US Economy Likely to Contract in Second Quarter

WASHINGTON - President Barack Obama said Thursday that despite signs of a US economic recovery, figures will likely show gross domestic product contracting in the second quarter of 2009. 


“I suspect that GDP numbers will still show that the economy contracted in the second quarter, that job loss is still a huge problem,” Obama said. 

His comments come ahead of the publication on Friday of results offering a snapshot of how the world’s largest economy fared between April and June. 

Many hope those figures will point to the end of an 18-month crippling recession, after desperately gloomy figures in the previous two quarters. 

Figures from the Bureau of Economic Analysis showed the economy shrank 5.5 percent in the first quarter, after a 6.3 percent slide in the fourth quarter of 2008. 

Obama, echoing the expectations of forecasters who see growth resuming in the second half of 2009, sounded an optimistic tone about the economy. 

“We have seen a significant slowing down of the contraction over the last several months,” Obama said, pointing to a slowing of job and output losses, and an easing of credit markets. 

“All of that is a sign that we have stepped away from the precipice.” 

“We were in a position where we could have gone into a great depression. I think those fears have abated.”

quoted from: Khaleej Times 

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Soda Ash Prices Trend Down on Lower Demand

Soda ash prices slipped down again in July to $195/net ton from their May peak of $202, but buyers say the ongoing battle between U.S. and Asian suppliers makes it extremely difficult to forecast true soda ash supply and demand trends. 

As reported earlier this year on Purchasing.com, soda ash prices spiked in January and continued up until recently, when they began to tick down. But the reason for the plateau and slight decline in prices is hard to put a finger on, while the future outlook for soda ash prices is even more complicated, involving import/export trends and soda ash's inter-relation with other materials. 
For buyers looking to source soda ash domestically and avoid costly transportation costs, the market is not in their favor. 

"The soda ash suppliers in the U.S. would rather export soda ash than sell it domestically because they can get more money by exporting the material," one soda ash buyer in the Midwest tells Purchasing.com. As a result, this buyer says it is difficult to get competitive soda ash pricing from U.S. suppliers because in many instances, the suppliers really don't want the U.S. business. 

"The U.S. suppliers seem to keep with their current customers and not try to add any additional business. It is kind of a ‘take it or leave it' kind of relationship."  

It's not just that buyer's imagination. On its second quarter earnings call, officials from FMC Corp. confirmed those sentiments saying "we intend to take full advantage of the low cost position of U.S. production to focus on gaining global market share at attractive margins. We intend to do so primarily by acquiring new customers export markets such as Asia."

And while U.S. producers are targeting Asia, Asian soda ash producers are targeting U.S. buyers. According to a recent Associated Press report, Chinese soda ash exports grew 40% in the first three months of 2009 vs. the same period last year. "They're exporting quite a bit more, and what they're doing in the process is lowering the sales price on the export market, which then makes it very difficult for the United States to compete," said Dennis Kostick, a senior minerals commodities specialist with the USGS, in the Associated Press report.

But while domestic demand for soda ash from some of its major end-market industries including glass and detergents is down, producers are also scaling back soda ash production in the U.S. drastically. According to the latest data from the US Geological Service, for example, "global economic problems have reduced world soda ash consumption, which in turn has reduced U.S. soda ash exports. To avoid an oversupply of soda ash inventories, domestic soda ash production has been cut back intentionally."

FMC in the first quarter temporarily curtailed production at its Granger facility, capacity which was brought on over the last few years to supply growing export demand. And Georgia-based OCI Chemical Corp. said this week it is laying off 38 of its 400 employees at a soda ash plant near Green River, Wyo. Company officials say the layoffs are a result of weakening global demand for soda ash. 

Another factor that may push soda ash prices down is its relationship to caustic soda, which has dropped off in price recently. Earlier this year, FMC officials said that when caustic soda prices are over $400, the demand for soda ash as a lower-cost substitute increases and, thus, prices for soda ash increase. But as reported by Purchasing.com recently, caustic soda prices have plunged, lessening the need for a lower-cost substitute such as soda ash.

quoted froml: Purchasing.com

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Al-Waha to Achieve Commercial PP Output at Al-Jubail in Q4

SINGAPORE (ICIS news)--Saudi Arabia’s Al-Waha Petrochemical Co expects to achieve commercial production at its new polypropylene (PP) plant at Al-Jubail in the fourth quarter of 2009, a source close to the company said on Tuesday. 

The 450,000 tonne/year plant had already begun trial runs but it would be a few months before all the performance tests were completed, the source added.  

Company officials were not available for comment.

“This is the world’s largest PP unit using LyondellBasell’s Spherizone technology, hence it’s taking a long time to achieve commercial production,” the source said.

The plant is sourcing propylene from a 450,000 tonne/year propane dehydrogenation (PDH) unit. “The PDH unit is currently running at low rates, but the rates will be stepped up once the PP plant achieves commercial output,” the source said.

The PP plant would produce homopolymer as well as impact and random copolymer PP grades, the source added.

“The company is currently exporting on-spec and off-spec product to Middle East markets, but will start exporting to Asian markets once the plant starts producing significant volumes of on-spec product,” the source said.

Al-Waha Petrochemical is a joint venture between Sahara Petrochemical Co and LyondellBasell.

quoted from: ICIS.com

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BASF Shares Slump 4% on Weak Q2, no Recovery Seen for H2

LONDON (ICIS news)--BASF’s share price fell over 4% on Thursday after the German chemicals giant reported weak second-quarter results and warned of further possible setbacks.

The company’s second-quarter net profits dropped 74% year on year to €343m ($483m) as it continued to be hit by the global economic crisis. 

Sales were down 23% at €12.5bn, while earnings before interest and tax (EBIT) before special items were 53% lower at €1.1bn, BASF said. 

The company said its chemicals sales were down 30% in the quarter. 

Capacity utilisation rose from below 60% in the first quarter to slightly above 60% in the second – much lower that the pre-recession average of around 80%.

BASF said the downturn seemed to have bottomed out but it warned of further possible setbacks.

Group CFO Kurt Bock said there was no reason why the second half would show an improvement on the first, and could possibly be worse.

Oil & Gas and Agricultural Solutions were seasonally stronger in the first six months, while raw material prices for much of the business would increase in line with crude oil, squeezing margins.

BASF's hardest-hit businesses in the second quarter continued to be chemicals, plastics and functional solutions, largely because of their exposure to the depressed automotive and construction industries, BASF said.

Yet sales in the oil and gas business were down in the quarter on lower gas volumes and the lower oil price, BASF said.

BASF said its agriculture business posted higher sales and earnings.

“Overall, we think that the downturn seems to have bottomed out and there seems to be stabilisation at a low level,” CFO Kurt Bock said. 

“The trough appears to have been reached in North America, and China is again growing faster. But we see no signs of a sustained upturn. 

“There is still the danger of another painful setback due to overcapacities, bankruptcies and growing unemployment,” he added.

BASF had revised its full-year forecast given the still-depressed economic conditions worldwide and based on a decline in chemicals production of 8% and an average oil price of $55/bbl, among other factors, Bock said.

The company said it would take until the end of the 2009 before the global chemicals industry reaches the levels of 2005.

In view of the economic environment and the expenses resulting from the Ciba integration, BASF said it expects a significant decline in sales and earnings in 2009. 

“We are therefore unlikely to achieve our goal of earning our cost of capital in 2009,” Bock said.

At 11:32 CET, BASF shares were trading at €33.30, down 4.3% on Wednesday's close.

quoted from: ICIS.com

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Polyester Boom in China Pushing up PTA, PX Prices

SINGAPORE (ICIS news)--The current boom in the Chinese polyester industry is supporting gains in feedstock purified terephthalic acid (PTA) pricing in the past two months, which in turn has pushed up paraxylene (PX) values.

But market participants said they believed the price uptrend was not merely demand-induced but also supply-led.

PTA spot prices hit as high as $950/tonne (€675/tonne) CFR China this week, a steep $70-80/tonne up from last Friday’s close of $870-880/tonne CFR China, according to ICIS pricing. 

Just a month ago, PTA values were no more than $830/tonne CFR China, and in early June were still struggling to break above $800/tonne CFR China.

As for PX prices, the gains were almost equally robust. Between mid-June and this week, prices had spiked $170-200/tonne. And between mid-June and early July, PX prices were hovering around $1,000-1,030/tonne CFR China.

“The gains had come well beyond most people’s imagination, frankly we didn’t expect it ourselves either,” said a source from BP, a major producer of PTA in Asia and a leading PX supplier globally.

In fact, PTA producers had been enjoying profits for the most of this year, a departure from the loss-making days between late 2006 and most of 2007-2008.

“It’s obvious that downstream demand is pushing up prices [of PTA], but at the same time, we’re also not producing enough to meet this strong demand,” said a source from Yisheng Petrochemical, a leading Chinese PTA producer.

PTA makers had been cautious with pushing their operating rates to 100% of nameplate capacity, after the losses seen in the past 2-3 years, traders said.

“Yes, we did not produce full this year, as we were so concerned [earlier in the year] that the more you produce, the more losses you’d make,” said a source from a major PTA producer in Taiwan.

Such cautiousness among PTA makers had also compelled them to commit to less feedstock paraxylene (PX) contract volumes.

A rough estimate by traders suggested that most PTA producers had only locked in about 50-60% of their PX needs in contracts this year, setting the stage for the spectacular price gains of both PTA and PX.

