This Issue ...
- Chemical Industry News
- Rising Raw Material and Energy Costs Top List of Concerns: The top economic concerns for the second half of 2008 among midsized industrial manufacturers were the focus of the second-ever Group Outlook Survey conducted by Prime Advantage, a leading buying consortium, released earlier this year. Read more.
- Safety of Nanomaterials Uncertain: According to a panel of 15 experts engaged in the creation and application of nanomaterials, the assessment of the risks they might present and the public policy issues related to their health and environmental regulation, too little is known to assess the overall human and environmental risks posed by the introduction of said materials into society. Read more.
- Weak Housing Market Hits Home: Slower sales and tighter credit markets pushed homebuilder confidence to a new low this summer. According to the American Chemistry Council, each housing start engenders more than $16,000 worth of chemistry — roofing materials, insulation, siding, paint and more. Read more.
- Feature Article
- Emergency Preparedness Plans: A look at the precautions chemical facilities have taken before, during and after hurricanes — and how they are now being planned in advance to ensure the safety of employees and surrounding communities. Read more.
- Market Report
- Global Petroleum Survey 2008: Modeled after the Fraser Institute's Survey of Mining Companies, the survey measured and ranked the investment climates of various oil- and gas-producing jurisdictions based on 16 factors. While the United States had nine of the top 10 jurisdictions, the results show Colorado, California and Alaska falling out of favor. 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.
|Chemical Industry News
Rising Raw Material and Energy Costs Top List of Concerns
Rising Raw Material and Energy Costs are Raising Concerns Among North American Industrial Manufacturers in Second Half of 2008
The top economic concerns for the second half (H2) of 2008 among midsized industrial manufacturers were the focus of the second-ever Group Outlook Survey conducted by Prime Advantage, a leading buying consortium, released earlier this year. Topping the list of pressures were raw material and energy costs — but this time, as President and Founder Louise O'Sullivan explained, they have become an overwhelming worry among North American manufacturers.
The study collected data from more than 70 senior-level representatives of industrial manufacturing companies, including business owners, vice presidents of procurement and purchasing directors. Results showed a full 93 percent in agreement that material costs will be an economic concern for the rest of 2008 — stainless steel, nickel, copper and other metals and plastics, in particular.
Following closely behind, 67 percent agreed that energy costs will be a major concern for the rest of the year. "The bottom line is that pricing pressures for raw materials and commodities will likely continue to be an obstacle to success for many North American manufacturers," O'Sullivan said, citing other indicators as evidence, including the June 2008 Manufacturing Report On Business® issued by the Institute for Supply Management™, which reflects that rising commodity prices, combined with a fluctuating Purchasing Managers Index, are putting great pressure on U.S. manufacturers.
Inflation was the third greatest concern, with only 39 percent of respondents saying it would be a top economic concern. Logistics and supply chain costs followed at 38 percent. Healthcare (18 percent), foreign competition (12 percent), overhead (11 percent) and labor (8 percent) were among the other cost pressure concerns identified.
Other Expected Cost Pressures
In the H2 survey, more than half the respondents — 51 percent — shifted their top sourcing priority to identifying reliable and cost-efficient sources for raw materials versus improving efficiency measurements, which ranked high on the list of concerns in the H1 survey issued in January.
Also contrary to the first Group Outlook Survey, a higher percentage of respondents now expect capital spending to decrease (39 percent) or stay the same (42 percent) as the first half of 2008.
The survey also showed confidence for employment opportunities in the second half of 2008. While only 17 percent of respondents said they expect job cuts, another 17 percent expected job growth, and 66 percent expected to make no changes and keep their current employee base at the same level.
"These results show that U.S. manufacturers are cautiously optimistic about the rest of the year, in spite of current economic concerns," O'Sullivan explained. "Our members are still hopeful."
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The Safety of Nanomaterials
Expert Panel Concludes There is Not Enough Information to Assess the Safety of Nanomaterials
An expert panel appointed by the Council of Canadian Academies has concluded that too little is known to assess the overall human and environmental risks posed by the introduction of nanomaterials and nanoproducts into society. However, the panel did not identify any evidence that nanoproducts currently on the market in Canada present risks that cannot be addressed through available risk management strategies.
