Saturday, October 24, 2009

2010 And 2011 Will Be More Difficult Than 2009: Peter Huntsman

With economic turmoil, environmental concerns and climate change occupying the hotspots, the chemical industry is poised to change globally. To
Peter Huntsman
Peter Huntsman, CEO, Huntsman Corporation
know what lies ahead,
ET caught up with Peter Huntsman, CEO, Huntsman Corporation—a global producer of differentiated chemicals with revenues over $10 bn annually. Excerpts.


How has the chemical industry changed in last decade?

Globally we have seen a tremendous transformation in the chemicals industry over the last decade. A few years ago the best of producers were in the North America or Europe, but today I believe the best producers are in the Middle East, China and say Reliance in India. The commodity side of the chemical industry is undergoing a difficult phase right now because the Middle East is coming up with tremendous amount of new capacities. They have the advantage of new technology, very large scale and low cost raw material .

Is the difficult phase for commodity chemicals likely to prolong further?

In the view of the new capacities coming up in the Middle East, 2010 and 2011 will be more difficult than 2009 for the commodity chemicals globally. As I look at this, this is not a case of over capacity. Much of the pain will come companies like Reliance, SABIC and others emerging market giants leveraging their geographical or feedstock advantages and investing in new technologies and new capacities. The overcapacity is going to be in countries like US, where 20-30 year old plants are operating. Suddenly, they now have to compete with units that are 5 times bigger and working on state-of-the-art technology operating out of some faraway place. I think there will be tremendous transformation in the Americas and Europe in the commodity chemicals business.

As regards Huntsman, we used to be this segment of the chemicals industry till few years back. However, when I saw these new facilities coming up in India and the Middle East, I realised there was no way our ageing plants could compete against them. As a result, two years back we got out of all those commodity businesses and moved on to the specialty chemicals.

Now most of our products are now based on technology, innovation, where the size doesn’t matter. We manufacture them India, China, Saudi Arabia, Europe but our cost is pretty much the same all around the world. That’s the difference between a commodity and specialty business.

So you think the chemical companies in the US and Europe would focus only on the specialty chemicals in the future?

Yes, I think so. The specialty chemicals industry today is 30% in US, 40% in EU and rest in Asia-Pacific . Here the competition is not on price or raw materials, but on product technology and innovation. In the commodity space if one processes two or three raw materials, we have fifty or sixty raw materials, which come together. This is an industry, which is good for companies with a global footprint and the demand for these are global.

However, the rules of the game are totally different here. The customers, suppliers, transportation needs, the development, research efforts — everything differs. Hence it is very difficult to change over from commodities to specialties quickly . Huntsman had been in this for the past 15-20 years developing new technologies and innovating, so the changeover became possible. If you are not already in it today, it is going to be difficult to get in it in future.

What are Huntsman’s plans for India?

Just ten years ago we had less than 10 employees in India. That number rose to 250 three years back and as of now we have around 1500 associates here in India. Our sales also grew rapidly in the period to nearly $500 million at present. Today nearly 50% of Huntsman’s Indian business comes from chemicals catering to the textiles industry. Within next five years we plan to double our sales in India to $1 billion. We will be investing in excess of $100 million over next five years, which will be for not just expanding capacities and strengthening the R&D , but also for mergers and acquisitions.

What role do you think environmental concerns will play in the future of the chemical industry?

Environmental concerns are surely playing a great role in the working of the chemical industry today At Huntsman we have always tried to move away from petroleum feedstock to bio-based sources such as glycerine, bio-diesel , vegetable oils and bio-ethanol , to name a few. We are also exploring other renewable fuel technologies as well as agri-feedstock to make more of our products bio-based . Other efforts include high performance lighter products for improving aircrafts’ fuel efficiency or innovative composites and resins for fuel cell applications.

Environmental issues are going to be equally important in India or China in coming years as they are in the US or Europe. If you go to Sierra Nevada mountain in California, nearly 30% of small particulate pollutants found there have their origins in the China’s coal burning power plants. Hence this is no longer a regional problem but rather a global problem. Having stringent and uniform environmental norms will certainly help the chemicals industry. This will encourage introduction of better technologies and a much more responsible attitude from the chemical companies.

What are your views on the climate change?

Well, the chemical industry can either be part of the problem or part of the solution. Right now, I believe some companies are being part of the problem while others are part of the solution. Too many countries and companies are fighting against the environmental initiatives presently. But in my opinion, we are already beyond the argument stage with climate change. Crude oil is a dangerous raw material! We need to get away from it as quickly as we can. And it is not just about pollution; dependence on oil is also putting the reins of our future economic growth in the hands of unfriendly countries.

I don’t understand why the US doesn’t take more initiatives in this area. We are 5% of the world’s population, produce 8% of world’s oil but consume 25% of the world’s oil. Why don’t we take lead in this? We don’t have any right to ask countries like India to take the first step.

... but if not oil then what?

Part of this is looking for alternatives to oil, but there is not enough solar, wind energy to replace it fully. The other part is to use oil judiciously, conserve it. But our mentality towards oil consumption needs to change. In a place like Texas when it is extremely hot in the summer, we have freezing cold inside the buildings. Do we really need that? Huntsman is one of the largest producers of polyurethane foam, which is one of the most efficient insulating materials.

We are developing paints and coatings for roofs that will be able to reflect heat in the sunlight. The oil conserved through these methods will be equivalent of taking a quarter of all cars in the world off the road. The US alone can save nearly 3-4 million barrels of oil every day, if we have the same driving standards as in the Europe — that’s more than what India consumes today.

Some change is already becoming visible. For example, in the US government’s cash for clunkers programmes, we saw people getting rid of their low mileage vehicles such as pick-up trucks and SUVs replacing them with Hondas and Toyotas. That underlines the change in the mindset. America needs to be bold and take the lead in petroleum conservation because we consume the most in the world.

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