“For whatever reasons, the downstream [polyester] market was so bullish, and we found ourselves regularly running out of PTA to sell this year,” said a source from Formosa Chemical & Fiber Corp (FCFC), major PTA maker in Taiwan.

“So we changed our minds and really wanted to have more PX after all, but with outages here and there, and limited PX to begin with, we cannot produce that much PTA,” added the FCFC source.

Those who managed to chase down the PX successfully maintained optimal PTA operating rates, and enjoyed profitability, said a source from Oriental Petrochemical (Taiwan), a PTA maker which was one of the most aggressive buyers of spot PX in the past two months.

“The strong downstream demand pushed up PX prices too naturally, and you know, the [cautiousness] seen among [PTA makers] was also seen among [PX producers],” said a PX broker from Korea.

Indeed, PX producers in Asia had the concept that the market would soon become oversupplied, with new Chinese and Middle Eastern PX capacities coming onstream in the second half of this year.

As such, they kept low operating rates of no more than 80% on average, and were very careful with their spot sales, said a Korean trader based in Singapore.

“As we all know now, the opposite happened, and PX suppliers were also caught off-guard, and they did not have enough PX to sell to a hungry downstream market,” said another PX broker, based in Japan.

Of course, poor returns for refineries since crude oil prices collapsed late last year also contributed to the relatively low PX output, market sources said.

“Refineries are seeing poor returns, so they would not run too high [operating rates], so naturally we see less aromatics in the market,” said a Singapore-based trader representing a Middle-Eastern owned company.

Besides poor refinery returns, lacklustre margins for chief aromatic benzene also hampered aromatics output, said a source from Japan Energy, a leading aromatics producer.

“Benzene margins were very bad earlier this year, so even if we want more PX, even if our customers want more PX, we cannot give them,” added the source.

Hence, to many market watchers, this year’s PTA-PX price trend so far seemed to be a case of misjudgement and wrong calculations.

“I think it’s fair to say most of us got it wrong; we thought prices would collapse but the opposite happened, and nobody is talking about the supposed oversupply [of PTA and PX] now,” said a source from Sam Nam Petrochemical, a leading producer of PTA in Korea.

quoted from: ICIS.com

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Aluminum Prices Fall

Just as one aluminum company is trying to convince buyers that prices should rise due to tightening supply, another producer tells its workers that many are about to lose their jobs because of collapsed demand and a third says further cutback are possible.


Aluminum common alloy sheet, grade 3003, slipped back 10¢ to $1.38/lb this month because of weak demand, even though aluminum ingot increased 5¢ in the Midwest market. However, Novelis of Atlanta has announced a premium on prices for some sheet products offered through its Web sales program as a result of a spike in demand from its customers caused by low inventory levels within aluminum distribution industry. American Metals Market says service center destocking over the past six months has sparked a recent increase in demand for Web sales. "We've seen a spike in demand for products that we have available in stock because people haven't wanted to carry inventory," a company spokesman says.

On the other hand, Ormet is poised to further curtail operations at its 260,000 metric ton/year smelter in Hannibal, Ohio. Despite a lack of confirmation from the company, union and market sources say a shutdown to 20% of capacity is planned for Hannibal this summer. The smelter already is down to operating 77% of its potlines in an economicallydepressed region of southeastern Ohio.

The Aluminum Association reports that producer shipments during the first half of 2009 totaled an estimated 7.912 billion pounds, 26.7% below the 2008 six-month total of 10.790 million. And, while analysts suggest there has been a pickup in orders in North America in recent weeks, its 2% six-month rate of growth pales versus the 17% improvement in global bookings.

Meanwhile, Century Aluminum reported a third consecutive quarterly loss last week and slashed production to combat weak demand for aluminum amid a more than 65% drop in sales. "The demand outlook has improved somewhat in certain regions and sectors," CEO Logan Kruger says in a statement. "However, we remain convinced the industry must take additional supply side actions for a global balance to be achieved."

Since the economic downturn late last year, metal demand and prices have plummeted and Century has cut production capacity at its Ravenswood, W.Va., and Hawesville, Ky., aluminum smelters. Kruger now says that "despite recently improving metal prices, we believe the balance of risk remains on the downside."

quoted from: Purchasing.com

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US Dow Beats Q2 Forecasts on Stabilising Economy, Cost Cuts

HOUSTON (ICIS news)--Dow Chemical beat analyst forecasts for second-quarter performance behind stabilising economic conditions, continued aggressive cost-cutting and a transition to specialty chemicals and away from basic chemicals, the US major said on Thursday.

While the company posted a net loss of $435m (€309m) due to charges related to its acquisition of Rohm and Haas, its earnings per share, excluding items, were 5 cents. Analysts expected a loss of 5-9 cents/share.

“We are seeing clear signs that stabilisation is occurring,” CEO Andrew Liveris said on a conference call. “We’re seeing operating rate improvements because of sequential volume improvements, especially in the emerging world.”

Dow cited particularly strong growth in the Asia Pacific region, and said it had seen evidence that China’s massive fiscal stimulus was yielding dividends.

In particular, Dow said its electronic and specialty materials segment was very strong in Asia, with year-over-year volumes actually increasing in June.

The company also cited volume recovery within coatings and basic plastics.

However, it said the economic rebound in the US and Europe would continue to be slow, with high unemployment figures limiting consumer spending.

As such, the company said its second-quarter operating rate was at about 75%, with overall demand still below last year and excess capacity remaining.

That 75% figure is roughly equivalent to October 2008, and a 30 percentage point improvement from December.

Overall, volumes increased 5% from the first quarter, Dow said, marking the first time since the 2008 second quarter it had posted a sequential volume gain.

The company said it also outperformed expectations because of cost-cutting measures. Dow has already achieved $573m, or about 70%, of its 12-month cost synergy run rate target of $780m for its 1 April acquisition of Rohm and Haas.

Likewise, Dow also said it had agreed the sale of its stakes in the Optimal olefins, glycols and chemicals joint ventures to Malaysia’s Petronas for $660m. The joint venture is held through Dow’s Union Carbide subsidiary.

That sale should be complete in the third quarter, Dow said.

That marks the fourth divestiture Dow has agreed to this year. Other divestments include Morton Salt, the company’s TRN refinery, and its calcium chloride business, which closed in the second quarter, Dow said.

The divestments are part of a long-term plan to raise $23bn-26bn in asset sales to help pay down the company’s debt. Dow said it remains on track to reach its goal of $4bn in asset sales for 2009.

In addition, Dow said its selling, general and administrative expenses (SG&A) were down $150m year over year, and it was more than halfway to its target of 8,000 job cuts.

Dow also said it would continue to lower its manufacturing footprint, reducing ethylene production by 30% on the US Gulf and eliminating purchases of ethylene from the merchant market.

Moreover, Dow said it had shut down 1m tonnes of chlorine/caustic soda capacity in North America since 2007, and was spinning its styrenics and aromatics businesses into a separate company in an attempt to prepare them for sale.

Those actions are part of the company’s long-term plan to reduce its exposure to basic chemicals.

“As we create our new portfolio, we believe we will continue to surprise to the upside on our results,” Liveris said.

Liveris said volumes gained momentum throughout the second quarter, peaking in June. However, he cautioned that July figures were not at June levels, due largely to European vacations.

Liveris said the company’s operating plan did not count on any material improvement in market conditions for the remainder of 2009, due to the general economic uncertainty.

Dow shares surged to $21.76 in mid-day trading on the New York Stock Exchange, up $1.49, or 7.4%.

quoted from: ICIS.COM

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Dollar Rebounds from Six-Week Low vs Euro

NEW YORK - The dollar rebounded from six-week lows against the euro on Tuesday after Federal Reserve Chairman Ben Bernanke gave a cautious assessment on the U.S. economy, reviving the greenback’s safe-haven appeal. 


A jittery stock market also damped down investor appetite for risk, driving up the yen while pushing down higher-yielding commodity currencies such as the Australian and New Zealand dollars. 

Bernanke, in his testimony before the U.S. House Financial Services Committee, said unemployment was likely to remain high into 2011, which he warned could undermine consumer confidence and derail a recovery. He also said benchmark U.S. interest rates will stay low for a long time and expressed concern about the U.S. budget deficit. 

“His comments have been construed as reasonably dovish, generally advising caution on the timing and extent of the economic recovery,” said Samarjit Shankar, director of global foreign exchange strategy at the Bank of New York Mellon in Boston, adding that “has led to a slight pullback in risk appetite.” 

In late New York trading, the euro fell 0.2 percent to $1.4199, having climbed to six-week highs earlier in the day at $1.4277, according to Reuters data. 

The dollar fell 0.6 percent to 93.69 yen while the euro was down 0.8 percent at 132.97 yen. 

Andrew Wilkinson, senior market analyst at Interactive Brokers in Greenwich, Connecticut, said Bernanke’s cautious tone threw the dollar a lifeline. 

“His bottom-line assessment that the U.S. economy is still nowhere near ready for a policy reversal flew in the face of equity market investors who have been busily discounting a return to growth,” he said. 

The ICE futures’ dollar index, a measure of the greenback’s value against a basket of six other major currencies, was little changed at 78.889 after falling to 78.591, its lowest since early June. 
RISK RALLY RETREATS 

Risk appetite had improved over the last few sessions after a string of stronger-than-expected U.S. corporate earnings for the second quarter boosted optimism about the economy. 