"The panel sought to assemble the existing science, and understand what it implies about the hazards presented by nanomaterials, what risks they present to human health and our environment, and how we can best manage these risks given the current uncertainties and key gaps in knowledge," said University of Toronto professor Pekka Sinervo, chair of the expert panel.
The report, requested by Health Canada (in consultation with several other federal agencies), was prepared by a panel of 15 experts who are engaged in the creation and application of nanomaterials, assessment of the risks they might present, and public policy issues related to health and environmental regulation. The report was in response to the question, "What is the state of knowledge with respect to existing nanomaterial properties and their health and environmental risks, which could underpin regulatory perspectives on needs for research, risk assessment and surveillance?"
Nanomaterials can be defined as materials having one or more dimensions on the nanoscale — i.e., between 1 and 100 nanometres (nm). A nanometre is one millionth of a millimetre — about 100,000 times smaller than the diameter of a human hair. A red blood cell is approximately 7,000 nm in diameter.
As of April 2008, there were more than 600 nanotechnology-based consumer products on the market, including sunscreens, anti-stain coatings on fabrics, antimicrobial features in washing machines and refrigerators various medical and electronic applications. According to the expert panel, the sheer diversity of possible nanomaterials — when combined with their unpredictable biological and environmental properties — makes it very challenging to assess the risks of nanomaterials and, thus, to design regulation to help manage possible risks.
The current risk assessment strategies that are used in health and environmental regulations in Canada comprise four steps: hazard identification, hazard characterization, exposure assessment and risk characterization. The application of these to nanomaterials will require new ways for measuring exposure, dose and response. The report concludes that there are, at present, inadequate data to inform quantitative risk assessments on nanomaterials. At most, only qualitative risk assessments are feasible. Moreover, changes in the potential for nanomaterials to cause harm at different stages — from production, through usage, to final disposal — implies the need for a full, life-cycle approach to risk assessment.
While the panel was not asked to make specific recommendations, it identified some key steps towards filling in existing knowledge gaps:
- International efforts are currently underway to develop standardized definitions and nomenclatures for nanomaterials, but the process might take up to 10 years to complete. In the meantime, interim terminology and classification are needed to help regulators oversee this emerging group of materials and products.
- In conjunction with classification, new tools and standards are needed to ensure that the exposure of both the public and workers to nanomaterials is consistently and reliably monitored.
- Current regulatory triggers (based on the amount and chemical structure of materials) will need to be revised in order to identify those nanomaterials entering the market that might require regulatory oversight.
- The diversity in both material type and use of nanomaterials, the magnitude of scientific research that is needed, and the increasing presence of traded products that contain nanomaterials, will require governments to work collaboratively both within Canada and internationally.
- Research is needed to identify the properties of a nanomaterial that enable it to elicit an adverse biological response and, in light of this, to identify appropriate regulatory responses regarding nanomaterial exposure.
For more information, visit the Council's Web site.
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Weak Housing Market Hits Home
Weaker Housing Market Negatively Affects Chemical Firms
U.S. house builder confidence fell to a new low this summer as sales fell, credit tightened and the economy sank, according to findings by trade group ICIS.
The housing industry is a key downstream consuming sector for chemicals and chemicals-based products such as roofing materials, adhesives, insulation, siding, paints and coatings, synthetic materials, polyvinyl chloride (PVC) pipes and a broad range of other construction materials, the group explains.
In fact, each housing start engenders more than $16,000 worth of chemistry, according to the American Chemistry Council (ACC).
Additionally, an index that measures house-builder confidence fell to 16 in July, down from 18 in June, according to the National Association of Home Builders (NAHB). June was the previous record-low month for the index.
"Builders are reporting that traffic of prospective buyers has fallen off substantially in recent months," said NAHB Chief Economist David Seiders. "Given the systematic deterioration of job markets, rising energy costs and sinking home values aggravated by the rising tide of foreclosures, many prospective buyers have simply returned to the sidelines until conditions improve."
