Kraton looks to expand markets

BELPRE, OHIO — Kraton Performance Polymers Inc., the world’s leading producer of styrenic block copolymers (SBCs) by sales revenue, recently celebrated the 50th anniversary for its U.S. plant in Belpre, Ohio.

In an on-site interview with Plastics News, the company shared details of its strategies to grow the global market through aggressive innovation as well as capacity expansion.

“We focus on developing applications that don’t exist today, while most of our competition spends their time on replicating the applications that already exist. Our goal is to grow the market, I suspect most of our competition’s goal is to grow their share,” said Kevin Fogarty, president and CEO.

Kraton continues to expand its exposure to different end markets. Among Kraton’s latest and fastest-growing products, Cariflex synthetic polyisoprene rubber and latex are gaining popularity with the medical-supply and personal-care industries with their hypoallergenic nature, high tensile strength, and comfort. The products’ extremely high purity also benefits niche markets such as electronic coatings.

Kraton is the only company in the industry that uses an anionic solution polymerization process to produce this type of product. Kraton recently has added new Cariflex IR capacity in Belpre and expanded production capability in Paulinia, Brazil, increasing worldwide capacity by 30 percent. In addition, a Carilfex IRL capacity expansion is on the way to double IRL production in Japan by 2013.

The Belpre plant, which opened in 1961 with 129 employees, has expanded and modernized over the years. Today, the plant is reportedly the largest styrenic TPE production facility in the world. The campus covers more than 300 acres, with a workforce of about 600 employees and contractors. Payroll exceeds $200 million a year for employees and $8 million a year for contractors.

The facility consists of four polymer process units, four finishing/packaging operations, and a polymer compounding unit. It boasts 189 kilotons417 million pounds of annual capacity of both unhydrogenated SBC and hydrogenated SBC products, including 70 polymer grades in pellet, crumb and powder form.

Kraton launched solid isoprene rubber capacity at Belpre in June, replacing the capacity from the Pernis, Netherlands’s facility that was closed in 2009. Capital expenditure at the Belpre site exceeded $125 million during the past five years, with additional $27 million in the newly completed expansion, and a $40 million upgrade underway. Kraton is also in the process of making final decisions to move a pilot line out of Houston, most likely to Belpre.

Innovation-centered growth

In order to continue to lead and grow the market, Kraton strives to beef up its global research and development capabilities. Kraton spent $24 million for R&D in 2010. More importantly, R&D productivity — the ratio of innovation revenue to R&D spending — reached a record high in 2010, more than doubling the 2005 level, said vice president of technology Lothar Freund.

In the same year, innovation revenue presented 13 percent of total revenue, compared to 5 percent in 2005. Freund hopes to raise the percentage even higher to 20 percent in the future.

The company also devised specific innovation objectives, including create new market for SBCs, develop technology platforms based on market needs, and deliver technology solutions for customers.

Kraton has innovation centers in Houston; Amsterdam; Shanghai, China; Paulinia, Brazil; and Tsukuba, Japan. The global R&D team totals more than 100 employees.

In Asia, where innovation revenues take up higher percentage than other regions, Kraton has been expanding the Shanghai R&D and is currently building a lab. The long-term vision for Kraton’s R&D in China, Freund said, is to have the same size and capacities as the R&D centers in Houston and Amsterdam, with the exception of polymer development.

Biggest HSBC expansion

After years of anticipation of a plant in Asia, Kraton has finally announced a framework agreement to enter into a joint venture with Formosa Petrochemical Corp. to construct a new HSBC plant in Mailiao, Taiwan. The 30 kiloton 66-million-pound plant, Fogarty said, is the biggest capacity expansion for Kraton in “quite some time.” It is currently scheduled to be operational in the second half of 2013.

“It was a long process to decide where and how best to build the plant,” he said, citing threefold criteria: feedstock proximity, expandable location, and access to the engineering capabilities to ensure the success of the construction.

“In the context of the relationship with Formosa, we will have achieved all three of those goals,” he said, especially that the partnership with Formosa, once it is finally documented, may provide for additional features and capacity expansion for both HSBC and USBC. Once completed, the Taiwan plant would be able to effectively serve the mainland Chinese market. The cross-strait Economic Cooperation Framework Agreement that took effect last August now exempts many chemical and plastic products from tariffs.

As envisioned, for the first five years after the plant is constructed, Fogarty said, less than half of the HSBC produced in the Taiwan plant would go to mainland China, the rest would go to other regions of the world.

Unlike commodity resin production that focuses on cost and logistics, Kraton’s global manufacturing strategy focuses on the optimization of operations, he explained. Each of the SBC plants — in Belpre, France, and, once final agreement with FPCC and construction of the plant is completed, Taiwan — will produce unique products.

Underweight in Asia

Based on global sales revenue, Kraton currently is holding more than 50 percent of the HSBC global market share and about 33 percent for USBC. However, the 21 percent share of Asia revenue within Kraton’s global business, he said, is less than the average of the industry. “We are underweight in Asia.”

The growth potential lies in innovation. In fact, much of Kraton’s innovation sales — defined as revenues from new products introduced in the last five years — are generated in China, higher than the global percentage, according to Freund. “A great deal of that is coming from medical applications,” he added.

The company sees the rising demand for state-of-the-art products and applications from technology-focused customers in Asia, where the innovation cycle is faster compared to mature markets and innovation leaders embrace the first mover advantage.

Global medical-supply manufacturers include China as an important part of their supply chain, and the local producers are showing more interest in the latest technologies. One example is the looming trend to replace widely used glass IV bottles with IV bags made of PP modified with Kraton’s SBC, skipping PVC IV bags that are commonly used in developed countries such as the U.S. To go hand-in-hand with SBC products that serve as PVC substitution for IV bags, the Cariflex IR can be used to make IV bag stoppers, said vice president of Cariflex IR products Richard Brennan. He is finding interest from Chinese OEMs, confirming the same trend for customers there to adopt Western quality standards. “It’s still at an early stage, but I’m confident to see rapid growth in two to three years,” he said.

Besides medical packaging, Kraton also expects to see growth in PVC replacement for wire and cable as well as slush molding for automotive components. Just like in North America and Europe, Fogarty noted, the key for developing markets in Asia is to find the points of differentiation that don’t exist today.