Heavy equipment maker Caterpillar, for instance, posted a second-quarter profit and gave an upbeat earnings outlook for 2009. But it later warned that the third quarter would be tough for sales and production and that it could report a loss for that period. 

Some analysts, however, sounded a note of caution on recent U.S. earnings. 

“A lot of the earnings generated in the second quarter were due to cost-cutting measures, mainly on the employment side,” said Jacob Oubina, senior currency strategist at Forex.com in Bedminster, New Jersey. “The sustainability of the beats as we head into the fourth quarter is therefore questionable.” 

The U.S. dollar, meanwhile, retraced losses against the Canadian dollar to trade little changed at C$1.1057. 

The greenback had earlier fallen to session lows at C$1.0967 after the Bank of Canada left interest rates at a historic low of 0.25 percent and gave an upbeat economic forecast. 

Sterling underperformed, trading down 0.6 percent at $1.6443 after public finances data showed the worst June performance on record, with net debt standing at 56.6 percent of gross domestic product.

quoted from: Khaleej Times

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Ban on Raw Sugar Import Causes Rise in Price

ISLAMABAD: Retail price of sugar shot up to its highest ever level of over Rs48 per kg after the government rejected an advice from the ministry of industries to lift a ban on import of raw sugar in view of poor sugarcane crop.

Sources told Dawn that the continuing ban, despite repeated requests from the ministry and sugar mills, had benefited big farmers, some federal ministers among them, who sold sugarcane at prices higher than the official rate.

The official price was set at Rs80 per maund, but farmers sold sugarcane to millers at Rs100 to Rs120 because of the shortage.

For the next season, the provincial governments have increased the price to 

Rs100. This is likely to cause a further increase in the price of sugar.

According to an official, the price is likely to go up in Ramazan because Utility Stores cater to the needs of only about 10 per cent of consumers. 

The government had decided to keep the price of sugar at the stores at Rs38 per kg, the official added.

Sources in the industries ministry said the federal cabinet and the Economic Coordination Committee (ECC) had been informed in advance that a shortage of cane would lead to an increase in price.

‘We moved summaries to the highest forums, but these were turned down with the contention that import of raw sugar would lower the profit of farmers,’ the sources said.

Millers had also asked the government to import up to 400,000 tons of raw sugar, at least half of it during November last year when the crushing of the new crop began. 

According to the sources, imported raw sugar costs $80 to $90 a ton less than refined sugar. ‘If we had imported raw sugar at that time the sugar price could have gone down by at least Rs5 per kg,’ the sources said.

An official said that the ministry was now proposing to allow the import to meet the shortage next year. ‘We are proposing to the government to allow the private sector to import raw sugar.’

For keeping the sugar price under control, the government will have to raise the subsidy for consumers and increase supply to utility stores from the current 30,000 tons to 100,000 tons.

The retail rate is hovering between Rs44 and Rs48 in major cities. However, some cities have witnessed a price of more than Rs50 per kg in the open market and consumers in some rural areas are paying up to Rs60.

quoted from: DAWN.com

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Oil Rises as Earnings Boost Economic Outlook

NEW YORK - Oil touched a two-week high above $65 a barrel on Tuesday as a slew of rosy corporate earnings reports fed into hopes for an economic recovery that could revive global energy demand. 


U.S. crude gained 74 cents to settle at $64.72 a barrel, after climbing to a two-week high of $65.53. London Brent rose 43 cents to $66.87. 

The rise in the oil market came as a raft of major companies, including Caterpillar Inc and Merck & Co, reported stronger-than-expected results in the second quarter that many analysts took as a sign of economic improvement. 

Weakness in the U.S. dollar also supported commodities markets, analysts said, in part by strengthening the purchasing power of buyers using other currencies. 

“The (crude) market is trading more off the equities than the dollar, with the economic indicators and earnings lending support to sentiment,” said Andy Lebow, a broker at MF Global in New York. 

News that a powerful storm hobbled two oil refineries in Alberta also played into gains, tightening up already thin gasoline stockpiles in the Canadian province. Petro-Canada said Tuesday it was making arrangements to have additional gasoline supplies shipped into the area. 

The front-month August U.S. contract expires at the close of trade Tuesday and will be replaced by the September contract, which rose 32 cents to $65.61 a barrel. 

The American Petroleum Institute release its weekly figures after oil settled Tuesday, showing U.S. crude stockpiles rose unexpectedly by 3.1 million barrels. 

Oil stocks in industrialized countries equated to 62.5 days of demand cover at the end of May, according to the latest figures from the International Energy Agency — around 10 days more than the Organization of the Petroleum Exporting Countries considers comfortable. 

Algerian Energy and Mines Minister Chakib Khelil on Monday predicted prices would stay in a $65-$70 range this year as long as the market remained oversupplied and said OPEC could cut output when it next meets in September.

quoted from: Khaleej Times

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Tyre Makers in Asia Raise Concerns Over Feedstock BD Surge

SINGAPORE (ICIS news)--Tyre makers in Asia have raised concerns on Tuesday over soaring feedstock butadiene (BD) prices, which may hamper a recovery in demand and impact their fourth-quarter contract negotiations with styrene butadiene rubber (SBR) producers.

BD is the feedstock for SBR, which in turn is used in the manufacture of tyres for the automotive industry.

“The feedstock BD price surge is keenly watched by tyre makers as it may hamper the recovery of the market and any price volatility is not healthy for the industry in the long run,” a major tyre maker said.

BD spot prices have hit $1,000-1,050/tonne (€700-735/tonne) CFR (cost and freight) northeast (NE) Asia, up $200/tonne from a month ago, according to global chemical market intelligence service ICIS pricing.

The hefty BD price increases had wiped out SBR producers' margins, which require a spread of $400-500/tonne between SBR and BD to post any profit. 

“We are closely watching the feedstock BD price trend. If it continues to go up unabated, this will definitely push SBR prices higher and impact our [fourth-quarter] contract negotiations with the SBR makers,” a tyre maker said.

Another tyre maker said: “We can’t see BD prices going up further to $1,100/tonne, as no SBR maker will accept BD at this price level, given that the [third-quarter] SBR contracts have been concluded at $1,300-1,400/tonne.” 

In light of the feedstock BD price escalation, several SBR producers in Asia have raised SBR prices. Some have cut operating rates and may consider extending their SBR plant shutdowns. 

However, the SBR price hikes had met with strong resistance from tyre makers, who have been hard hit by the global recession.

Although tyre makers in Asia are in a relatively better position than their counterparts in Europe and the US, given the double-digit growth in emerging markets such as China and India, they have not been completely insulated from the global recession, which has seen global auto makers such as Toyota Motor post massive losses and General Motors and Chrysler go bankrupt.

Major tyre producer Goodyear announced this week that it will shut down its tyre plant in the Philippines, which will see 500 jobs go. 

“The Philippine plant is not competitive and Goodyear chose to shut it down as a long-term strategic decision. It also reflects the current weak global market conditions, as we do not expect the US auto market to recover until the second half of next year, at the earliest,” an industry source said.

In Europe and the US, several major tyre producers such as Continental and Michelin have shut down production lines and laid off workers.

quoted from: ICIS.com

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Creditors Oppose Executive Bonuses for Bankrupt Lyondell

HOUSTON (ICIS news)--Creditors protested a multi-million dollar bonus package proposal for Lyondell Chemical executives that was originally scheduled to be heard on Tuesday by a US bankruptcy court.

 The hearing has been moved to 11 August.

A creditors' committee wants the bonuses withheld from five officers - the potential defendants in a lawsuit that it plans to file in bankruptcy court. Those officers could earn millions under the bonus plan, the committee alleged.

The officers include Alan Bigman, Edward Dineen, Bart de Jong, James Bayer and Michael Mulrooney. The committee accused them of driving Lyondell into bankruptcy by pursuing a merger with Basell. 

As such, the five should not receive bonuses, the committee said in an objection to the bonus package. 

"These defendants previously received millions of dollars in connection with the merger that was the cause of these bankruptcy proceedings and ruinous to unsecured creditors," the committee said. 

The committee alleged that the merger earned Dineen $8.1m (€5.7m), de Jong $5.1m and Bayer $4.6m. 

"The conduct of these defendants in approving the merger and merger-related-subsidiary guarantees contributed to [Lyondell's] insolvency, undercapitalisation and inability to pay debts when due," the committee said. 

The committee limited its bonus objection to the five officers. 

Lyondell said it would not comment beyond the filings it made in bankruptcy court. 

In its court filing, Lyondell proposed four different bonus packages. 

One, which includes the contested bonuses, is capped at $45m and would target 325 senior officers and managers. Senior officers could receive at least 120% of their monthly salary if the company achieves a target of $175m/month in earnings before taxes, interest, depreciation, amortisation and restructuring costs (EBITDAR). 

Managers would receive 12.5-60%, depending on their rank and if they work in the US, Lyondell said.

A retention bonus-plan capped at $15m would go towards 350 non-executive employees, whom Lyondell deemed to have critical, irreplaceable skills. 

A third $1m discretionary bonus-plan would be a modified version of the programme that Lyondell already had before the bankruptcy, the company said. The discretionary bonuses are capped at $10,000/employee.

A hardship plan would go to retirees and their dependents who are struggling under dire financial pressure, Lyondell said. 

Members of this fourth group could get up to $40,000 each, Lyondell said. However, they must have potential claims of at least $5,000. 

Lyondell expects to spend $2m on the hardship plan. 

