Rhodia starts to unravel Organics business

By Pete Mansell

- Last updated on GMT

Related tags Rhodia

French group Rhodia has put its gradual retreat from a flagging
fine chemicals business on a more formal footing by announcing the
break-up of Rhodia Organics.

The move means activities other than the successful diphenols segment are now slated for closure/restructuring or under strategic review.

The strategy is underlined by the pending shutdown of paracetamol production in Roussillon, France, a decision announced last October as part of Rhodias efforts to refocus its Organics portfolio.

That continues a trend whereby, in 2004, the French chemicals group ceased paracetamol production within the Monsanto manufacturing complex in Luling, US, and consolidated its paracetamol business at Roussillon and Wuxi in China, a site acquired in October 2001.

Rhodia confirmed its plans for the Organics segment as it announced that the group and its partner Lyondell Chimie TDI SCA have entered into exclusive negotiations for the sale of their isocyanates businesses to specialty chemicals group Perstorp.

The discussions should be finalised over the next few months, once consultations with employees representatives have been completed and

the necessary legal clearances obtained, Rhodia said.

The partners are looking to hive off Rhodias aliphatic isocyanates activities (HDI, IPDI and derivatives), which encompass a range of intermediates for industrial paints and coatings; and Lyondells aromatic isocyanates business (TDI), which involves the production of intermediates for polyurethane foams under contract by Rhodia.

These operations are essentially based in Pont-de-Claire, France and Freeport, US, employing a staff of around 680.

The significance for fine chemicals overall is that, as Rhodia explained, the divestment initiative for isocyanates which are expected to be counted as discontinued operations from the first quarter of 2008 "will lead to the break-up of the Rhodia Organics enterprise".

This excludes the core diphenols business, which Rhodia said has "strong worldwide leadership positions and excellent profitability".

This segment will be folded into Rhodia Silcea.

As the group noted, the remaining Fine Organics businesses are either under strategic review or are subject to previously announced restructuring and closure plans.

They will be incorporated into a specific business unit within the Corporate & Others segment until these plans are brought to completion.

Rhodia confirmed that the strategic review, which should be completed in early 2009, includes the possibility of selling off the groups paracetamol and other fine chemicals interests.

In 2007 both the Diphenols and the Fine Organics & Others segments recorded net sales of 27m, Rhodia pointed out.

However, recurring earnings before interest, taxes, depreciation and amortisation (EBITDA) in the Diphenols segment were 54m, while the Fine Organics & Others sustained a loss of 11m in EBITDA terms.

Net sales for Rhodias Isocyanates HDI &TDI business last year were 298m, generating EDITDA of 39m.

There are three main components to the Rhodia Organics business: intermediates, which include diphenols, phenol derivatives and building blocks using fluorinated compounds and derivatives, such as trifluoroacetic acid and triflic acid; active pharmaceutical ingredients (APIs) such as Rhodine aspirin, Rhodapap paracetamol, and guaifenesin and other guaicol products; and dietary supplement ingredients, including Di-Tab, A-Tab, Tri-Tab and Calipharm calcium phosphates.

The writing has been on the wall for Rhodia Organics for some time.

The segment incorporates the remnants of the troubled Rhodia Pharma Solutions business, whose custom synthesis activities were sold off to Indias Shasun Chemicals & Drugs in early 2006.

In March 2007, Rhodia decided to shut down its Mulhouse Dornach site in France, which produced intermediates for the pharmaceutical and agrochemical industries.

The group cited global competition in the intermediates market, most of it coming from Asia.

Low-cost production from Asia has also put western API manufacturers under intense pressure.

This was a factor in Rhodias announcement last October that it intended to discontinue paracetamol production at its Roussillon facility by the end of 2008, with the loss of 43 jobs.

Tellingly, Roussillon is the last plant manufacturing paracetamol APIs anywhere in continental Europe.

While Rhodia would not discuss costs or comparative prices, a recent article in French newspaper Le Figaro claimed Chinese manufacturers are charging pharmaceutical companies 2-3 for a kilogram of paracetamol while Rhodia charges 4 on average.

The closure, which is moving ahead on schedule, comes despite Rhodias efforts to cut costs and ramp up efficiency at the Roussillon facility.

Production capacity had been raised from 5,000 to 8,000 tons per year with fewer staff, but to no avail.

Rhodia continues to manufacture paracetamol at its Wuxi plant in China.

In 2001, the group formed a new joint venture, Rhodia Wuxi Pharmaceutical Co. Ltd., by acquiring a majority share in the existing paracetamol operation run in Jiangsu province by Wuxi Shahne Group

No 1 Pharmaceutical Co. Ltd.

Capacity has been stepped up at the Wuxi site in recent years to meet increasing demand from this operation, Rhodia said.

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