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Emergency Preparedness Plans
Chemical Companies Prepare for Hurricanes, Storm Season With Emergency Plans
By RaeAnn Slaybaugh
In the midst of storm season, executives at the American Chemistry Council (ACC) say chemical companies should take note of the successful actions taken by their peer companies to weather previous incidents, including hurricanes.
ACC's Scott Jensen is the spokesperson for the organization's trademarked Responsible Care® health, safety, environment and security program — a major component of which is long-established emergency plans activated in close coordination with local, state and national authorities, other businesses and transportation systems along the path of the storms.
According to Jensen, not one employee at an ACC-member chemical facility was injured during Katrina or Rita. Additionally, neither the U.S. Environmental Protection Agency, nor any state agency, reported a significant chemical release from member facilities in the Gulf.
In fact, Jensen adds, most chemical facilities returned to full operational status in a matter of days — a tribute to planning, preparation and the facilities' fundamental design.
How'd They Do That?
Emergency plans devoted to protecting the safety of employees and surrounding communities are vital to chemical companies in preparation for an emergency, Jensen underscores — but what steps, specifically, are in order?
The answer lies in a well-rehearsed emergency plan. This encompasses many actions taken in advance of the storm. Depending on a storm's severity, actions can include:
- Complete shutdown of the facility using strict safety and operating procedures
- Evacuation of personnel
- Preparing the facility by activating generators, filling tanks and physically securing equipment
- Removing unnecessary vehicles and other equipment
Additionally, the ACC's Responsible Care program also recommends having a written emergency response, prevention and preparedness plan in place. It should meet all necessary elements based on facility type, its operations and the products stored there. Among other elements, an effective plan includes:
- An accurate facility emergency notification call list for on-site and corporate personnel, local public emergency responders, local, state and federal agencies, and public news outlets.
- A facility site plan indicating the storage locations of hazardous materials and critical fire protection equipment, utility shut-offs, egress routes and fire water containment systems.
- Proper notification of public emergency responders upon discovery of an incident, plus assurance that firemen, police and paramedics can reach the site within 10 minutes of notification. These responders should have public and private roadways accessible to the site at their disposal, as well as proper training and equipment to deal with the materials and chemicals at the facility.
- A local hospital within reasonable distance of the site equipped to handle emergency treatment for injuries resulting from fires and hazardous chemical incidents — oral, inhalation and/or dermal exposures. Alternately, public emergency responders might have the ability to airlift injured personnel to emergency treatment centers.
How Natural Emergencies Impact Chemicals and Customers
As witnessed in the aftermath of hurricanes Katrina, Rita and Ike, the impact of hurricanes can extend well beyond physical and safety threats to chemical facility employees, their workplaces and their surrounding communities.
"Those storms reminded us of the interdependent nature of the nation's critical infrastructure," Jensen says. "While most facilities didn't suffer major structural damage and were operational within days, many were unable to resume normal production because of other external consequences of the storms." These included extensive damage to the local infrastructure, which blocked the flow of critical supplies necessary to manufacture chemicals — electricity and natural gas, in particular. At the same time, damaged roads and rail lines prevented the delivery of chemical products to consumers.
"Ultimately, this led to higher natural gas costs for everyone and curtailed the delivery of chemicals essential to producing important everyday items like clean drinking water and life-saving medicines," Jensen adds.
Who's At Risk
While the majority of the United States' basic chemical production is concentrated in the Gulf Coast area — close to critical feedstock materials, including natural gas — Jensen points out that chemical manufacturing of some kind exists in every state.
"Texas and Louisiana are responsible for about 70 percent of all primary petrochemical production," he says. "However, every state in America is dependent on the products of chemistry to support its manufacturing, agricultural and other industries. That's why it's imperative that [chemical] companies plan ahead to handle crisis situations."
