Issue Date: October 1, 2012
An Italian Seeks Fortune In China
Better late than never. Decades after other major chemical producers tagged China as a key market for their products, Versalis has opened what it calls its first office in that country. The company, the chemical arm of the Italian oil giant Eni, plans to establish itself in China through manufacturing joint ventures and by setting up an R&D center to support local customers.
The push into China is one of several changes Eni is making in the way it runs its chemical business. The company’s chemical plants are mostly in Europe, where costs are high and demand for chemicals is currently weak. Eni’s chemical business lost $385 million in 2011 on sales of $8.9 billion.
Last year Eni hired Daniele Ferrari to carry out the changes. An Italian, Ferrari came from U.S.-based Huntsman Corp., where he had headed the performance products division. While at Huntsman, Ferrari managed the setup and expansion of manufacturing facilities in Singapore and Shanghai, he tells C&EN.
When Ferrari came aboard, Eni’s chemical business was known as Polimeri Europa. After Ferrari took the helm, the business adopted the Versalis name to emphasize its “relaunching” and deemphasize its connection to Europe.
Turning around Versalis involves making important changes to its European operations. In May, Eni announced a multi-billion-dollar investment plan that includes a revamp of petrochemical plants in Italy and the construction of new facilities for elastomers in Italy and Scotland.
Separately, Versalis has embarked on an ambitious project to turn some of its older petrochemical assets in Italy into plants that produce biomaterials from renewable resources. Eni similarly announced last month that it would spend $130 million to turn an old refinery in Venice into a biorefinery. Versalis and Eni are both hoping to become global biomaterials leaders.
In collaboration with the Italian biomaterials firm Novamont, Versalis is spending $650 million to convert its Porto Torres petrochemical complex into a biorefinery. The two firms have also joined with the U.S. biobased chemical company Genomatica to develop a process for producing butadiene—a key material in making synthetic rubber—from biomass. Eni will contribute to Versalis’ effort by upgrading infrastructure at Porto Torres.
At the same time, Ferrari realizes he must do more than improve the firm’s operations in Italy. “We are proud of our leading position in Italy,” he said during a press event to mark the opening of the company’s office in Shanghai. “But as a businessperson, I would prefer if we could be more geographically diversified.”
Under Ferrari, Versalis has begun to expand internationally by focusing on its elastomers business. Versalis claims to manufacture the world’s largest variety of elastomers, including solution-polymerized styrene-butadiene rubber (S-SBR), ethylene-propylene-diene rubber, and acrylonitrile-butadiene rubber. “We’re Italian,” he says. “Perhaps we like variety.” More than one-quarter of Versalis’ portfolio of 379 patents concern elastomers.
In the past, Versalis was content simply to license its elastomer manufacturing technologies to non-European firms that would build their own plants. This is no longer the case. The company will now invest in the plants where its technologies are implemented.
In the first example of this new strategy, this summer the company reached a basic agreement with Petronas on a joint venture to build an elastomer facility in southern Malaysia, near Singapore. The plant, which will implement unspecified Versalis technologies, will be part of Refinery & Petrochemicals Integrated Development, a major refining and petrochemical project that is still in the early stages of development. “We want to have a similar joint venture in China,” Ferrari says.
However, it’s not clear how soon a China venture will take shape. Versalis plans to announce that it will build a plant soon “somewhere in Northeast Asia,” Ferrari says, although not necessarily in China. What is more certain concerning China is that the company will set up a technical center there to support tire manufacturers, both foreign and local, within 18 months, Ferrari says. In Europe, Versalis supplies major tire manufacturers, such as Italy’s Pirelli, that are now expanding operations in China. “Big multinational tire producers will want to modify their tires for the Chinese market,” Ferrari says.
Because Versalis is a latecomer to China, it makes sense for the company to bring advanced elastomer technology into the country, says David S. Jiang, president of Sinodata, a Beijing-based chemical market consulting firm. “If Versalis has good technologies to offer, it’s not too late for it to succeed in China.”
Foreign chemical companies with differentiated rubber technologies have been reluctant to build plants in China, largely owing to concerns that their proprietary processes could be copied by local competitors.
For example, Japanese producers of S-SBR are setting up facilities in Southeast Asia, from which they will export to China (C&EN, May 30, 2011, page 35). S-SBR is a relatively new type of rubber used to make tires that can grip the road in wet weather but still improve fuel efficiency. Similarly, few large international rubber manufacturers produce butyl rubber in China.
Versalis could gain “first mover’s advantage” if it breaks the mold and decides to produce highly differentiated rubber in a joint venture with a Chinese partner, Jiang says. Ideally, it would bring its S-SBR process to China.
The risk a company runs of compromising its intellectual property in China should be weighed against the benefits that can be derived from establishing a strong position in the country before others, Jiang notes. “In the history of the chemical industry, there have been companies that have been too concerned about intellectual property, and they lost their market opportunity in China,” he says.
For now, Versalis remains vague about how it plans to succeed in China. All that the company has in the country is an office that employs 18 people. Yet parlaying its range of elastomer technologies into a viable Chinese business may be an easier path than turning old Italian petrochemical complexes into cutting-edge biomaterials plants.
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