Lyondell said the bonus packages would would help the company maintain focus, morale and loyalty - all critical for emerging from bankruptcy protection. 

The bonuses would also discourage Lyondell employees from accepting positions at the company's competitors, it said. 

In particular, the executive bonus plan - capped at $45m - would place the company's compensation plan among the 25th percentile of the market, Lyondell said. Without the bonuses, executive compensation would remain well below market rates.

quoted from: ICIS.com

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BASF Specifies Restructuring Plans

Ludwigshafen , Germany – July 6, 2009 – BASF has finalized its plans for the integration of Ciba Holding AG, which it acquired in April 2009. Under the plans, former Ciba businesses are to be integrated into the operating divisions in BASF’s Performance Products segment where their potential can best be realized and developed. The integration will involve extensive restructuring measures that BASF expects to generate synergies of at least €400 million per year from 2012 onward. By the end of 2010, savings of approximately €300 million are to be achieved. At the same time, the integration process is expected to entail cash costs totaling approximately €550 million, about €150 million thereof in 2009. BASF will report details of non-cash integration costs as part of its second-quarter interim reporting on July 30, 2009.

 

The restructuring plans include a reduction of approximately 3,700 positions by 2013, the majority of which will be eliminated by the end of 2010. BASF is reviewing strategic options – including restructuring, sale or closure – for 23 of the 55 former Ciba production sites worldwide. Decisions will be made about these sites by the end of the first quarter of 2010. The remaining 32 production sites are to be optimized as part of BASF’s global production network or restructured. By the end of 2010, BASF also aims to consolidate 36 of the former Ciba’s 70 sales and administrative offices and research sites with existing BASF activities.

 

As already announced, the company will retain a strong presence in the Basel region. BASF’s new Paper Chemicals division, formed in April, and the two associated business units Coatings & Starch Europe and Wet End Chemicals have been based in Basel since July 1, 2009. In addition, the European business unit for plastic additives and the global units for technology management and the restructuring of the pigments business have been relocated to the former headquarters of Ciba Holding AG in Basel. BASF is also establishing a new Business Center Switzerland in Basel that will function as a service platform for sales, finance, human resources and other activities in Switzerland. A BASF research center will be based in Basel as well.

 

BASF aims to implement restructuring measures in a socially responsible manner and has begun talks with local employee representatives. “This is unfortunately not good news for some of our employees,” said BASF Chairman Dr. Jürgen Hambrecht. “But the combined businesses can be successful in the long term only if we optimize them and exploit the full potential for synergies. I promise all our employees that we will keep the period of uncertainty as short as possible and will make decisions in a fair and transparent way.”

 

Key elements of the integration are:
- Ciba’s and BASF’s paper businesses will be bundled and restructured within the newly formed Paper Chemicals division. BASF will become a world leader with a comprehensive portfolio in a market that is currently undergoing major structural transformation.
- All Ciba’s coatings effects activities are to be integrated into BASF’s Dispersions & Pigments division, which is organized in regional business units. BASF will become the world’s second-largest provider of raw materials for the coatings and paints industry.
- Ciba’s plastic additives business will be integrated into the Performance Chemicals division. This will extend BASF’s portfolio to cover important product segments such as UV stabilizers and antioxidants, making BASF the world leader in plastic additives.
- The majority of Ciba’s water treatment business will be integrated into the Performance Chemicals division. A strategy for the water treatment business will be developed by 2010.
- Ciba’s Home & Personal Care business will be integrated into the existing structure of the Care Chemicals division.

quoted from: BASF

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Vision and Execution—to Move in the Right Direction

WHEN a company gets off track, it takes more than a plan to get things moving in the right direction. According to Muhtar Kent, the president and CEO of The Coca-Cola Company, it takes vision and execution. 


Speaking as part of the Dean’s Leadership Speaker Series (co-sponsored by the W. Cliff Oxford Executive MBA Programme) at Emory University’s Goizueta Business School, Kent discussed his 31-year career at Coca-Cola, the economy, and offered advice to students who are job hunting in a tough economic environment.

Kent’s response to the evening’s first question regarding Coca-Cola’s initiative on strategic renewal (posed by Jeffrey Rosensweig, associate professor of finance and director of Goizueta’s Global Perspectives Program) set the candid tone for the evening. “Sometime after 1997, we had lost our way at The Coca-Cola Company — I say that openly,” Kent told the audience. “In one word, we’d become arrogant. We’d moved away from the touch points that mattered.”

Kent, who succeeded E. Neville Isdell as CEO in July 2008, noted that as a result of that arrogance, the company stopped growing. “It’s the best business in the world — the non-alcoholic beverage industry,” he said, adding that over the last two decades the industry grew at six percent, out-pacing even the cosmetics industry. “It’s a wonderful business and we didn’t grow,” Kent underscored. 

To get back on track, the company adopted its current vision — the “Five Ps” that will position it for sustainable growth well into the future—a portfolio of brands made available to consumers through the company’s partners, its profit matrix, its people and its regard for the planet. Kent added that a good plan isn’t enough. “Vision without execution is daydreaming,” he said. (The newly added sixth “p” is productivity.)

Approximately 3000 companies manufacture and distribute non-alcoholic beverages in the US alone, accounting for annual revenue of $70 billion. The Coca-Cola Company and its main rival, PepsiCo, control more than 50 per cent of the US market. Globally, Coca-Cola is the number one provider of sparkling beverages, juices, juice drinks and ready-to-drink teas and coffees, and owns four of the top five brands: Coca-Cola, Diet Coke, Fanta and Sprite. 

For the fiscal year 2008, The Coca-Cola Company’s worldwide unit case volume grew five percent — led by growth in China and India. Double digit growth also was seen in Mexico, Brazil, and Turkey. Consumers in more than 200 countries enjoy Coca-Cola’s beverages at a rate of 1.5 billion servings a day, and according to Kent, bad economy or not, that number is going to grow.

By 2020, a billion new members will join the ranks of the middle class and, in the process, become more urbanized. Translation? More people with more money living lifestyles that will be “demanding our product,” noted Kent. These urban-dwelling, middle class consumers will demand ready-to-drink beverages and The Coca-Cola Company plans to give them plenty of choices in the countries they serve around the world. 

Kent admits the current economic landscape is a difficult one, but he doesn’t believe it will affect the company’s overall outlook for 2020. While energy and food prices are predicted to climb higher in the short and long term, The Coca-Cola Company is positioning itself to handle such increases. Certain trends, explains Kent, won’t be affected by macroeconomic upheaval — including population growth.

When it comes to the company’s portfolio of brands, nearly 10 per cent of the company’s volume—the equivalent of two billion unit cases—comes from the sale of products that didn’t exist four years ago. Coke Zero, introduced in 2005, was the company’s biggest product launch in more than 20 years. And proof, explained Kent, that the sparkling business isn’t saturated. “You just have to be innovative and create products that appeal to today’s consumer,” he said.

The company also is creating new ways to reach consumers, including marketing in new environments like social networking site Facebook, virtual world Second Life, as well as via messaging on cell phones and other technologies.

Kent is optimistic about the future. He believes the country will come out of the current financial crisis “quicker than people think” as long as “Brand America” continues to improve and remains strong. However, MBA students who graduate this spring face a tough job market, and Kent advised students to consider working for a small business. Not only would they be more involved in all aspects of the business, they’d learn to respect cash. “In big business, you never touch cash,” Kent noted. He considers the lack of connection business leaders have to their company’s balance sheets one of businesses’ biggest ills.

Kent envisions a new equilibrium, tied to sustainability. “Not because it’s nice or fashionable,” added Kent, “but because it makes business sense.” The company collaborated with Greenpeace to develop eco-friendly coolers, with the World Wildlife Fund to restore some of the world’s endangered watersheds, and with the United Nations to develop a plan to reduce global water usage. Coca-Cola is partnering with local communities and agencies to create innovative recycling solutions for its beverage packaging. The company also developed a hydrofluorocarbon, or HFC, -free vending machine. “If we don’t play our role to create sustainable communities, we won’t be in business,” Kent said.  

Kent learns from the communities in which Coca-Cola products are sold. He likes to go to markets in various cities to pick up what he can about brands, pricing, packaging and different distribution channels. It helps him prioritize and “focus on the right things,” he explained. “As long as we add value to our customer and as long as we are part of the growth strategy we will win.” That has meant rebuilding trust between the company and its bottling partners. In the last several years, noted Kent, bottlers around the world have regained their financial health. “The Coca-Cola Company can’t be financially healthy and successful unless its bottling partners are healthy and successful,” Kent added.

The company is working with its customers and bottling partners to add value, increase efficiencies and execute “without flaw,” said Kent. Until recently, the company operated 68 business units. 

Now there are less than 40. To date, the consolidation has saved the company more than $100 million and Coca-Cola is on track to deliver $500 million in annualized savings from productivity initiatives by the end of 2011.

Like Coca-Cola Chairman and CEO Roberto C. Goizueta before him, Kent, who is of Turkish descent, came to the United States with little more than the cash in his pocket. And also like Goizueta, Kent answered a newspaper ad and landed his first job at The Coca-Cola Company. A little more than three decades later, Kent, who is 55, became the company’s President and CEO. This month, the Board of The Coca-Cola Company is expected to name Kent Chairman of the Board.

quoted from: Khaleej Times

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Oil Rises Above $64, Buoyed by Asian Stocks

PERTH - Oil rose above $64 a barrel on Monday, extending last session’s 2.5 percent gains, bolstered by a rally in Asian stocks and fall in the dollar on hopes of a global economic recovery. 