To aid in this effort, the ACC offers fact sheets which detail the impact a hurricane could have on the chemical industry. Searchable by state, each sheet presents a snapshot of the chemical industry in that area, related trends in employment, average wages and the industry's economic impact.
In Recovery Mode
After a storm passes, the ACC emergency planning approach dictates that specially trained teams visit the site to evaluate damage before response crews or other employees are allowed to return. Once it is deemed safe, employees begin the delicate process of restarting operations, which can take several days depending on the size of the facility.
"The recovery operations of many companies extended past the fence lines of their facilities," Jensen adds. In fact, he recalls, member companies nationwide and their personnel donated tens of millions of dollars toward relief assistance, volunteering time and providing much-needed supplies in the wake of hurricanes Katrina and Rita.
"In many instances, their facilities became vital community resources," Jensen continues, citing a wide range of support offered by these companies — temporary housing and meals for employees, their families and the community-at-large.
"One company loaned its helicopter to the Red Cross for relief and rescue," Jensen adds. Meanwhile, another facility opened its doors to the community as the only local institution with emergency power and communications.
And don't just plan for severe contingencies like hurricanes, Jensen urges: Consider hurricanes and other potential disasters when designing and building safety into chemical facilities.
RaeAnn Slaybaugh is a senior writer for the Institute for Supply Management™. She can be reached by e-mail.
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Findings from the Global Petroleum Survey 2008
Survey of petroleum executives shows Colorado, California and Alaska falling out of favor.
By RaeAnn Slaybaugh
According to the Global Petroleum Survey 2008, conducted by independent research organization the Fraser Institute, Colorado has lost its ranking as the most attractive destination worldwide for oil and gas investment.
"Survey respondents were very concerned with Colorado's changes to drilling permit requirements and other more stringent regulations," explained survey coordinator and senior economist Gerry Angevine.
According to Angevine, these new rules — which include moratoria on drilling in some areas and requiring the Colorado Oil and Gas Association to consult on drilling permits with the Department of Public Health and the Environment — could increase drilling costs by $60,000 to $600,000 per well.
Modeled after the Fraser Institute's Survey of Mining Companies, the Global Petroleum Survey 2008 measured and ranked the investment climate of various oil and gas producing jurisdictions based on 16 factors (see sidebar).
Nearly 400 respondents participated, and more than two-thirds of respondents held management positions or higher. Moreover, the organizations represented account for more than one-third of the industry's global spending on petroleum exploration and production.
The survey questionnaire sought executive opinions on a range of issues, including royalties and licensing agreements, taxation, the cost of regulatory compliance, trade and labor regulations, and political stability.
Key Domestic Findings
When the survey results were issued last month, petroleum senior executives and managers ranked Colorado the 29th least attractive jurisdiction (of 81) in terms of upstream oil and gas investment. This put the state in the same league as Ukraine, Pakistan and Indonesia in terms of investment potential.
Besides Colorado, Alaska, California, Florida, Montana, Pennsylvania and West Virginia were also viewed as poor investment risks. "The poor showing for [these states] can be directly traced to state government decisions to add layers of new regulatory requirements and increase taxes on oil production," Angevine reiterated.
Alaska fell to the 22nd least-attractive jurisdiction, and California was ranked no. 11 — a position which groups the two states with other high-risk jurisdictions such as Russia and Sudan, and with a less attractive ranking than Afghanistan, Pakistan and China.
In 2007, Alaska was ranked 41st least-attractive out of 54. California ranked 31st. Respondents gave California a less attractive rating this year in part because of its fiscal regime and taxation level. The same can be said of Alaska, where petroleum production tax payments are expected to be "significantly higher" than under the prior law.
"California's expanded prohibitions on offshore drilling and concerns about environmental regulation are having a detrimental effect on the way the state is viewed by the petroleum industry, while Alaska increased its petroleum production tax," Angevine explained. "Oil and gas projects require vast amounts of capital and long lead times. If governments are inclined to change the rules part way through the process, the risk for investors increases, and they are likely to seek a more stable jurisdiction for investment."
