Published June 30, 2009

Lanxess puts S'pore rubber plant on hold

German chemicals group points to falling demand, but remains committed

By RONNIE LIM

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(SINGAPORE) After a six-month hiatus, Germany's Lanxess has decided to defer construction of its 400 million euro (S$834 million) synthetic rubber plant here by a further two years, but stressed it remains committed to making the Singapore investment.

Dr Heitmann: said that Lanxess' crisis management team made the decision just at the end of last week to defer the Singapore project

The 'painful decision' to postpone was largely due to falling demand for synthetic rubber projected for the next two years or so by tyre-makers, which are its customers, Lanxess chairman Axel Heitmann explained yesterday. He added that the entire chemicals industry has been hit hard by the economic downturn.

He emphasised, however, that the specialty chemicals group intends to capitalise on the time lost to develop an in-house breakthrough in process technology for synthetic rubber - one using less energy and raw materials - to make the Singapore plant, when it starts up, even more competitive.

It is not a question of if, but when, the Singapore plant will start, he maintained in an interview with BT, saying that the Republic remains a key pillar in Lanxess' growth strategy.

In fact, independent of the decision to postpone the plant, he disclosed that Lanxess is currently in talks with the Economic Development Board about shifting its global headquarters for butyl rubber to Singapore from Switzerland. This could come sooner than the plant, he hinted.

'It's a case of killing two birds with a stone,' he said of Lanxess' plan to turn adversity from the global downturn into opportunity.

When the crisis first hit late last year, Lanxess postponed its earlier scheduled groundbreaking in January for the Jurong Island plant, saying it would make a decision on the project by 'this Fall'.

Dr Heitmann said that Lanxess' crisis management team, which he heads, made the decision just at the end of last week to defer the Singapore project, so as to mitigate the effects of the demand fall, like unused plant capacity, for the group. He then flew here to personally inform EDB officials as well as Lanxess' staff yesterday of this.

The deferment means that from an earlier scheduled start-up of mid-2011, the 100,000 tonnes per annum Singapore plant will now only get off the ground in 2014 at the earliest.

It will produce halobutyl and regular butyl rubber used to make inner liners and inner tubes for high-performance tyre manufacturers like Michelin, Goodyear and Bridgestone, with 60 per cent of the Singapore output slated for the China market.

Singapore was earlier meant to supplement synthetic rubber output from its Belgium and Canadian plants, although with the latest downturn, Lanxess saw no need for additional capacity at this time, he explained.

Despite reports of 'green shoots', like a recovering Chinese economy, Dr Heitmann said that the feedback from tyre customers pointed to continued low demand. He declined to speculate on how long he expected the downturn to continue, saying only that it was best for Lanxess to instead focus on being competitive 'pre-and post-crisis'.

Lanxess, for instance, intends to invest tens of millions of euros in the next 24 months on developing the new process technology at a pilot plant at its Antwerp butyl rubber facility. This new technology uses fewer resources and is considerably more energy efficient and evironment friendly, he said, with Singapore to have priority on its use.

This will mean that the capital expenditure for the Singapore plant will be 'slightly lower' than the originally planned 400 million euros, although he declined to give a figure at this time.

Lanxess - which currently runs the South-east Asian business of all its 13 business units from Singapore - moved its Asian marketing headquarters for leather chemicals, including key personnel, from Hong Kong to Singapore in May last year.

And the likely move of its global butyl rubber HQ here will mean that 'key decisions will be made here' for the fast-growing Asian market, which already accounts for 40 per cent of its global sales, said Dr Heitmann.