Investors' Day in Philadelphia

The term "making hay while the sun shines" and similar expressions came up frequently at the 2nd Annual Chemical Industry Conference held at the Chemical Heritage Foundation in Philadelphia late last month.

Representatives from eight major chemical companies--Praxair, Ashland, Cabot, Eastman Chemical, Lyondell Chemical, Hercules, DuPont, and Rohm and Haas--outlined their firms' virtues and admitted to faults they plan to correct. But most of all, they discussed plans to get as much profitable growth as possible out of the current economic expansion.

Ricardo S. Malfitano, senior vice president of Praxair, said demand for hydrogen is now growing 20-25% per year, making hydrogen the company's fastest growing business. Consumption by refiners to upgrade fuel, oil, and bitumen is a primary driver in hydrogen demand, he said. To meet that demand, Praxair expects to announce that it will build at least one, if not two, new hydrogen plants before the end of this year.

BUT MALFITANO noted that the firm's electronic gases business is not doing as well as it would like. "Volumes are 8% below last year," he said. So Praxair is emphasizing services for electronics manufacturing, where it can be better compensated for the intellectual properties built in. That includes supplying services for thin-metal deposition on semiconductors, as well as chemical mechanical planarization pads and slurries for polishing chips.

Ashland's Gary Cappeline, chemical sector president and chief operating officer, noted his firm's enviable conundrum. In a transaction completed on June 30, Marathon Oil bought Ashland's 38% interest in the Marathon Ashland Petroleum joint venture along with Ashland's maleic anhydride business and 60 Valvoline oil-change centers. The transaction left Ashland with $1.1 billion after it paid down debt.

"With all that cash, we'd be surprised if we're not on a number of radar screens now," he said. "We may have more cash on hand longer than we'd like," he added, admitting that Ashland might be vulnerable to a takeover.

Ashland may not use Marathon-sale proceeds to buy back stock. Though it can do so, the company says it has no intention to buy back shares using other funds now. Cappeline said that at least some of the Marathon funds will go into acquisitions in the $1 million to $500 million range in businesses that Ashland knows well, such as adhesives, unsaturated polyester resins for fiberglass composites, and water treatment. He vowed not to overpay for acquisitions, so the firm might have to wait for the right opportunities.

Richard A. Lorraine, Eastman Chemical's chief financial officer and senior vice president, said his firm will use the $400 million it received from the sale of its interest in Genencor to pay down its debt, fund its dividend, and provide for growth initiatives.

The firm is making headway on a polyethylene terephthalate (PET) facility under construction in Columbia, S.C. "Construction is a little ahead of schedule and a little under budget," Lorraine said, with completion still targeted for the end of 2006. The plant will use Eastman's IntegRex process, which makes the plastic straight from p-xylene rather than the intermediate purified terephthalic acid. IntegRex is touted as producing PET in half the footprint of a conventional PET plant and at half the cost.

Dan Smith, Lyondell's president and chief executive officer, said the ethylene business is now making a strong recovery. Owing to high Asian demand for ethylene and its derivatives and ethylene plant operating rates that are now at about 95%, Smith believes the ethylene market will continue to be strong through the end of the decade. Even though producers will be bringing on new capacity in the Middle East between 2008 and 2010, he predicted that start-up delays likely will keep the ethylene market tight and profit margins high.

AFTER MISSING Wall Street's expectations consistently between 1998 and 2002, "Hercules is now back on track," said President and CEO Craig A. Rogerson, and is in a better position to deal with "legacy issues." It is making contributions to the pension plan supporting 25,000 workers who once worked for aerospace and polypropylene businesses that Hercules sold more than a decade ago. And the firm hopes Congress will pass legislation that would effectively fix its asbestos liabilities at about $15 million.

"We dialed back on R&D" when the firm was in trouble, Rogerson admitted. As the economy and profits have recovered, Hercules increased its R&D budget 10% to $43 million in 2004 and plans to spend an additional 10% on R&D this year.

John C. Hodgson, DuPont senior vice president, credited a redirection of his own company's R&D to an upsurge in patents at the firm from 801 in 2001 to 1,668 in 2004. But while technology advances are enhancing the firm's profits, he acknowledged that DuPont needs to do a better job selling multiple product lines to customers. "About 20% of our sales come from customers that buy across more than one DuPont business unit," he said. "It should be higher than that." To boost that figure, DuPont now deploys teams focused on selling a broad range of products to customers.

Hodgson called the effort to increase sales "taking a greater share of wallet," while other presenters at the conference used other euphemisms. But they all made clear that they intend to increase sales and revenues during the current market upturn and to correct impediments toward those goals wherever they can.