Published 04:02 25.05.10 Latest update 04:02 25.05.10 ICL making hay as China eases out of bromine production By Yoram Gabison
Israel Chemicals' trade relations with Chinese potash companies are creating a buzz in the capital market. These trade relations are also having a fundamental effect on ICL's industrial products division, ICL-IP, which manufactures elementary bromine and bromine-based products such as flame retardants, water treatment products and formulations for the oil exploration and production sector.
The supply of bromine in China has declined significantly of late due to the faster than expected decline in manufacturing by Chinese companies. The Chinese manufacturers, which increased their production capacity from 80,000 tons to 150,000 tons between 2005 and 2008, following an upsurge in the price of bromine, suffered a setback in 2009 due to a rapid decline in salinity levels in Shandong province, the main center of bromine and bromine compound manufacturing in China.
Bromine manufacturing in China bordered on economically unfeasible levels because the concentration of bromine fell from 0.3 grams per liter to 0.2-0.18 grams per liter, compared to 10-12 grams per liter in the Dead Sea - the source of ICL's bromine. Some of the Chinese manufacturers closed their operations, causing annual production capacity to fall to 100,000 tons, and prices in China and the global market to rise sharply.
Gulf Resources, a leading Chinese bromine manufacturer, reported a 39% increase in the average price of bromine in the first quarter of 2010, compared to the parallel last year, and continued price hikes in the second quarter of this year, due to the imbalance between supply and demand in the Chinese bromine market. Global chemical suppliers Albemarle and Chemtura announced increases of 10%-25% in the prices of flame retardants. The imbalance between supply and demand in China has not only pushed prices up; it has also increased the utilization of the manufacturing capacity of the world's two largest manufacturers: ICL (40% of global production ) and Albemarle (24% ).
Shift into high gear
In 2009 ICL manufactured 128,000 tons of bromine, or 46% of its capacity, and 149,000 tons of bromine compounds, which was just 37% of the company's production capacity. Since the beginning of 2010 ICL has shifted into high gear, producing 85%-90% of its potential capacity, based on assessments by UBS analyst Roni Biron.
This increase in capacity utilization is expected to help ICL-IP improve its operational profitability, toward a return to double-digit figures, after operational profitability fell to 8.4% and 2.1% of sales in 2008 and 2009, respectively (without adjustments for various provisions and one-off expenses ). The reduced salinity in China also caused a reduction in the Chinese companies' share of the market in which ICL is the major player, particularly the market for flame retardants such as TBBA. Chinese companies had been producing 200,000 tons of this product annually, but that figure shrank by 60,000 tons over the past year.
The tough competition against Chinese manufacturers had caused a 60%-70% decline in ICL's TBBA production in 2008, compared to maximal production levels. Today, with some of the Chinese manufacturers out of the picture, ICL is slowly upping its production levels, approaching those of its best years, and the company is maximizing its capacity.
The structural change in the global bromine sector returned it the essential control of three companies: ICL-IP, Albemarle and Chemtura, with the latter gradually turning into a marketing company based on contracts signed with Albemarle. Under the agreements, Chemtura, which had applied for court protection from creditors (Chapter 11), would stop producing flame retardants itself, and outsource that activity to Albemarle.
Chemtura's switch to being a marketing company, coupled with the decline in the manufacturing capacity of bromine and its compounds in China, will reduce the pressure on the market to lower prices next time there is a crisis in the electronics market.
ICL-IP is also developing industrial products that will be additional growth drivers, both by expanding the applications of existing products and launching new activities. The company mapped the possible uses of bromine compounds and selected a few new applications, including using a bromine compound called Merquel to reduce mercury emissions at coal-fired power plants. Sales projections for the company's products in 2010 total $20 million.
The market potential for Merquel is estimated at 30,000-50,000 tons within two or three years, representing sales of $75-125 million a year. The market potential for mercury emissions reducing products in China is five times these figures, and if American regulations are adopted in China within the next two or three years, ICL-IP has a good chance for significant growth.
New applications for bromine
Other new applications for bromine include replacing cyanide-based compounds in the extraction process of precious metals such as gold, and the inclusion of bromine compounds in giant batteries that store energy. Another growth engine at ICL-IP is its U.S.-based water treatment division, Clearon, which manufactures and markets chlorine-based water treatment products for swimming pools and spas. Clearon's sales have grown recently, thanks to the direct marketing of its products to department store chains such as Wal-Mart.
ICL has another water treatment product company - Medentech, based in Ireland. This company is the world leader in developing water purification tablets for use in contaminated water sources in developing countries. Medentech markets its products to government and international organizations such as the United Nations.
ICL-IP' plans for the future include increasing the company's involvement in the development of intermediate substances for the food supplements and pharmaceutical industries, and environmentally-friendly building materials.
In the original article 'ICL making hay as China eases out of bromine production,' there was an error in the translation. Chemtura filed for bankruptcy in March 2009 because of liquidity issues, nine months after which it entered into a sourcing agreement with Albemarle. The sourcing arrangement was not related to Chemturas bankruptcy filing and did not require Chemtura to cease manufacturing flame retardants. Chemtura remains a global producer of flame retardant products. The company has disclosed that, as part of its agreement with Albemarle, it acquired significant brine mineral leases from Albemarle, which will allow Chemtura to expand its bromine output in Chemturas West Unit field in Arkansas, USA.
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