Lanxess AG's Asia plan to benefit India

Germany-based Lanxess AG, a leading player in specialty chemicals has earmarked around $ 1 billion (approximately Rs 4,000 crore) towards setting up new facilities as well as expanding existing capacities across the globe in the next three years. Announcing this, Dr Axel Claus Heitmann, chairman of the Board of Management, Lanxess, said Asia would be an important region in the company’s overall growth strategy.

“I cannot emphasise enough the importance of Asia to our overall growth strategy at Lanxess. We expect sales from the region to grow continuously. There is no question that Asia is becoming increasingly important to the Lanxess bottom line and the chemical industry as a whole. From India to Singapore, from China to Korea, from Malaysia to Japan, the future is happening here in Asia – right before our eyes – and Lanxess is a part of it,” he said at an international press conference held in Singapore recently.

Lanxess India Private Ltd (LIPL), a subsidiary of Lanxess AG, a Euro 6.94 billion (Rs 43,177 crore) company, is a leading supplier of performance polymers, advanced intermediaries and performance chemicals. It is setting up a plant in Jhagadia in Gujarat at a cost of around Euro 50 million (Rs 310 crore).

As part of its growth strategy, LIPL will be relocating its rubber chemicals (RUC) plant from Thane in Maharashtra to the project at Jhagadia. The production activities of RUC in Thane will be phased out stepwise by 2009. The Jhagadia plant which will be primarily for producing ion exchange resin, would reach production stage by 2010. Almost 80 per cent of the product would be exported. Jhagadia will become Lanxess's second production site in India after Madurai in south India and will be the bigger of the two.

Focus on Asia

Lanxess is all set to make the biggest single investment of Euro 400 million (Rs 2,480 crore) in its history in Singapore. A new chemical production site for sythentic rubber is to be built at the chemical park in Jurong Island. From 2011, the site will produce up to 10,000 tonnes of butyl rubber annually, making the Lanxess plant the largest facility of its type in Asia. Lanxess currently operates two world-scale sites, one in Zwijndrecht in Belgium and the other in Sarnia, Canada for butyl products.

“We are changing the landscape of the chemical industry in Asia and making Singapore one of our top three sites in the world. Until today, Singapore has been the office from which we have conducted business throughout Southeast Asia. Our presence here has been limited to sales and distribution work for most of our business units. Now we are making Singapore the hub of all our future operations throughout Southeast Asia,” said Dr Axel Claus Heitmann.

He said the creation of a major new butyl rubber manufacturing facility will allow his company to meet the need for better, safer, more fuel efficient tyres for the people of Asia. The new facility will produce halobutyl rubber – the product that makes possible advanced, high-performance radial tyres. He told newspersons that the Singapore investment is a strategic one with major implications.

“It will change the rubber landscape in Asia for good. It will be the world's first entirely new butyl rubber facility since the year 2000. It will be one of the most environmentally friendly, efficient, technology-driven butyl production facilities in the world. It will bring the great benefits of halobutyl rubber to the people of Asia, making their automotive transportation safer, more comfortable and above all more fuel efficient,” he noted.

He further added that this new investment makes the company’s commitment to the Asian market every bit as meaningful as its commitment to the fast-growing BRIC markets of Brazil, Russia, India and China. Several countries including India were considered for this investment but according to Dr Heitmann, Singapore offered several advantages like the logistical benefits offered by the port of Singapore, good IT connectivity etc.

“The new high-tech facility in the heart of Asia will to bring us closer to our Asian customers and to better serve the growing Asian market,” he added. Dr Heitmann said that the new facility would predominantly serve the Asian markets. “We expect the Asian markets to grow faster than the other markets in the world and a few years from now Asian markets will make up more than half of the global butyl market. We are going to spend $ 1 billion in the next three years on new facilities around the world for all our products,” he said.

Dr Heitmann said a large part of this $ 1 billion would be spent on existing sites for new capacity expansion. In terms of expansion it would be existing as well as new sites like the one in Singapore, he said. With regard to butyl rubber, he said the demand for this product in Asia looks very promising. “The Asian market in terms of butyl will become more and more important. Today Asian markets absorb around 40 per cent of global butyl demand. In three years from now it will be more than 50 per cent. In India we are constantly investing money to increase and upgrade our structures. We are going to set up an entirely new chemical facility at the Jhagadia plant,” he said.

Butyl rubber business unit

The butyl rubber business unit is one of the four business units in the performance polymers segment. Butyl rubber comprises two product groups — halobutyl and regular butyl and for Lanxess it fetches a turnover of Euro 500 million. Addressing the international media on the product, Dr Ron Commander, Head of butyl rubber business unit, Lanxess AG said that shipping costs for butyl rubber are only a small portion of the total costs and therefore from the company’s two existing production sites in Belgium and Canada, it sells its products to 45 countries.

Lanxess is a leading supplier of butyl rubber. Dr Commander said that Lanxess butyl rubber sales in 2006 were 88 percent halobutyl and 12 percent regular butyl. “Regular butyl will remain part of Lanxess product portfolio and will be manufactured in the new plant,” he said. According to him, from 2010 onwards, the company’s market research indicates that there will be an accelerated increase in halobutyl rubber supported by a gradual decrease in regular butyl due to an increase in the number of radial tyres especially in China and India.

While mentioning that the growth of butyl rubber in China, Taiwan and Hong Kong will continue to be the main driver of global butyl rubber growth, the product in India will grow at a record figure of 8.7 percent compounded annual growth rate but this is from a much smaller base than the rest of the market.

Clearly, the company is betting big on Asia and on the speedy economic growth in the Indian automobile market, which has seen demand burgeoning handsomely in recent years.