Eight years ago, the family-owned Korean additives and specialty chemical producer Songwon  made a bold decision to pursue a new strategy for extending the company's focus beyond Asia, the region it had supplied primarily since its founding 40 years earlier.

In what may have been a stroke of fate, the coinciding merger of U.S. additives players Great Lakes and Crompton into Chemtura  unexpectedly provided the catalyst for the transformation process. Unhappy with the assets merger, senior global executives of the former Great Lakes made bold decisions of their own, opting to leave their high-profile jobs and apply their talents and their knowledge of products and markets to shaping a new major player.

The Korean company's readymade management team wasted no time in developing what its members saw as a workable plan and putting it into place. As polymer stabilizers were the field in which Songwon had solid strengths, "this became our focus and our basis for growth," says Maurizio Butti, now chief operating officer (COO).

At the time, the plastics industry was in the process of consolidating into bigger entities and looking for a second major supplier, explains the Italian native who had served as executive vice president in charge of Great Lakes' polymer stabilizers business. "Here," he says, "we saw the opportunity to become number two, and we knew that Songwon had the strength to accomplish it." 

What the Asian newcomer to the global marketplace needed, Butti and the other team members understood, was a larger capacity and a flexible approach that would make it more agile than some of the industrial giants.  Under its new leadership, the once small regional producer specialized in toll production was transformed in less than a decade into the world's second largest producer of polymer stabilizers, behind BASF and ahead of Albemarle and Clariant.

The Ulsan-based company controlled by a branch of the Park family meanwhile has 17 affiliates in nine countries worldwide, including Korea. Two are joint ventures. In China alone it has three companies. Other bases are in India, Japan, the Middle East, North America and Europe — where Switzerland is the seat of the international holding.

New Strategies

Embarking on its new journey in 2005 with annual sales of only $230 million, mostly in Korea, by 2012 Songwon — which specializes in antioxidants and UV stabilizers — had increased its sales to nearly $640 million. The current plan is to grow sales by 10% annually to reach $900 million in 2015. The pillars of future growth should include an optimized portfolio emphasizing application-driven solutions and further expansion in the Middle East, India, China and South America, in particular Brazil.

One of the first steps in the strategy devised by Butti and his team for Songwon was to end all relationships with its major distributors and market the company's products directly. Subsequent moves saw the scale-up of existing production facilities and the building of new capacities to grow parallel to plastics industry customers. In 2007, the Korean firm made its first major investment in its internationalization initiative, spending $120 million on a new plant for polymer stabilizers in Maeam, Korea. Later it added 15,000 t/y of antioxidant capacity at Ulsan.

Now fully engaged in the next strategic phase of its expansion drive, the COO says Songwon is "starting to do something that Korean companies traditionally never tried to do, grow through joint ventures and acquisitions." With its new industrial partners, it is building up a substantial presence in its markets.

Acquisitions, Joint Ventures and Increased Capacities

Important milestones achieved so far include the 2011 purchase of Germany's Additive Technology Greiz, a producer of dust-free polymer additive packages marketed as One Pack Systems (OPS).  The company founded only five years previously had been looking for a globally oriented industrial partner to support the products' growing popularity.

The pre-packaged additives save polyolefin producers cash, Butti says — in particular as they eliminate waste and optimize storage space. One of the selling points for OPS is that they are an innovative technology that allows formulations to be adapted to climate and storage conditions. Because of the climate factor, the systems are popular in the Middle East. OPS are also being used increasingly in Europe. The idea has not taken off as well in the U.S.

In 2012, Songwon doubled output capability to 14,000 t/y of OPS products now sold under the Songnox trademark. It is planning to increase capacity again, in cooperation with Pan Gulf Group of Saudi Arabia and Abu Dhabi-based Polysys, its partners in the joint venture Songwon Additive Technologies. In March of this year, the joint venture brought on stream a new 7,000 t/y U.S. plant at Houston, Texas. A second 7,000 t/y unit is due to start up in Q1 2014 at Kizad, Abu Dhabi.

Another deal Butti regards as crucial to Songwon's forward expansion was the establishment of a joint venture for thioesters with China's largest player, Tangshan Baifu Chemical. The joint venture, now trading as Songwon Baifu Chemicals, has upgraded capacity for the antioxidants "several times," Butti says. The most recent upgrade, in 2011, widened output to 8,000 t/y.

To leverage its technology base and meet customer demand for innovative products used in outdoor polyolefins applications such as automotive, fibers and film, Songwon in October 2012 entered a long-term distribution partnership with hindered amine light stabilizers (HALS) producer Sabo, based in Levate, Italy. A new plant due on stream in this year's third quarter will substantially increase capacity of the fully back-integrated producer.

Investing In New Capacity

Especially when deciding where to invest in new production capacity, chemical industry suppliers have to take the pulse of their customers. The current state of the global plastics industry is "not exceptionally good, but not that bad, either," says Butti. We expected weaker demand than we are now seeing."

Europe's two major markets of Germany and the Benelux are doing well, while Italy, where the plastics processing industry is dominated by small- and medium-sized companies, is "in bad shape." Outside Europe, the U.S. "is not doing all that badly," while the Indian market continues to grow, and "China is improving."

A choice of location for Songwon's forthcoming major expansion of antioxidant production is especially crucial, and is requiring more intensive study than initially expected. The company first looked at extending capacity in Korea, where Butti says "we have all the utilities we need." From this perspective, he says, "this could still be the best place to build, but strategically it may not be."

If asked two years ago, the long-time industry manager muses, "I would have said we'd probably build the plant in the Middle East, or maybe China. But the emergence of shale gas as a light feed for polyolefin production, "has made the U.S. look interesting again."

Putting environmental issues associated with exploration aside, "if prices for gas feedstocks in the U.S. are as low as they are claimed to be," Butti says, "this could be the most attractive place to build." It could be more economical than the Middle East, where natural gas prices had long been a third lower than in North America and the polyolefins market growing by a high double-digit margin.

It's "important to understand the impact of the shale gas factor," the Songwon manager emphasizes. One aspect is that this light feed is used mainly to produce polyethylene, as the process for polypropylene is more expensive. For PE, one type of antioxidant is needed, for PP another - a factor crucial to the company's decision.

 "Rushing in with an investment, could lead to mistakes," Butti acknowledges. "Fortunately," he adds, "we don't have to make a hasty decision. We can allow ourselves a couple of years' time."

Another point Songwon will have to ponder when making new investment is the state of the European polypropylene market. As the region has many small and uneconomical PP plants, some of these may be shut down or replaced with larger facilities. All of this could change the playing field.

To lay the framework for future moves, the company is now starting to look intensively at its existing portfolio. Around 40% of its production, worth around $300 million, has no connection to the plastics sector. These businesses could be grown, restructured, partnered or sold, but no timetable for action has yet been set. A portfolio review could take up to a year.

"The businesses are all clearly defined," Butti remarks, "and they are making money. We are analyzing each of them to determine where we will focus our attention for the future. Should we decide to exit some of those, they could all potentially have different interested parties."

 In any case, Songwon plans further growth in polymer stabilizers, and proceeds from divestments could fund the expansion.

"I don't like an unclear position in a business," says the executive, pointing to his background in American business. "You either believe you can play a major role in the market and so you stay in or you get out."

Looking back at the recent accomplishments of the Korean additives producer, Butti says that, although the going was fairly rough at the outset, with a global presence established, "I think we are doing well. In contrast to a few years ago, "everyone knows who Songwon is."