Issue Date: November 15, 2010
The Eastern Advantage
The world is a colorful place in part because of the dyes and pigments that make manufactured goods ranging from textiles to toys so visually alluring. But the world has been a difficult and treacherous place for many Western organic dye and pigment makers.
In the past year and a half alone, three major Western dye makers announced plans to shift their business headquarters to Singapore. In an acknowledgment of the decades-long exodus of apparel and textile production to Asia, Huntsman Corp., DyStar, and Clariant have all moved or plan to move dye headquarters to the island nation. Consolidation among pigment makers has meant factory shutdowns in the West and expansions in Asia to supply a host of new consumer product makers.
At the same time, advances in electronics are destroying older markets. As more people read magazines and newspapers on electronic displays, sales of printing inks are starting to dry up. However, some pigment makers see an opportunity to bring their color expertise to next-generation displays.
Simply put, dyes are soluble molecules typically used to color textiles. Pigments are insoluble particles that color inks, paints, and plastics. “On the dye side, we’ve seen a massive consolidation among European producers over the last decade,” says Ray Will, a senior consultant at business research publisher SRI Consulting. Indian and Chinese firms, meanwhile, have been expanding their role in producing and exporting dyes.
Some Eastern dye makers have even become major consolidators. Notably, India’s Kiri Dyes & Chemicals and China’s Zhejiang Longsheng Group recently teamed up to buy DyStar. Other leading Asian players include Taiwan-based Everlight Chemical and China-based Shanghai Anoky Textile Chemicals.
High-performance organic pigment makers in the U.S. and Europe “have been hanging on by their fingernails,” Will adds, by emphasizing high-quality products for automotive and other high-end applications. But as he sees it, “both dye and pigment producers are migrating closer to their Asian customers. R&D is trickling out to Asia too.”
A decade ago, five European firms—DyStar, Ciba, BASF, Clariant, and Yorkshire Chemicals—controlled more than half the world’s dye output, then worth about $5.5 billion. Asian producers owned most of the balance. Despite the best efforts of these five firms to develop innovative high-performance dyes, few customers were willing to buy them, and dyestuffs have largely remained commodities. Industry sources now place the value of the global dyes business at about $6 billion.
Today, only one European firm, Clariant, is a major dye maker. U.K.-based Yorkshire, which traces its roots back to William H. Perkin, who in 1856 invented the first synthetic organic dye, went bankrupt in 2005. A Hong Kong conglomerate bought its remaining German and Asian assets, which continue to operate as Yorkshire Group.
U.S.-based Huntsman bought Ciba’s dyes business for $270 million in 2006; the following year it acquired Baroda, an Indian maker of textile dyes and intermediates with 700 employees. A 2008 reorganization at the Huntsman business cut 260 jobs in Germany, France, and Mexico.
But no one company better illustrates the fading fortunes of Western dye makers than DyStar. The company was formed in 1995 from the dye operations of Bayer and Hoechst, and it took over BASF’s dyes business in 2000. In 2004, DyStar bought Yorkshire’s U.S. operations.
In 2004, U.S. private equity firm Platinum Equity bought DyStar from owners BASF, Hoechst, and Bayer for a price chemical analysts then estimated at $680 million. Its heft—the company claimed sales of $1.2 billion in 2008 and a global market share of about 20%—did not prevent it from going bankrupt in 2009.
Then, earlier this year, India’s Kiri Dyes & Chemicals joined with China’s Longsheng to buy the bulk of DyStar for just $70 million. The acquisition was a coup for 12-year-old Kiri Dyes, which then had three plants in India and annual sales of about $72 million. Its partner Longsheng claimed to be the world’s largest dyestuff maker with a capacity of 200,000 metric tons per year.
At the time, Kiri Dyes said the acquisition did not include DyStar debts or employee pension liabilities. What it did include were 16 production facilities in 12 countries, including three in China and two in Indonesia.
DyStar’s North American operations were not included in the bankruptcy or sale to Kiri Dyes and Longsheng. Last month, the partners paid Platinum Equity $10 million to acquire those operations, which have earnings of $10 million on annual sales of more than $100 million. The acquisition included a production site in Reidsville, N.C., and a warehouse in Southgate, Calif.
In a company statement, Manish Kiri, managing director of Kiri Dyes, said DyStar was too good of a bargain to pass up. “We are deep-value buyers who look to buy assets with great brands, good distribution, all at rock-bottom prices.” Kiri, 38, an electronics and communications engineer who holds an M.B.A. from the University of Michigan, predicts DyStar revenues will be $1 billion in 2011.
Kiri noted that DyStar plans to increase profitability by transferring production from Germany, where the firm long operated three plants, to Asia. In addition, DyStar headquarters have been moved from Frankfurt to Singapore. In a recent financial document posted on Kiri Dyes’ website, the firm says DyStar will achieve “huge” savings next year by laying off 500 of 700 remaining Germany-based personnel. The firm had 1,350 employees in Germany before the takeover.