On the other hand, Ohio (rank: 78), Arizona (73), Oklahoma (71), Arkansas (63) and Alabama (62) represented the lowest barriers to upstream oil and gas investment among 81 jurisdictions, according to respondents. They were joined by Texas (66), Kansas (56) and New York (80), giving the United States nine of the top 10 jurisdictions.
The International Outlook
Saskatchewan, which ranked sixth, was the only top-10 Canadian province. It ranked higher this year because, according to Angevine, it was a stable environment for investment relative to the regulatory disruption in Alberta.
The province of Alberta garnered a considerably less attractive rating this year — 23rd of 81 compared to 37th of 54 last year — after respondents expressed dissatisfaction with its new, more costly royalty regime. A new payment schedule is slated to take effect on January 1, 2009, which will increase petroleum royalties collected by the government by $1.4 billion per year.
Bolivia was ranked least-attractive for petroleum investment and development, followed by Ecuador and Venezuela. Other less-favored nations included Chad, Iraq, Nigeria, Argentina, Sudan and Russia based on petroleum production taxes.
Jurisdictions that have imposed heavier tax and regulatory burdens during the past year received more negative scores than last year.
"The fact that unnecessary and ill-conceived policies can undermine investment is buttressed by respondents' written comments, some of which are included in this report," he wrote. "Policymakers would do well to recognize the consequences and weigh the costs of big government in terms of foregone investment, lost jobs and corporate flight.
"More prudent policies will be rewarded with the economic growth that accompanies investments in petroleum exploration and development," Angevine added.
Respondents were wary of Russia in particular because, as they explained, it represents "a combination of very high uncertainties and lack of leverage over government policies." Corruption, political risk and the risk of nationalization were high on their list of concerns. For example, one respondent said fraud accusations intended to gain control of oil and gas resources made him most hesitant.
The Global Petroleum Survey 2008 can be downloaded as a free PDF from the Fraser Institute Web site.
16 Determining Factors
All Global Petroleum Survey 2008 respondents were asked to indicate for a given jurisdiction how each of the following 16 factors influenced organizational decisions to invest in petroleum exploration and production there:
- Fiscal Terms — Government requirements pertaining to royalty payments, production shares and licensing fees.
- Taxation Regime — The tax burden (other than for oil production), including personal, corporate, payroll and capital taxes.
- Local Natural Gas Prices — Whether regulated rates for natural gas are set too low to recoup exploration and production costs.
- Regulatory Compliance — The costs of filing permit applications, participating in hearings, and so on.
- Regulatory Uncertainty — The extent to which the regulatory environment is unstable — in other words, whether there are frequent, unexpected or unjustified changes in rules and requirements.
- Environmental Regulations — The costs of fulfilling regulatory requirements on exploration and production processes and facilities.
- Local Processing Requirements — The extent to which a jurisdiction requires oil and gas extracted locally also to be processed locally.
- Trade Regulations — The ability of producers to access markets through the export of crude oil, natural gas and refined petroleum products.
- Labor Regulations and Employment Agreements — The degree of flexibility exercised by employers to determine hiring and firing practices, compensation and work rules.
- Local Public Infrastructure — The availability and quality of schools and colleges, hospitals and recreation facilities.
- Business Infrastructure — The adequacy of roads, railways and airports.
- Geological Database — The availability of credible and complete data on area geology.
- Labor Availability — The supply and quality of labor, and the willingness of foreign workers to relocate to the region.
- Aboriginal Land Claims — The uncertainty of unresolved claims by native groups, which can interfere with land access and transportation rights-of-way.
- Political Stability — The frequency of changes in policies, regulations and elected officials.
- Security — The safety of assets and personnel, and the risk of expropriation.
The rankings were calculated based on the proportion of negative scores garnered by the jurisdictions for a specific factor. Thus, the greater the proportion of negative responses a jurisdiction drew, the less attractive its rating.
Source: Fraser Institute Global Petroleum Survey, 2008 edition
RaeAnn Slaybaugh is a senior writer for the Institute for Supply Management™. She can be reached by e-mail.