Oil jumped 6.1 percent last week — its first weekly gain in a month — thanks to a series of positive economic data and a rally in the equities markets, which came on the back of better-than-expected U.S. corporate earnings. 

The increase in risk appetite also knocked the dollar, with the euro rising to a three-week high on Monday. 

U.S. crude oil for August delivery rose 65 cents to $64.21 a barrel by 0645 GMT, after settling up $1.54 at $63.56 on Friday. London Brent crude for September rose 62 cents to $66.00. 

“Gains in the stock markets are lifting risk appetite, which is helping to push oil prices higher,” Ben Westmore, a commodities analyst at the National Bank of Australia. 

The MSCI index of Asia Pacific stocks outside Japan climbed for a fifth session to the highest since late September 2008 on Monday, with hopes for corporate earnings lifting sentiment across the board. 

Oil’s gains on Friday were boosted by a government report that showed construction of new homes and the issue of building permits in the United States rose more than expected in June, signaling a potential economic recovery. 

Tensions in Iran, the world’s fifth-largest crude exporter, as well as worries about a tropical wave in the Central Atlantic, which has a small chance of developing into a tropical cyclone — also helped buoy oil prices. 

Iran’s President Mahmoud Ahmadinejad has come under fire from leading hardliners for naming as his top deputy a man who said Iran was friends with everyone, including arch-foe Israel, local media said on Sunday. 

But with oil prices having rebounded by nearly $4 last week, some analysts are cautioning against excessive optimism as the latest inventory data in the United States was still painting a bearish picture for energy demand. 

“As was the case with the March-June upward trend and the subsequent correction, price action in recent days has been, in our view, driven by non-fundamentals,” Michael Wittner, global head of oil research at Societe Generale, said in a report. 

“When prices are being driven by non-fundamentals, we are cautious, and doubly so when trying to call a turn,” Wittner said, adding that technical analysis indicates that another downward move on oil prices should be expected this week. 

In a sign that investors were now more bullish on oil prices, crude oil speculators on the New York Mercantile Exchange increased their net long positions in the week to July 14, according to data from the Commodity Futures Trading Commission released on Friday. 

Open interest was concentrated at the $65 and $70 September call crude oil option and at the $60 put option, according to Reuters data on Friday.

quoted from: Khaleej Times

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Nissan in Jobs Boost for UK

Nissan, the Japanese carmaker, has announced a $329m investment for a new British plant, securing the future of hundreds of jobs and creating a further 350.

The company, which gained financial support for the development from the UK government, said it planned to build the plant, which will produce batteries for electric cars, at its Wearside factory in the northeast of England

The announcement comes five months after the firm sought 800 voluntary retirements from the same factory, which is located near the city of Sunderland.

Gordon Brown, Britain's prime minister, said: "Nissan's investment in a new battery plant ... here in Sunderland is great news for the local economy".

"Sunderland could now be a strong contender to produce electric vehicles for Nissan in Europe, and we will continue to work with Nissan to ensure this happens," he said.

Global downturn

Carmakers around the world are exploring plans for mass electric-car production as the industry seeks to haul itself out of a devastating downturn sparked by the global recession.

Nissan intends to build a similar plant to the British one in Portugal as part of a scheme to manufacture and sell the environmentally-friendly cars.

Each plant would produce 60,000 batteries a year.

"The two governments have offered to extend financial assistance and other support to ensure that Nissan locates the proposed plants within their respective countries," the company said.

A spokeswoman for Nissan said details of grants and loans from the governments had yet to be finalised.

Nissan's announcement comes less than a week after Toyota, another Japanese carmaker, said it would produce its first European-built hybrid car in Britain from 2010.

A hybrid car is part-powered by electricity and is more fuel efficient than traditional vehicles.

quoted from: Al Jazeera.net

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SABIC Q2 Net Profits Slump 76% to $480m

LONDON (ICIS news)--SABIC's second-quarter net profits slumped 76% year-on-year to Saudi riyals (SR)1.8bn ($480m) due to the sharp decline in petrochemicals, plastics and metals prices, the company said on Saturday. 

However, the earnings for the three months compared with a first quarter loss of SR974m, the return to profitability driven by higher prices for some products. 

SABIC said that it pushed volumes higher in the latest quarter with total production volume up 1%, at 28.5m tonnes. The quantity of products sold in the quarter was 22.9m tonnes, up 2% on the previous corresponding period.

“SABIC has maintained outstanding levels of operations despite the global financial and economic crises, said Mohamed Al-Mady, the company's vice-chairman and CEO.

The second quarter outturn takes SABIC's first half profits to SR830m, a fall of 94% when compared with the first half of 2008.

“SABIC's strong financial position, its ability to generate strong cash flows, and the continued efforts to reduce costs, optimise operational efficiencies, and maintain high utilisation rates together with the new production capacities coming on-stream at Yansab and Sharq will have a positive impact on its performance and corporate results in the coming quarters.” he added.

"SABIC's investment in China with Sinopec will profitably further enhance our footprint in the fast growing Chinese market”, he said.

quoted from: ICIS.com

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Perstorp Oxo Declares Force Majeure on Oxos Production

LONDON (ICIS news)--Sweden’s Perstorp Oxo has declared force majeure on oxo-alcohol and plasticiser deliveries from its Stenungsund site due to a production stoppage at its raw material supplier, the company said on Monday.

Perstorp Oxo declared force majeure on supplies of butanols, 2-ethylhexanol (2-EH), 2-ethylhexyl acrylate (2-EHA), propionic acid, dioctyl phthalate (DOP), n-butyraldehyde, iso-butyraldehyde and propionaldehyde, the company said in a 17 July statement to its customers.

A breakdown on 15 July at Perstorp Oxo's main raw material supplier, also based in Stenungsund, forced the company to close down its oxo-alcohols facility, the statement added.

Perstorp Oxo’s upstream supplier is Borealis. However, Borealis was unavailable for comment.

A source from Perstorp Oxo said that the facility was still running but at very low rates.

Due to a lack of raw materials, various lines at Stenungsund would be shut down intermittently for as long as feedstock supply was restricted, the source said.

Perstorp Oxo was unable to assess how long the shutdowns would last, as it would be determined by its raw material supplier, the source said.

The Perstorp Oxo source said it was trying to minimise the impact of the force majeure on its customers and was currently attempting to source oxo-alcohols from fellow producers.

“Inspection and an impact assessment are presently being conducted at our supplier. On the basis of the results hereof, we will revert to you as soon as possible with further information on our delivery capacity in the short term and when we expect full production to be resumed,” Perstorp Oxo said in its statement to customers, which was dated 17 July.

The company’s Stenungsund facility consists of a range of plants, including a 100,000 tonne/year n-butanol plant, a 120,000 tonne/year of 2-EH unit and a 65,000 tonne/year DOP plant.

quoted from: ICIS.com

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India’s Spot MEG Imports May Dwindle in August

SINGAPORE (ICIS news)--India may not import as much spot monoethylene glycol (MEG) cargoes in August compared to the past two months as supply from the Middle East is expected to normalise, market sources said on Monday. 

Slowing polyester production would also weigh down on spot MEG demand, they said.

Traders estimated that India procured 20,000 tonnes of MEG from the spot market in June, which represented about a third of the country's total imported MEG cargoes for the month.

Spot import volumes would likely remain at these levels this month before they whittle down in August, they added.

Middle Eastern plants that supply MEG into India on contract basis are now back up and running, with huge new capacities coming on stream from Yanbu National Petrochemical (Yansab).

“There had been some [plant] outages in the Middle East, including [the ones] in Saudi Arabia, Iran and Kuwait and that disrupted MEG supplies into India,” said a trader based in Mumbai.

MEG, along with purified terepthalic acid (PTA), is a raw material used in polyester production.

Demand from new entrants into India’s polyester industry may have also contributed to the spikes in MEG import volumes over the past two months.

“I’ve had some enquiries from Sumeet Industries and Garden Silk Mill. They needed MEG on a spot basis to carry out tests on their new [polycondensation] lines,” said a Singapore-based trader.

But now, polyester makers in India have also started scaling down production partly due to problems in securing feedstock PTA and this could led to softer demand for MEG, industry sources said.

PTA supply has tight in India in June due to problems at the plants of major producer Mitsubishi Chemical (India).

“Since there is not much PTA to go around, some polyester units had scaled back on production and demand for MEG has also become less urgent,” said a source from South Asian Petrochemical, a bottle-grade polyethylene terephthalate maker in Haldia on the east coast of India.

The monsoon season, which poses logistics problems, was also partly to blame for the lull in the downstream textile industry, said market sources.

quoted from: ICIS.com

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Another Natgas Shortage Chokes Argentina Petchems

BUENOS AIRES (ICIS news)--Several producers in an Argentine petrochemical complex are contending with natural gas cutbacks, as the government rations supplies during the southern winter, an industry source said on Monday. 

Already, Carboclor has had intermittent gas cuts, Nestor Ramirez, general manager. 

“Even though the industry in general has not been working to its full extent - due to lower demand - and the winter season has not been very cold, the gas supply cutbacks continue to happen. This is a sign of the seriousness of the energy situation in Argentina,” Ramirez said.

“Replacing gas for fuel oil or gas oil can cost twice as much, and this is only an option for companies that use this product as an energy source, not for the ones who need it as a raw material,” Ramirez said. 

