Volume 3, Number 3, July 2005
This newsletter is published in cooperation with the ISM Chemical Group.  



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In This Issue...
  • Chemical Industry News
    • Reduced Emissions: The U.S. Environmental Protection Agency's 2003 Toxics Release Inventory reveals that the amount of toxic chemicals released into the environment continues to decline. Read more.
    • Challenges for Industrial Cleaning Chemical Suppliers: Continued consolidation and price sensitivity are pushing suppliers of specialty raw materials used in industrial and institutional cleaning products to devise creative solutions to maintain and grow their market share. Read more.
  • Social Responsibility Feature: How is the chemical industry achieving success in the area of corporate social responsibility? Read more.
  • Commodity Report: Sustained high demand for North American chlorine has prompted an exceptionally tight market balance. Read more.
  • Announcements: Attend ISM's Web seminar about managing outsourcing contracts. Read more.
  • Additional Resources: Check out these links to additional resources on the ISM Web site. Read more.
  • Contact Us about ISM eDigest: Chemicals.

Chemical Industry News

EPA Report

EPA Report Indicates Reduced Emissions by Chemical Makers

With a greater focus on corporate social responsibility, supply management organizations in the chemical industry are making strides to better the environment. The U.S. Environmental Protection Agency (EPA) issued its 2003 Toxics Release Inventory (TRI) in May, which revealed that the amount of toxic chemicals released into the environment by reporting facilities continues to decline, with total reductions of 42 percent since 1998 and a 6-percent decrease from 2002 to 2003.

TRI provides the public with vital information on chemical releases, including disposal, for their communities and is an important instrument for industries to gauge their progress in reducing pollution. More than 23,000 facilities reported on approximately 650 chemicals for the 2003 calendar year. TRI reporting includes toxics managed in landfills and underground injection wells as well as those released into the water and air.

TRI tracks the chemicals and industrial sectors specified by the Emergency Community Right to Know Act of 1986 and its amendments. The Pollution Prevention Act (PPA) of 1990 also mandates that the TRI report data on toxic chemicals treated on site, recycled and burned for energy recovery. Together, these laws require facilities in certain industries to report annually on releases, disposal and other waste management activities related to these chemicals.

For more information about the TRI data, visit the EPA Web site.


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Industrial Cleaning Challenges

Industrial Cleaning Chemical Suppliers Facing Challenges

Continued consolidation and price sensitivity are pushing suppliers of specialty raw materials used in industrial and institutional cleaning products to devise creative solutions to maintain and grow their market share. A newly proposed market research program from Kline & Company will explore the prospects in this market for the United States and Europe. The overall industrial and institutional cleaning products business, which includes kitchen, housekeeping, laundry, food processing and industrial cleaners, is approximately $9 billion in the United States for 2004, according to Kline. The United States and Western Europe account for nearly 75 percent of the global market.

While opportunities for growth are present for suppliers of raw materials to this industry, there are also a number of challenges to be faced. These challenges are particularly evident for suppliers of higher-value raw materials like specialty polymers, surfactants and enzymes. Gillian Morris, industry manager of the chemicals and materials practice for Kline's research division, says price sensitivity at the end-user level works all the way down the supply chain, to distributors, formulators and raw materials suppliers. "This isn't good for the specialty segment, where chemicals are sold at higher prices than commodity ingredients, although at lower volumes."

Industry consolidation at every level creates even greater pricing pressure on raw material companies. Market giants continue to swallow up smaller competitors, giving them an even larger advantage in negotiating prices with their chemicals suppliers. Still, some diversity remains strong among product formulators, which include a variety of large and small companies, both regional and national in scope.

Materials suppliers are able to ease the sting of consolidation somewhat by working with distributors that are selling private-label products, but increasingly narrow margins continue to require innovation. Bruce Boynick, senior associate in the Industrial and Institutional Cleaners consulting practice for Kline, says at the end-user level, labor costs have increased for hotels and other bulk purchasers of cleaning products, so they look to compensate by cutting material costs. "The way for formulators to combat this is through differentiating their products and offering added value."

Differentiation is therefore key for specialty raw material suppliers as well. This means offering base chemicals that can provide higher performance, such as more powerful cleaners that still remain within safety requirements. In addition, raw materials suppliers should look to help formulators deliver added value by developing combination products that increase efficiency. Examples of this are floor cleaners that also serve as polishers or have a no-slip formulation, and hand cleaners that include emollients and antibacterial agents.

A generally greater awareness of the importance of sanitation, by both the public and institutional users of cleaning products, can also work in favor of the raw materials suppliers, as hand soaps and food service cleaners are important segments of the industrial and institutional cleaners raw materials market.

For more information about the research program, visit Kline's Web site.