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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.
The Pharmaceutical Forum Meets Again This Month
On October 28 and 29, the Pharmaceutical Forum will team up with the ISM Chemical Group and the Drug, Chemical & Associated Technologies (DCAT) organization to present the Strategic Sourcing Summit & Showcase 2008 at The Hyatt Hotel in New Brunswick, New Jersey.
More than 200 supply management professionals participate in this annual program, which provides best practices in not only the transformation of global procurement, but also assessing and managing supply chain risk, outsourcing and change management. This year's timely and leading-edge program topics include:
- World economic outlook — impact on supply and pricing
- Hedging and energy risk management
- FDA and the "State of Compliance"
- Successfully doing business in China
- The Procurement Executive Roundtable (Participants represent Johnson & Johnson, Colgate Palmolive, Boehringer Ingleheim and Stiefel Laboratories.)
For complete details, log on to the Drug, Chemical & Associated Technologies Web site.
ISM Announces Inaugural Conference on Sustainability and Social Responsibility
The Institute for Supply Management™ (ISM) recently announced its inaugural Sustainability and Social Responsibility Conference scheduled for November 6 and 7 at the Marriott Inn and Conference Center in Adelphi, Maryland. Named the country's first environmentally friendly hotel and conference center, the Marriott Inn and Conference Center has received its LEED certification from the U.S. Green Building Council.
Conference highlights include:
- Learning from leading global management consulting firm A.T. Kearney why sustainability is important, plus the latest research and trends, measurement tools, challenges, benefits and action plans for moving forward.
- Discovering the steps News Corporation took to becoming carbon-neutral.
- Finding out how Yellowstone National Park effectively implemented sound environmental practices.
- Hearing firsthand how leading office furniture manufacturer Herman Miller developed a comprehensive approach to sustainability — down to the design and chemical makeup of its products.
- Discovering how AT&T developed a collaborative sustainability process that is both equitable and profitable for its many stakeholders.
Registration fee is $795 for ISM members and $995 for nonmembers.
Additionally, ISM will hold a pre-conference seminar on November 4 and 5 to provide attendees with valuable tools to successfully move their organizations toward environmentally friendly and green supply chain practices. Fees are $1,245 for ISM members and $1,545 for nonmembers. Pre-conference registrants will save $200 on the registration fee for the Sustainability and Social Responsibility Conference.
Visit the ISM Web site for additional information.
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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:
- A solid supply chain risk management program identifies where disruptions might occur and is backed up by training on how to respond. Whereas past discussions of risk management have focused on financial reporting and Sarbanes-Oxley, disasters such as Hurricanes Katrina, Rita and Ike — plus today's soaring commodity prices — have increased executive focus on supply chain risk management, or SCRM.
SCRM is the integration and management of organizations within a supply chain to minimize risk and reduce the likelihood of disruptions through cooperative organizational relationships, effective business processes and high levels of information sharing. Visit the Inside Supply Management® Web site to delve deeper into this approach.
- Corporate legal spend is one of the most challenging categories for corporate supply management departments. Today, leading corporate legal groups are partnering with supply management departments, each bringing their unique expertise to the table. Working together, use and spending on outside law firms have been successfully rationalized.
Additionally, benchmarking research suggests in-house law departments that have implemented supply-management-style approaches believe the quality of legal services provided has increased — and most companies report significant savings. Find out more about this emerging trend.
- Walking away from a negotiation is an often misunderstood tactic. Far from being a spur-of-the-moment decision or a method of dealing with heated emotions, it can actually be a strategy. When used correctly, it can enhance results without negatively impacting business relations.
When engaging in a pre-negotiation meeting with a supplier, six questions can provide key pieces of information to determine their level of need for the business — and, therefore, their ability to walk. Read this eSide Supply Management article and add those six questions to your negotiation toolbox today.
- Even if you missed last year's ISM Chemical Group Winter Conference in Galveston, Texas, you can still access the speaker's informative PowerPoint presentations online. Log on now to view these in-depth sessions:
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