Another company at the complex, Cabot, said it has restricted production due to the natural gas cutbacks. 

Gas-cuts have also been experienced by Profertil, Dow Argentina and other local petrochemical companies. 

Ethane is a crucial feedstock for Dow's polyethylene (PE) plant, which is in the Bahia Blanca petrochemical complex. 

Due to the lack of ethane, the Dow plant is operating at 70% of nameplate capacity, an industry source said. 

Concerns about Argentina’s energy supply were also raised by a report released by eight ex-energy secretaries. 

The report criticised the nation's energy policy, saying it lacked a long-term outlook. 

Argentina's petrochemical industry has frequently struggled with cutbacks in natural gas, as the nation's regulators rationed the fuel to make more available to heat houses. 

Industrial supplies were cut in 2008 following a cold snap. 

In 2007, the cutbacks and the resulting production disruptions were severe due to a particularly cold southern winter, in which it snowed in Buenos Aires.

quoted from: ICIS.com

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Tokyo Urges BoJ to Extend Crisis Measures

TOKYO Japan’s central bank faced pressure from the government on Tuesday to extend emergency measures aimed at helping cash-strapped firms survive the recession as it began a two-day policy meeting.

Although conditions in credit markets have improved, “it would be safer if the Bank of Japan kept the policy” of buying commercial paper and corporate bonds, Finance Minister Kaoru Yosano told reporters.

The bank has been buying up corporate debt in an effort to unblock a credit crunch brought on by a severe global financial crisis.

Investors are watching to see whether the BoJ will extend those measures, although analysts say a final decision may be delayed until August.

The BoJ is likely to continue the steps beyond September because “it is still not certain that a full-fledged recovery in final demand will materialise in the second half of fiscal 2009 amid the continuing severe financial conditions,” said Mari Iwashita, economist at Daiwa Securities SMBC.

“The financial markets appear calm at the moment and we do not believe the BoJ wants to wake a sleeping dog,” Iwashita added.

The bank is expected to keep its interest rates unchanged at 0.1 per cent on Wednesday. There is speculation that is may also upgrade its economic forecasts in light of recent signs of an improvement in the world’s number two economy.

BoJ governor Masaaki Shirakawa said last week that the worst of the recession appeared to be over.

“Japan’s economic conditions, after deteriorating significantly, have begun to stop worsening,” he told a meeting of BoJ branch managers.

The central bank meeting comes amid growing concerns about the prospect of another bout of deflation in Asia’s largest economy, where wholesale prices fell at the fastest pace on record in June, diving 6.6 per cent on the year.

Japan was stuck in a deflationary spiral for years after an economic bubble burst in the early 1990s, prompting consumers to put off purchases in the hope of further price drops and reducing corporate earnings.

Japan entered recession again in the second quarter of 2008 as its heavy dependence on overseas demand to drive its economic growth left it highly exposed to the global downturn.

Agence France-Presse
quoted from: Oman Tribune

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Supplier Awards Programs Lift Performance to New Heights

When properly designed, implemented and pushed out, a supplier awards program can serve as an extension of a company's supplier performance and relationship management strategy.
By Purchasing Staff -- Purchasing, 6/18/2009 2:00:00 AM EDT

Implementing a supplier awards program can bring benefits long after the hand shakes and photo ops are past. When properly designed, implemented and pushed out, a supplier awards program can serve as an extension of a company's supplier performance and relationship management strategy. With that in mind, Purchasing has selected four companies to provide a much deeper look at what works in supplier awards.

At Texas Instruments the awards program is seen as a way to give all suppliers a benchmark to aim for.

Cessna has expanded its awards to cover indirect materials, as well as direct materials.

Boeing's winners provide a good idea of what the aerospace giant expects from top suppliers.

And Celestica measures total cost of ownership in recognizing its top suppliers.

Case Study #1

Texas Instruments' CETRAQ scale gets suppliers on track

Tom Thorpe, vice president of external manufacturing and development at Texas Instruments, giving the award to supplier UMC

While the technologies that Texas Instruments develops have certainly seen their share of changes in the past quarter-century, the program the tech giant uses to award its suppliers has seen very few in that time. And if it ain't broke, why fix it?

Texas Instruments founded its Supplier Excellence Awards (SEA) program in 1983 with a clear goal that has not changed in the program's 26 years.

"Our technology enables our customers to develop innovative products," says Rob Simpson, vice president of worldwide procurement and logistics at Texas Instruments. "And our suppliers play a critical role in that process. So the Supplier Excellence Awards (SEA) recognize those suppliers that contribute most significantly to our business success through outstanding performance and continuous improvement in providing goods and services to TI."

Simpson emphasizes the SEA program—or any supplier awards program—is not just a way to pat suppliers on the back. It serves as a key vehicle for communicating what's required of suppliers and defines what Texas Instruments considers "excellent" supplier performance. "We have a supplier base of more than 14,000 companies," he says. "And having a company-wide definition of what makes a top supplier is critical for communicating and improving our standards and quantifying our ever-increasing expectations."

So just what does Texas Instruments evaluate suppliers on? Simpson says suppliers are evaluated across six primary areas: cost, environmental responsibility, technology, responsiveness, assurance of supply and quality. Or, in TI lingo, CETRAQ for short. Having those priorities clearly spelled out helps Texas Instruments' various business groups and category procurement teams rank the suppliers, measure progress and identify those that exemplify excellence.

When asked to point to a supplier that epitomizes the supplier awards program, Simpson cites its manufacturing partner UMC in Taiwan. "From our standpoint, UMC has done things to make them a benchmark in many areas, and they've implemented strategic changes in the way they do business," he says. Thanks to UMC, our manufacturing partners, or foundries, know that the standards are set extremely high, but achievable, and therefore know the value if recognized in this way."

Simpson strongly believes the awards program in place at Texas Instruments has improved supplier performance across the board. Not only does it give its thousands of suppliers a model to shoot for. "It also shows suppliers where their strengths and weaknesses are, as well as how they measure up to their competition," Simpson says. "We review the CETRAQ results with our top suppliers twice per year and develop detailed Supplier Improvement Plans to close gaps and increase TI satisfaction with the supply base."

—David Hannon

Case Study #2

Cessna expands scorecard to indirect suppliers

Supplier measurement programs are bringing such benefit to Cessna Aircraft that its purchasing organization decided to expand its use of such programs from solely direct materials suppliers to indirect as well.

Cessna Aircraft Co., a Textron Inc. company in Wichita, Kans., began recognizing its direct suppliers in 2000 and holds a supplier symposium to do so every two years. But a couple years ago, Ryan Doerksen, director of strategic sourcing and supply management, headed up an effort to use a supplier-performance-measurement system called ISTARS or Indirect Supplier Tracking and Rating System, which tracks the performance of indirect suppliers.

Cessna began formally measuring performance of its indirect suppliers with ISTARS in 2006, a program that Doerksen and his team model after STARS (Supplier Tracking and Rating System) which the supply team uses to evaluate, rate and monitor direct suppliers. The team uses ISTARS with most suppliers with which the company has long-term agreements and spends $50,000 annually. Currently, there are 230 suppliers representing 65% to 70% of indirect spending in ISTARS.

ISTARS also covers indirect suppliers to some Textron business units—Bell Texas and E-Z-GO golf carts. ISTARS measures performance in several areas: schedule, cost, rebate, discount terms, quality, customer satisfaction and supplier development. Each is weighted. Suppliers receive a scorecard, with scores ranging from one (outstanding) to five (unacceptable), every 60 days.

One area especially important to ISTARS and the success of any sourcing strategy for indirect goods and services is customer satisfaction. For it, the supply team routinely sends a survey to 1,000 end users so they can voice their opinion on their impression of a supplier's performance.

If a supplier receives a low score of a four or a five, then the team runs an indirect supplier corrective action notice (ISCAN), which is essentially a notification form. The supplier has an opportunity to respond in writing and the buyer responsible for the commodity reviews the response and determines whether suggested corrective action is acceptable. The supplier also may challenge its score.

"When we see something is going on, we are willing to work with the supplier and fix it," Doerksen says. "But we also understand that we need to be prepared in case it can't be fixed. It's our job to ensure that we in no way interrupt the process of Cessna's businesses to produce the products they need to produce."

Doerksen highlights a specialty tool supplier, Galaxy Tool Corp. in Winfield, Kans., which has received high scores in delivery and quality as an example of how well the ISTARS program impacts supplier performance.

"Our internal customers said [this supplier] supports us in an outstanding way, and we are very impressed with that. They communicate with our internal customers regularly and they are innovative, helping us to remove costs from products and processes. When we look at a high-rated supplier, this is what we believe makes them a top performer."

—Susan Avery

Case Study #3

Boeing supplier award recognizes risk mitigation

Sequoyah electric has maintained a 100% quality and on-time delivery performance rating while providing Boeing Integrated Defense Systems with construction, electrical and installation services in support of F-22 training classrooms and labs at various U.S. Air Force bases around the country. That's why Sequoyah of Redmond, Wash., is one of Boeing's nine "Supplier of the Year Award" winners for 2008, chosen from among the company's 10,800 active suppliers worldwide.

"In a nutshell, we provide spare components, repairs of malfunctioning equipment and the installation of classroom infrastructure for F-22 training systems at multiple Air Force bases, providing logistics, and procurement and installation services," says Don Dessens, senior project manager at Sequoyah.

Sequoyah has been providing these services to Boeing's St. Louis-based defense systems organization for more than eight years, often within rigid customer imposed schedules.