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Social Responsibility Feature

The Chemical Industry's Journey to Corporate Social Responsibility

The chemical industry is one of the world's most global business enterprises, generating approximately $2 trillion in shipments annually. As a result of this global reach, the industry is uniquely positioned to provide products and services that improve the quality of life of citizens and communities worldwide. For example, product lines as diverse as chlorination systems for water supplies, lightweight plastics used to enhance personal safety and medical products that both diagnose and cure diseases have been developed by highly educated knowledge workers who contribute to both the economic and social betterment of their nations.

Responsible Care in the Chemical Industry

As markets globalize and product diversification increases, progress is being made in another area as well. A singular achievement for the chemical industry during the past two decades has been the expansion of the Responsible Care® initiative. Through Responsible Care, the global chemical industry and its national associations commit to continuously improving the health, safety and environmental (HSE) performance, as well as, in the United States, the security performance, of its products and processes — thus contributing to the sustainable development of local communities and of society as a whole. Responsible Care currently is implemented in 52 countries across the world's principal chemical manufacturing areas, including North and South America, Europe, Northern and Southern Africa, and the rim of nations extending from Japan to India. Recently, discussions have begun to enable China to participate in the Responsible Care initiative as well.

Responsible Care is an ambitious and critical program that achieves the following:

  • Establishes HSE performance goals and develops processes and practices for achieving them.
  • Promotes mutual assistance across the industry and its business partners through the exchange and implementation of best practices to improve HSE performance.
  • Commits to expanded transparency to enable stakeholders to learn more about industry performance.
  • Supports education and research on the health, safety and environmental issues associated with chemical processes and products.
  • Helps the industry to work in partnership with suppliers, service providers, customers and other stakeholders at the local, national and international levels to develop HSE solutions.
  • Promotes cooperation with governments and organizations in the development and implementation of effective regulations and standards, and assists companies in meeting or exceeding those requirements.
  • Enhances accountability through its requirement to develop credible processes to verify that member companies are meeting Responsible Care goals and expectations.
Delivering Value Through Responsible Care

Overall, Responsible Care has achieved a considerable positive impact in all the nations in which it is implemented. Reductions in releases to air, land and water; improved worker and community safety; greater transparency of industry operations and performance; and increased participation of companies and their employees in communities are hallmarks of Responsible Care that differentiate it from all other private-sector initiatives.

There is a growing recognition among independent parties that Responsible Care is making a major contribution to corporate social responsibility. At the 2002 World Summit on Sustainable Development in Johannesburg, for instance, Responsible Care was recognized by the United Nations Environmental Programme and the International Chamber of Commerce for its achievements in advancing sustainable development.

Corporate social responsibility as practiced through Responsible Care is increasingly part of the business equation for chemical companies in the global marketplace. Business and societal value are derived in areas such as the following:

Improving customer relations as a result of enhanced performance builds customers' confidence in chemical products and enables companies to communicate progress to their stakeholders.
Making more efficient use of resources and minimizing public health and environmental impacts result in cost savings and promote process innovations.
Differentiating the chemical industry in a positive way improves access in potential new markets around the world.
Contributing to the development of critical infrastructure for capacity building provides technical information and assistance and builds support for management systems, training and institution building within many nations.
Applying preventive law protects companies from legal liability as their performance improves. This is becoming increasingly important as evolving legal and regulatory practices and standards become more stringent.
Enhancing employee recruitment results from demonstrating the linkage between improved performance and social responsibility.
Improving the industry's reputation strengthens relationships with shareholders, customers and other important stakeholders.

We live in a rapidly changing world. The value and the relevance of initiatives such as Responsible Care will become even more significant as current and future needs and requirements of society are integrated with business perspectives and plans. Both government and non-governmental organizations increasingly seek partners of choice in the private sector with which to combine their respective resources and talents to achieve social progress. Responsible Care is achieving that partner-of-choice status and has shown what can be achieved as the chemical industry expands its commitment to corporate social responsibility.

Responsible Care represents the chemical industry's core values — investing in science and technology, improving performance, expanding accountability and transparency, and creating economic opportunities. Combined, these values are applied to the most important goal for business and civil society — improving the quality of people's lives and the world we live in, now and in the future.

By Terry F. Yosie, Ph.D., vice president, Responsible Care® for the American Chemistry Council, Arlington, Virginia. To contact the author or sources mentioned in this article, please send an e-mail to author@ism.ws.


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Commodity Report

Chlorine Market Tightness Leads to Elevated Prices

Sustained high demand for North American chlorine has prompted an exceptionally tight market balance. Prices are currently flirting with record highs and plants are operating at maximum capacity. Demand will likely moderate as global economies shift in the next quarter and seasonal demand declines. The anticipated reduction of demand should mean that chlorine prices will feel some downward pressure.

