Crompton Reduces Rubber Chemicals Capacity to Improve Profitability
Crompton Corporation announced that it is reducing capacity by year-end of two chemicals used in the production of tires in order to improve the overall profitability of the company's rubber chemicals business.
Crompton is reducing production of Flexzone(R), an antiozonant used in tire production to prevent rubber from cracking, by 20,000 metric tons, by closing certain Asia Pacific facilities by the end of 2004 and reducing capacity in other regions. Crompton will continue to have Flexzone manufacturing plants in the Americas, Europe and Asia Pacific. In addition, the company will reduce production of a Flexzone intermediate (called 4-APDA) by 13,000 metric tons, at its Geismar, Louisiana facility by year-end. Crompton is evaluating other uses for the Geismar line. The company anticipates that fewer than 50 employees worldwide will be affected. Crompton is evaluating the financial impact of these actions, including the amount of any potential impairment or other charges.
The company stated that the price of all Flexzone grades has declined dramatically over the last five years. Throughout this period, Crompton continued to invest in the Flexzone product line and aggressively implemented cost-saving programs to help compensate for these necessary expenditures. The product line, however, remained unprofitable.
During 2004, the situation was exacerbated by dramatic raw material and energy cost increases. In particular, the price of benzene, the key raw material for Flexzone, tripled and pricing for another important raw material, MIBK, also increased substantially. The combination of these cost issues has resulted in unsustainable losses for Crompton.
"It does not make sense for us to produce and market unprofitable products," said Robert L. Wood, chairman, president and chief executive officer. "We are committed to obtaining fair value for our products. Reducing capacity of these two products is one of a number of actions we are taking to improve the profitability of our rubber chemicals business."
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