Procurement personnel in Boeing's three major divisions—Commercial Airplanes, Integrated Defense Systems and Shared Services Group—judge suppliers on quality, delivery performance, cost, environmental initiatives, customer service and technical expertise for the Suppliers of the Year Award.

Details couldn't be highlighted because of military security regulations. However, the project manager says that "Sequoyah aggressively does prefabrication work for the projects to lower the cost and to reduce the on-site time necessary to complete the work." That's because the firm's newly renovated Redmond facility houses a testing lab, training center, prefab shop and project-specific warehouse space.

A Boeing spokesman says that Sequoyah "has proven its value in its ability to identify and mitigate potential risk." In fact, she says Sequoyah's planning capability has allowed Boeing to meet tight schedules within U.S. Air Force budget requirements. "With a mission to do the impossible for its customers, Sequoyah has a motivated and skilled team that strives to continuously improve its processes and costs," says the Boeing award citation.

The Boeing spokesman adds that the supplier company has worked proactively with Boeing to implement lean practices and create a collaborative business partnership.

Dessens says that his team, which varies in size depending on the task at hand, is in almost daily contact with Boeing. "This close collaboration between customer and supplier helps to alleviate many of the inefficient supply chain problems that could arise when customer requirements might not be fully understood," he adds. Also, since Sequoyah is brought in on many projects at inception, when supply requirements still are being identified, "discussions allow for our input to help identify cost-saving approaches that Boeing and its customer can apply," says Dessens.

—Tom Stundza

Case Study #4

Celestica rewards suppliers that reduce total cost
Harvinder Sembhi
“We have improved our inventory turns over the last 18 months,” says Harvinder Sembhi, chief procurement officer for Celestica.

Suppliers that think they can win Celestica's supplier of the year honors by just having the best quality or the lowest price for parts are in for a rude awakening.

Celestica, an electronics manufacturing services provider in Toronto, picks its supplier of the year based on total cost of ownership (TCOO) criteria. The criteria include quality, market performance (price), leadtimes, flexibility of payment terms, strategic partnerships and technology.

This year, Gold Circuit Electronics of Taiwan won supplier of the year honors by having the best total cost of ownership score. The company received a high score for flexibility of payment terms and on market performance for reducing prices. It also excelled in Celestica's "ring" score, which is a leadtime performance measurement.

"They have come a long way and are supporting our business ventures and our short leadtimes strategy," says Harvinder Sembhi, chief procurement officer for the EMS provider.

Under Celestica's TCOO scoring system, a supplier, in theory, can receive a maximum of 100 points. Celestica starts each supplier with 50 base points. Then suppliers can have points added or subtracted based on their performance in the different categories that the company weighs. For example, if a company does well in leadtime reduction, it could receive a maximum of 15 points. Gold Circuit Electronics received 11 of 15 possible points in that category.

Key to the award criteria is a supplier's ring score. Celestica places suppliers in five rings based on their leadtime performance. Ring 1 suppliers deliver parts in less than one day. They will either have stock at Celestica's facility or right next door. Ring 2 suppliers have leadtimes of 1–14 days; ring 3, 14–30 days; ring 4, 30–60 days; and ring 5 suppliers have leadtimes of 60 days. Semiconductor suppliers have leadtimes of 60 days, but Celestica encourages those wishing to be in rings 1–3 to use vendor managed inventory programs or die banks, says Sembhi.

"We have improved our inventory turns over the last 18 months," says Sembhi. "A lot of that is credited to the focus on ring score." In addition, the better the ring score, the more responsive the supplier is when Celestica has an increase in demand.

Celestica says that the average ring score across the company was 64%. "That means 64% of everything I bought had leadtimes of less than 30 days," says Sembhi. "That was a tremendous improvement from a couple of years ago, when the number was about 30%."

—Jim Carbone

What's being measured?

Suppliers in the ISTARS program are measured in the following areas:

  *   Schedule
  *   Cost
  *   Rebate
  *   Discount terms
  *   Quality
  *   Customer satisfaction
  *   Supplier development

What's being measured?

Procurement personnel in Boeing's three major divisions—Commercial Airplanes, Integrated Defense Systems and Shared Services Group—judge suppliers on:

  *   Quality
  *   Delivery performance
  *   Cost
  *   Environmental initiatives
  *   Customer service
  *   Technical expertise


quoted from: Purchasing.com

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Caustic Soda Prices Continue to Plunge

Buyers in Purchasing's monthly survey continue to report that caustic soda prices are dropping fast due to declines in demand and oversupply. In fact, according to the latest survey, prices for rayon grade caustic soda are less than half of what they were at their peak in October and diaphragm grade is less than one-third its October price.

"Caustic soda prices are going down due to low demand and lower energy costs," says a caustic soda buyer at a major U.S. chemical firm. "Unless business picks up, price should stay down the rest of the year."

"We saw caustic soda prices drop $150/dry short ton this month," says the purchasing manager at a chemicals producer in Mississippi.

"Prices for caustic soda are dropping very quickly because of demand destruction," says the chemicals buyer at a Canadian manufacturer. "Prices will remain low until demand picks up or high cost North American production plants are closed."

This matches up with the information reported by ICISPricing.com, which says caustic soda producers report caustic soda demand continues to decline in major industrial sectors such as alumina and pulp-and-paper, but tight supply conditions in the co-product chlorine market have kept caustic production rates at moderate levels, oversupplying the market.

"As domestic [U.S.] spot prices continue to slide below contract price levels, sources said another reduction appears likely for July contract prices," ICISPricing reports.

In fact, 59% of buyers polled this month by Purchasing say they expect caustic soda prices to drop even further in the next 30 days.

In March, Purchasing.com reported that "over the past few months, demand for caustic has softened, causing market watchers to project a moderate downturn in its pricing over the next year."

quoted from: Purchasing.com

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Borouge Awards $1.075bn Ruwais Ethane Cracker Contract to Linde

LONDON (ICIS news)--United Arab Emirates (UAE) based Borouge has awarded a $1.075bn (€757m) contract for the construction of a 1.5m tonne/year ethane cracker at Ruwais, Abu Dhabi, to German engineering firm Linde, the two companies said on Thursday.

The contract will be executed on a 'lump sum turnkey' basis whereby the construction work would be executed by the Consolidated Contractors Company (CCC), the companies said in a joint statement. 

The new cracker would complement the company’s 600,000 tonne/year and 1.5m tonne/year ethane crackers, the latter of which is currently under construction as part of the plant's expansion to 2m tonnes/year from 600,000 tonnes/year of polyolefins by mid-2010, and ultimately 4.5m tonnes/year of polyolefins by 2013.

After completion of the new cracker, Borouge would have the world's largest ethane cracker complex, setting a new benchmark for the industry, said the company.

"The awarding of this contract confirms Borouge's commitment to the Borouge 3 project, a major expansion of our production facility in Ruwais, which will increase the total capacity of the plant to 4.5m tonnes of polyolefins annually by the end of 2013," said Abdulaziz Alhajri, CEO of Abu Dhabi Polymers Company (Borouge).

He added that the expansion would also include the construction of second generation Borstar polypropylene (PP) and polyethylene (PE) units, a low density polyethylene (LDPE) unit and a butene unit, as well as related off-site utilities and marine facilities.

"Nowhere else in the world has a petrochemical company installed so much olefins capacity in such a short time as Borouge is currently doing in Abu Dhabi," said Aldo Belloni, member of the executive board of Linde.

Borouge is a joint venture between oil and gas major Abu Dhabi National Oil Company (ADNOC) and polyolefins producer Borealis.

quoted from: ICIS.com

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BASF Reorganizes its Petrochemicals Division

BASF reorganizes its Petrochemicals Division
- Intensified customer interaction
- Enhanced efficiency and effectiveness 

BASF reorganizes its Petrochemicals division effective July 1, 2009. The future organization consists of four (formerly six) business units. The optimized organizational structures will lead to higher efficiency and effectiveness and will open up potentials to even better serve customers´ needs. Customers will benefit from a reduced number of interfaces and a broader portfolio of the respective business units. The new clustering of businesses also comes along with new business opportunities as well as synergy effects out of the BASF Verbund.

The new organizational setup is based on a thorough analysis of the market and economic situation, which has fundamentally changed over the last years. Exemplary for this change are the important BASF investments in Nanjing (China) and Port Arthur (USA).

The details of the reorganization are as follows:
- The new business unit Basic Petrochemicals Europe, headed by Dr. Uwe Kirchgäßner, comprises the businesses for cracker products and industrial gases as well as alkylene oxides and glycols in Europe. This reflects a focus on the ethylene based value chain.
- The businesses for acrylics as well as alcohols, solvents & plasticizers in Europe will be consolidated in the new business unit Industrial Petrochemicals Europe, headed by Dr. Detlef Kratz. This reflects a focus on the propylene and raffinate based value chain.
- All businesses of the Petrochemicals division in North America will be consolidated in the business unit Petrochemicals North America, headed by Peter Cella. 
- All businesses of the Petrochemicals division in Asia Pacific will be consolidated in the business unit Petrochemicals Asia Pacific headed by Sanjeev Gandhi.

quoted from: New Kaznak

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BASF to Close, sell 23 Former Ciba Sites, Cut 3,700 Jobs

LONDON ICIS news)--BASF intends to sell or close 23 of 55 former Ciba Speciality Chemical production sites worldwide as it integrates its acquisition of the Basel, Switzerland-headquartered producer, the chemicals giant said on Monday.

