 Winter Conference online. Additional details are forthcoming.

ISM's Pharmaceutical Forum Receives Excellence Award

In May, ISM's Pharmaceutical Forum was honored as 2007 Group or Forum of the Year. Forum members and officers were recognized at ISM's 93rd Annual International Supply Management Conference and Educational Exhibit in St. Louis.

ISM Groups and Forums Excellence Awards, now in their fourth year, recognize those Groups and Forums that demonstrate excellence in their professional operations, educational offerings, recruitment, training and retention efforts, while at the same time communicating the value and prestige of ISM and the supply management profession.

According to Pharmaceutical Forum Chair William Stirling, C.P.M., the Forum's board of directors is comprised of 15 procurement executives from the pharmaceutical industry who are all committed to professional development.

"We're extremely proud to accept this award as recognition for the hard work by our Pharma Forum board," Stirling says. "A major focus of the Forum has been on assisting deserving supply management college students and minority business executives in funding their education. Letters from these individuals thanking us for helping them advance their careers reinforces our commitment to continue these programs."

Two Groups/Forums met the Level of Excellence for 2007. They are:

  • Materials Management Group
  • Services Group

ISM Groups and Forums provide opportunities for members to discuss and exchange information, as well as study, evaluate and share knowledge on industry-specific supply management challenges and opportunities.

Links to all ISM's Professional Groups and Forums are available online.

ISM's 9th Annual Services Conference

ISM's 9th Annual Services Conference is scheduled for Thursday, December 4 and Friday, December 5 in Phoenix at The Ritz-Carlton Hotel. On the agenda are lessons learned and real-world accomplishments from some of the world's most visible and successful organizations. Participants can expect to have a better understanding of how to develop and maintain their strategic plans, avoid pitfalls, minimize weaknesses and leverage strengths.

This program is designed for supply management professionals responsible for acquiring services and developing the supply chain strategies that support their organizations' goals and objectives. Because supply managers in both the manufacturing and nonmanufacturing arenas buy services, they can expect many diverse examples. Up for grabs are 9.75 Continuing Education Hours.

Members can attend for US$795; the nonmember fee is US$995.

Register online at www.ism.ws, or call 800/888-6276 or 480/752-6276, extension 401.

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Additional Resources

A Wealth of Information at www.ism.ws

Visit ISM's Web site, www.ism.ws, for more supply management resources. The site provides published articles, conference presentations and reference materials that pertain to supply managers in all industries. Here are some items that might be of interest:

  • Michael G. Haynes, CPSM, C.P.M.
    ISM is pleased to announce Michael G. Haynes, CPSM, C.P.M., of Surprise, Arizona as the first Certified Professional in Supply Management (CPSM®). "This is really good news and it is an honor to be the first CPSM," Haynes says. "I will do my best to help ISM achieve the same level of respect for the CPSM that was achieved with the C.P.M."

    Haynes passed all three of his CPSM Exams as a pilot participant through ISM's Arizona affiliate, NAPM—AZ.

    Haynes is a lifetime C.P.M. whose career in supply management encompasses 17 management/executive positions with five different organizations and is currently employed by Siemens Building Technologies Inc. He has taught procurement courses at Penn State University, conducted C.P.M. exam review courses and taught seminars at several ISM affiliates. (Maybe you have taken one of his classes!) Having completed the CPSM Train-the-Trainer Program, Haynes also plans to provide professional development and training for the CPSM certification.

    ISM thanks Haynes for his example and contributions to the supply management profession and congratulates him on this achievement.

    For information on the CPSM, visit the Professional Credentials section of the ISM Web site or call Customer Service at 800/888-6276, extension 401.

  • CPSM® computer-based exams are here! ISM now accepts online registrations for CPSM Exams that can be scheduled and taken at Pearson VUE professional test centers worldwide during any available testing time.

    To register, visit the ISM Web site. Once you have registered, you will receive an e-mail confirmation that will include the Pearson Vue link to schedule your exam. You will be able to schedule your appointment(s) within 24hours or less of receiving this confirmation. Exam registrations are valid for one year. Computer-based testing is available at the standard price of $180 members/$265 nonmembers.

    Questions? Call ISM 800/888-6276, extension 401 or send an e-mail certification@ism.ws.

  • A recent ISM report on the salaries of more than 1,000 supply management professionals, 2008 ISM Salary Survey Results, confirms that professional credentials and gender make a difference. According to the survey, respondents who hold one or more certifications reported an average salary of nearly $95,000 versus $$90,000 among those who do not hold a certification. Additionally, it identified a 27-percent gap between the average salary for women and men.

    It is ISM's third comprehensive salary survey. Information on salary, bonuses and stock options was gathered from a total of 1,050 respondents and examined through multiple breakdowns, including job title, years of experience, education level, certification status and buying responsibility.

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Contact Us

If you have editorial suggestions or would like to participate in upcoming editorial, contact RaeAnn Slaybaugh.

If you would like to sponsor this e-newsletter, contact Trish True or Kathy Braase, or call 800/888-6276.

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