Diversity Favors Taiwan’s LCY Chemical

One of the world’s newest producers of polysilicon is a family firm in Taiwan that has repeatedly made rewarding bets on its ability to enter new markets. Relatively unknown even within the ranks of the chemical industry, LCY Chemical has expanded its sales 20 times over the past two decades, reaching $1.8 billion in 2011. LCY employs nearly 1,800 people, about 200 of whom are in R&D.

About 18 months ago in southern Taiwan, LCY began operations at a polysilicon plant with a production capacity of 8,000 metric tons per year.As it did with businesses it entered in the past, LCY went into polysilicon only after taking stock of its existing capabilities and trying to realistically assess opportunities in the market.

“To produce polysilicon, you need to know how to handle dangerous materials such as silane gas, how to meet the expectations of electronic components producers, and how to handle processes running on high electric voltage,” says Bowei Lee, chief executive officer of LCY. The company has experience in all those areas, Lee says.

The holder of a master’s degree in chemical engineering from Massachusetts Institute of Technology and an M.B.A. from Stanford University, Lee took the helm of LCY—then known as Lee Chang Yung Chemical—in 1990. The company grew out of a plywood maker that his grandfather launched in the 1940s. It has been listed on the Taiwan Stock Exchange since 1977.

Under Lee’s leadership, creativity and innovation have been key elements of LCY’s growth, the CEO says, stressing the point repeatedly during a 90-minute interview at his office in Taipei. For instance, starting from a rudimentary knowledge of the Siemens process for making polysilicon, LCY developed its own manufacturing technology by putting about half of the company’s researchers on the job for about 18 months.

Similarly, last year LCY developed a new process for making hydrogenated styrenic block copolymers. Lee claims the process, which LCY is implementing at plants in Taiwan, China, and the U.S., yields better resins than those currently on the market and can be installed in facilities making use of older processes.

LCY entered the styrenic block copolymer business in 1995 and has since become a major player. It faces competition from Asahi Kasei, Kraton Performance Polymers, and Sinopec. According to the market research firm Freedonia Group, LCY was the world’s second-largest producer of styrenic block copolymers in 2011. It acquired its U.S. plant from Polimeri Europa in 2003, Freedonia notes. The polymers account for about one-third of LCY’s sales.

Polypropylene resins make up another third of LCY’s sales. The company focuses on specialized grades such as polypropylene for medical applications. LCY entered the polypropylene business in 2006 when it acquired a controlling stake in Taiwan Polypropylene from LyondellBasell Industries. “We’re making money with our polypropylene because it’s highly differentiated,” Lee says.

As a general rule, LCY aims to avoid products that may be harmful and to enter markets that have a positive impact on the environment, Lee claims. He notes that several years ago, he let pass an opportunity to become a producer of bisphenol A, a known estrogenic chemical. Additionally, LCY’s polymers and elastomers can substitute for chlorine-containing polyvinyl chloride resins, he says.

Entering any new business is fraught with risks. LCY’s entry into the polysilicon market was unhappily timed, reckons Danny Ho, an analyst at the Taiwanese financial giant Yuanta Securities. Since last year, he notes, global polysilicon prices have been dropping because of poor demand from makers of solar cells.

“LCY had healthy earnings until last year, but the entry into polysilicon may bring many unknowns,” Ho says. Lee observes that LCY is focused primarily on the Taiwanese market and, as a result, has not overinvested in its production facilities. To complement sales to the volatile solar industry, he adds, LCY will start selling its polysilicon to the semiconductor industry after testing by potential customers is completed.

Ho is more upbeat regarding LCY’s polypropylene business. The acquisition of Taiwan Polypropylene has provided LCY with a strong position in the Taiwan polypropylene market, he says. “They are achieving horizontal integration,” he adds.

Devoid of oil resources and in the shadow of China’s industrial might, Taiwan does not seem like the ideal location for a chemical company that produces polypropylene and other materials used in industry. Moreover, stung by a series of accidents last year at Formosa Plastics Group, the Taiwanese public tends to be antagonistic toward the chemical industry.

Lee does not see things that way. To him, the bad image of the chemical industry in Taiwan is to a large extent a self-inflicted wound. Too many local chemical companies have let accidents happen at their sites; there could be far fewer, he says. In addition, Taiwanese companies make almost no effort to cultivate relationships with the communities in which they operate. “We have open days annually at our sites, but only a few chemical companies do this in Taiwan,” he points out.

Taiwan remains a fine place to do business, Lee argues. He perceives Taiwan as a location with a strong regulatory process that ensures fair treatment for companies across the country. Many manufacturers have moved to China, but local demand for high-purity solvents remains strong because of the island’s well-entrenched electronics industry. And some manufacturers from other industries that had moved to China are returning to Taiwan because of China’s rising labor costs.

More important, Taiwan is a source of highly skilled and innovative workers. It is creative Taiwanese workers who have enabled the company’s growth in the past 20 years, Lee says. “Taiwan is not a good place to produce commodity chemicals,” he says. “We believe in offering highly differentiated and environmentally friendly products to stay ahead of competitors in India and China.”