BASF plans to cut 3,700 jobs as part of the process as it seeks to generate annual cost savings of €400m ($560m) a year from 2012. 

Savings of about €300m a year were expected by the end of 2010 when most of the job cuts will have been made, it said.

A decision on the production sites was expected by the end of the first quarter of 2010. The remaining 32 production sites would be optimised, absorbed into the BASF global network or restructured, it added.

BASF has already said it would retain a strong presence in Ciba’s home city. Its new paper chemicals division is headquartered there and two associated business units: Coatings & Starch Europe and Wet End Chemicals.

The European plastics additives business and units for technology management and restructuring of the pigments business have been relocated to the former Ciba headquarters. It has established a new Business Center Switzerland in Basel.

The job reductions represent about 28% of the former Ciba workforce of 13,000 although job cuts within BASF have not been ruled out, BASF said in a Reuters report.

“This is unfortunately not good news for some of our employees,” BASF CEO Jurgen Hambrecht said. “But the combined businesses can be successful in the long term only if we optimise them and exploit the full potential for synergies.”

The integration process is expected to cost €550m ($775m) in cash, with about €150m charged in 2009. Non-cash integration costs will be reported in the company’s second quarter financial report.

BASF closed its $5.1bn acquisition of Ciba in April.

quoted from: ICIS.com

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Oil Supply Crisis Unlikely in Five Years

PARIS: The world may escape an oil supply crisis for the next five years because a slow recovery from the economic downturn would hold down growth of demand, the IEA said on Monday.

The International Energy Agency (IEA) slashed its mid-term estimate for world oil demand, which it said may now rise by an average 0.6 per cent a year in 2008-14, down sharply from its forecast of 1.6 per cent growth made last year.

‘Relative to the medium-term profiles presented in previous years, this scenario paints a delayed picture of threatened ‘supply crunch’ later in the projected period,’ it said in its Mid-Term Oil Market Report.

That forecast was based on a world growth estimates by the International Monetary Fund. The IEA also provided a model based on a less optimistic forecast, according to which demand could actually decline.

‘Whether we end up facing a supply crunch again by mid-decade, or with a more comfortable buffer of supply flexibility, depends largely on the pace of economic recovery and government action on efficiency,’ the IEA’s director Nobuo Tanaka said in a statement.

The IEA, the energy-monitoring arm of the 30-nation Organisation for Economic Cooperation and Development, had warned in April that a sudden easing of tension on the oil market, and rapid price fall, had crimped long-term investment in new fields for the day when demand recovered.

Under the most optimistic scenario, demand could reach 88.99 million barrels a day, from 85.76 million in 2008.

The price of oil had rocketed to $147 a barrel in July 2008 before plunging to around $32 in December. It has since recovered to nearly $70.

The IEA also said that ‘for the first time in 50 years, the world will witness a drop in global gas demand.’—AFP

quoted from: DAWN.COM

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LyondellBasell Profits Rise in May, but Lag Q2 Forecast

HOUSTON (ICIS news)--LyondellBasell increased its May earnings from April behind strong US polymer margins, but still anticipates falling short of second-quarter expectations, the producer said on Tuesday.

May earnings before interest, taxes, depreciation, amortisation and reorganisation (EBITDAR) were $203m (€144m), up 8% from April’s EBITDAR of $188m. That increase is largely from a "significant improvement" in polymer volumes, the company said.

“Export opportunities led to strong demand and production rates,” chief operating officer Ed Dineen said during the company’s monthly conference call.

But due to an underperforming fuels segment brought on by weak refining margins, LyondellBasell said it was still “slightly lagging” its second-quarter planned EBITDAR of $637m.

The fuels segment had a year-to-date EBITDAR of $153m, barely more than half of the company’s operating forecast of $292m.

But the company remained close to its overall forecast based on the chemicals and polymers segments, which have outperformed expectations.

The chemicals segment had a year-to-date EBITDAR of $244m, compared with a $184m forecast, while the polymers segment has an EBITDAR of $205m, relative to a $156m expectation.

While the company said its chemicals performance is largely due to a sharp reduction in fixed costs, the polymers segment has recently shown growth potential, it said.

“Polyethylene (PE) was very strong this month, particularly in North America,” Dineen said.

LyondellBasell said global PE volumes increased by about 7% in May, while polypropylene (PP) volumes were up about 5%. Overall, polymer volumes were improved across the board compared with April, with a volume growth of 6%.

However, the company also warned of rising raw material costs, and said a continued strong performance would depend on whether the company was successful in implementing price increases.

“If we’re able to achieve those price increases, we should see the US piece of things particularly continue to perform well,” Dineen said.

Going forward, LyondellBasell said it expected June earnings to fall “somewhat short” of May, based largely on the expectation that polymer export opportunities should become more limited in the second half of 2009.

Likewise, within chemicals, the company anticipates its olefins segment to decline in June as increases in raw material costs have hurt ethylene production.

But the company said it guessed raw material costs would stabilise or decline in July, bringing earnings back to earlier-in-the-year levels.

LyondellBasell said it anticipated “moderate improvement” in both the chemicals and fuels segment in the third quarter, but that the focus would remain on stabilisation as opposed to growth.

“We understand our situation and the focus that it dictates,” Dineen said.

LyondellBasell has 79 affiliates under Chapter 11 bankruptcy protection and recently added 13 non-operating subsidiaries to the filing.

The company has said it seeks to improve overall results by $1.3bn/year by the end of 2010, and planned to get there through lower fixed costs as well as cutting 4,800 employees and contractors and closing 14 plants and facilities.

quoted from: ICIS.com

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Asian Development Bank approves 100-million-dollar loan for China

MANILA - The Asian Development Bank (ADB) said on Wednesday it has approved a 100-million-dollar loan to finance improvements to roads and the environment in a poor region of northwest China. 


The Manila-based bank said the projects would also generate employment and improve urban living standards in Xinjiang, a region that has some of China’s highest poverty rates. 

Matching funds of 87.2 million dollars are being provided by the cities of Altay, Changji, Hami, Kuytun and Turpan, which are the target beneficiaries. 

The ADB noted that Xinjiang, which has 46 minority groups, has lagged behind the coastal regions in benefiting from the country’s economic boom. 

“Poor urban infrastructure has deterred investment, degraded the environment and limited growth opportunities, especially in the promising tourism sector,” the bank said in a statement. 

The loan will be used to build or upgrade over 100 kilometres of roads, install traffic signals and other road safety systems and construct public toilets and other sanitation facilities. 

The loan will have a 25-year term, including a five-year grace period. The project is expected to be completed by June 2014.

quoted from: Khaleej Times

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Emirates NBD Gets Dh4b Cash Infusion

DUBAI - In a last-minute solution to a big funding shortfall, Emirates NBD, the nation’s largest banking group by assets, met a UAE Central Bank deadline requiring local banks to strengthen their capital bases to cushion against increasing loan defaults. 


The Dubai-based lender announced on Tuesday that it had issued Dh4 billion in so-called Tier 1 debt securities to the Dubai government’s investment arm, the Investment Corporation of Dubai, or ICD. Money from the sale of the securities will increase the bank’s Tier 1 capital to more than 11 per cent of its total assets.

The Central Bank required UAE banks to meet this 11 per cent minimum by June 30, as a condition for receiving government deposits last fall when many local banks were facing serious liquidity problems due to the freezing of international capital markets.

Like most other banks, Emirates NBD accepted government deposits to strengthen its balance sheet during the downturn. But as of March 31, its Tier 1 capital was 9.7 per cent of its total assets — well below the government threshold.

“As the largest bank in the UAE, it is essential that Emirates NBD is well capitalised. Through this issuance we will continue to build on and maximise the benefits of the merger,” Emirates NBD Chairman Ahmed Humaid Al Tayer said in a statement. Emirates Bank and National Bank of Dubai expect this year to complete the merger process they started in 2007 to form Emirates NBD.

The bank’s newly issued securities have a fixed-rate coupon of 6.45 per cent for the first five years before they change to a floating-rate coupon. The UAE Central Bank confirmed the bank’s Tier 1 capital status, for the purposes of capital adequacy.

The central bank will raise its Tier 1 capital requirement for UAE banks to 12 per cent by the end of next June.

“A strong banking system is essential for the continued development of the UAE, and through this injection of Tier 1 Capital, the ICD is able to demonstrate its full commitment to Emirates NBD,” said Mohammed Ibrahim Al-Shaibani, Executive Director & Chief Executive Officer of the ICD.

The Government of Dubai owns 56.6 per cent of Emirates NBD, through the ICD, while 39 per cent of the stock is traded on Dubai Financial Market.

“As a bank you have to increase capital to face challenging time,” said Mahdi Mattar, an analyst at investment bank Shuaa Capital. A boost to any bank’s capital base gives it “a cushion if the bank’s non-performing loans increase,” he said.

Dubai issued a $10 billion bond in February aimed at helping banks and other state-owned companies. Emirates NBD said in April it would boost its capital ratio by issuing Dh3.5 billion worth of debt notes in the second quarter.

Emirates NBD reported total assets at Dh282.4 billion at the end of 2008, and it has a combined market share of 20.5 per cent in the UAE. The bank’s shares fell by 0.6 per cent to Dh3.5 on the Dubai Financial Market on Tuesday.

abdulbasit@khaleejtimes.com
quoted from: Khaleej Times

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