Major Industry Trends

The chlor-alkali industry is experiencing several major trends. These are linked to both the mature market and the co-product nature of chlorine and caustic soda. The trends include increasing regulation, a gradual shift to membrane cell technology and an increasingly important role for ethylene dichloride. Currently, chlorine has a low tonnage growth rate of 1 percent to 2 percent per year, which is typical of a mature chemical. As a result, many chlorine producers are looking toward consolidation as one way to save money. In addition to consolidation, many in the chlor-alkali industry are diversifying both horizontally and vertically. These trends are long term, and it is unlikely that supply managers will see significant, unexpected changes in the near future.

North America 2005 Chlorine Demand Pie Chart

The largest end use for chlorine is to make ethylene dichloride (EDC) for the production of vinyl chloride monomer (VCM). Demand for EDC has been solid through mid year. This application makes up about 39 percent of chlorine use in 2005. Other organic chemicals make up 27 percent, inorganic chemicals make up 14 percent, water treatment composes 5 percent, and the remaining 15 percent is used in miscellaneous applications.


Capacity Changes

At present, North American chlorine plants are working at average effective capacities of 92 percent to 96 percent. These high operating rates are the result of high current demand and a significant reduction of North American capacity in the past several years. Most new industry capacity is being added in Asia. Exceptions include the new North American capacity planned by Tigard, Oregon-based Equapac, and Houston-based Shintech.

Historical and Projected Prices

Chlor-alkali prices cycle dramatically on both a long-term and a short-term basis. Crests and troughs can have discrepancies of more than $150 per ton. In 2004, the market was marked with high prices for chlorine due to the tight supply/demand balance. Current contract prices are in the range of $345 to $375 per ton, with spot prices at $350 to $370 per ton (FOB U.S. Gulf Coast). Changes in the United States and global economies dramatically affect chlorine supply, demand and price.

Expected Future Trends

Industry maturity has a large effect on chlorine trends. The increasing consolidation, industry regulation, use of membrane cell technology and dominant role of ethylene dichloride are all likely to continue. In addition to these trends, a shift towards smaller plants and greater regionalization may also occur, should chlorine transportation be restricted.

By Robin Quarrier, project manager for Consulting Resources Corporation, Lexington, Massachusetts. To contact the author, please send an e-mail to author@ism.ws.


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Announcements
ISM Web Seminar — Effectively Managing Outsourcing Contracts

Join ISM for this one-hour session and discover why companies from all industries are turning to outsourcing their non-core activities, transactions and functions as a strategic imperative. Find out how to manage outsourcing initiatives effectively and learn firsthand about the typical issues and pitfalls involved with the startup, maintenance and rampdown of an outsourcing project. Get the facts about how considerations such as key performance indicators, metrics and service level agreements are contract-critical in mitigating risk and maximizing ROI. These and other outsourcing management practices that create a competitive advantage will be addressed.

Presented by: Edward M. Lundeen, CPIM, C.P.M., Director, Contracts, Eclipse Aviation Corporation

Date and Time: Wednesday, July 27, 2005, at 10:00 a.m. MST
Attend and earn one Continuing Education Hour.

Registration fees are $99 per individual or $179 for two or more attendees per connection. For more information or to register click here.


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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:

  • What's in a price? With a volatile economic environment, supply managers should be knowledgeable about major cost drivers, such as labor, energy, commodity pricing and innovation. In the 2005 Conference Proceeding article "What Every Supply Manager Must Know About Economics," Brian G. Long, Ph.D., C.P.M., president of Marketing and Management Institute, Inc., discusses how the economic system evolved to where it is today and explores the new competitive factors that have changed and will continue to change the supply chain environment.

  • Over the last several months, ISM has been promoting its Principles of Social Responsibility in a series of articles. In the fifth article of the series, "Corporate Ethics: Taking the High Road," Jill Schildhouse examines the importance of ethics, developing an ethics policy and unique ethical considerations. Also, learn about ISM's 12 codes of conduct, as well as an opportunity to earn a Continuing Education Hour through a free online ethics course.

  • In an effort to increase supply chain visibility, organizations such as Wal-Mart, Target, Best Buy and the U.S. Department of Defense are mandating suppliers to use radio frequency identification (RFID) tags. With those mandates as a backdrop, advocates are betting on RFID as the catalyst for inspiring performance in the supply chain and ultimately increasing customer satisfaction. In his 2005 Conference Proceeding article "RFID: Enhancing Supply Chain Processes and Delivering Increased Customer Satisfaction," Carey Hidaka, executive consultant for IBM Global Services, explores the advantages of RFID and the opportunities for the supply chain.

  • Looking for leading-edge articles for high-level supply management professionals? Look no further than the April issue of Inside Supply Management®. In the magazine's premier Executive Edition, supply managers have a wealth of information at their fingertips. Not a member of ISM? Not a problem — there's a free online version of the April issue. Enjoy a panel discussion featuring successful supply management executives or elevate your knowledge of global sourcing. These are just two of the leading-edge articles available.

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