Pravin Kiri, 64, a chemist, founder of Kiri Dyes, and the father of Manish, hinted recently at ambitious plans for his firm. “The dyes business globally is ripe for consolidation, and Kiri is the leading consolidator of this industry,” he said in a statement. “We are eyeing other profitable projects which can add substantially to our revenues and profits without huge investments.”
Clariant’s dyes operations have undergone recent upheaval as well. By 2013, the firm plans to move its textile chemicals headquarters and global applications technology team from Switzerland to Singapore, which Clariant calls “the center of the world’s main textile markets.”
Hariolf Kottmann, Clariant’s chief executive officer, said the firm will transfer dyes now made in Muttenz, Switzerland, to “locations in Asia.” In a speech he gave in February at the firm’s annual results press conference, Kottmann explained: “We are often faced with the strange situation that we purchase raw material in China, ship it to Europe, manufacture our products at significantly higher costs, and then ship them back to Asia, where our customers are. Obviously this is against any economic logic and severely harms our competitiveness in these areas. Hence there is no value-creating alternative but transferring our production to Asia.”
Paul Hulme, president of Huntsman’s Textile Effects business, says the unit’s move to Singapore is also important. “If you are not established or positioned in the Asian market, particularly India and China, you will have a difficult time running a successful business going forward,” he says. The Singapore location allows Huntsman to be a more nimble player, particularly because “our most important customers have migrated over the past decade from Western Europe and North America to the East.”
The pigment business is more diverse than the dye industry, SRI’s Will notes, and hasn’t been as strongly affected by the eastward tug of manufacturing. Organic pigments, which Will estimates is a $2.7 billion global market, serve more diverse customers making paints, plastics, inks, and cosmetics.
But like their dyes cousins, the big three organic pigment makers—BASF, Clariant, and Japan’s DIC—have also felt the eastward tug of manufacturing. In 2009, BASF acquired Ciba and the Swiss firm’s pigment operations. In April of this year, BASF undertook a plan that will cut back on its Western pigment assets and bolster its position in Asia.
By 2013, the firm plans to close six plants, mostly involved in azo and phthalocyanine pigments, reducing its total pigment operations to 16 sites. The cutbacks affect European and U.S. locations, including ones in Louisville, Ky., and Elyria, Ohio.
BASF also plans to eliminate 500 of 2,900 jobs at pigment sites in Scotland, Germany, the Netherlands, Brazil, and the U.S. It will add 30 jobs in Asia. The firm will expand several sites in Europe and make investments in at least three Asian plants: Qingdao and Shanghai, China, and Ulsan, South Korea.
Clariant has made adjustments to its pigment business too. In 2007, it closed a plant in Rhode Island. Last year, it partially closed a plant in Frankfurt, and this year it partially closed one in Thane, India. Also this year it started up a large quinacridone pigments plant with partner Zhejiang Baihe Chemical in Hangzhou, China, site of an existing azo pigments joint venture.
Russell Schwartz, vice president of Sun Chemical, a division of DIC, says many Western pigment makers have consolidated over the past decade. Since 2004, Sun itself shut down two North American pigment plants and reduced output in North America and Europe of some “unprofitable” pigments. The company and its parent are producing more pigments in China, “and we are working more with preferred suppliers in China,” Schwartz says.
Consumer product marketers with an interest in sustainability are starting to influence which pigments are used to color certain products, Schwartz says. For instance, some toy makers are avoiding traditional pigments and are instead using colors certified under the U.S. Food, Drug & Cosmetic Act to avoid heavy-metal contamination concerns.
In the next 10 years, Schwartz expects a consumer shift from reading books and magazines on paper to reading them on handheld electronic devices. Today’s Apple iPad provides a bright and colorful screen on which to read, but the display isn’t energy efficient, Schwartz points out.
New electronic displays incorporating pigments as color filters will enable low-power, high-quality color reproduction rivaling conventional printed media. Sun is now working with Gamma Dynamics, a spin-off from the Novel Devices Laboratory of the University of Cincinnati, on pigmented fluids for electrofluidic displays. The device’s commercialization partner is Polymer Vision, a Netherlands-based rollable displays maker recently bought by Wistron, a Taiwanese contract electronics firm. The pigmented fluids, Schwartz says, “are the key to a low-energy, bright color display.”
The new displays may ultimately doom print media to extinction, Schwartz says. Although pigments for electrofluidic displays will never make up for the volume lost in print media, Sun expects to capture a significant share of the new pigment market. And like so many traditional pigment markets, Schwartz says, this market started in the West, but its best prospects for growth are in Asia.
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