Lanxess has signalled its intentions for the future by investing €35m ($43m) to expand its German Basic Chemicals business unit in a move that is set to make the firm one of Europe’s biggest active pharmaceutical ingredients (API) producers.
The move comes in a bid to increase productivity at its main Leverkusen plant, which the chemicals firm believes is struggling to meet the increased API demand despite previous actions to improve its business in the fine chemicals sector.
Since 2005, the chemical and intermediates firm has invested approximately €650m in its network of facilities and associated subsidiaries. Half of this has been allocated to its main production site in Leverkusen, Germany where seven large-scale plants reside, accompanied by sites in Krefeld-Uerdingen, Dormagen and Brunsbüttel.
Much of the €35m investment will go towards expanding this ‘aromatics network’ that forms the foundation of the group’s chlorotoluenes, cresols and monochlorobenzene production.
The bulk of Lanxess’ business involves providing aromatic-based compounds to the pharmaceutical, agrochemical and specialty chemicals industries. While group earnings jumped to €233m in the first quarter of this year, Lanxess’ investment is a good indication of its continued intention to consolidate its position within the industry.
"To be able to hold on to our world market position in future, it will be necessary to continue increasing our productivity," commented Werner Breuers, a board of management member at Lanxess.
"The expansion and optimisation of the aromatics network is a commitment not only to our largest global production site in Leverkusen, but also to Germany as a location for chemical production," he added.
Lanxess and fellow chemical firms in Germany and indeed Europe have had to contend with a downturn in fortunes of late, as the risks related to indebted Eurozone countries and volatile raw materials prices has made market conditions unpredictable.
At the beginning of 2009, European fine chemicals producers have posted overall sales decreases of 10-15 per cent. DSM reported a first quarter sales dip of 16 per cent, whilst Lonza sales were 9 per cent lower for September 2009 when compared to the same period the previous year.
Saltigo, a company spun out from parent company Lanxess in 2005, fared slightly better in its agrochemical division, posting a high single figure increase, but its pharmaceutical chemicals’ sales reported a modest reduction.
These firms have also had to contend with competition from emerging Asian markets, which have seen the bulk of its business come from European chemical manufacturing firms keen to outsource to China and India as well as the US.
Asian companies are able to offer cheaper prices than Europe and the short-term outsourcing policies of the chemicals industry have created a burgeoning market for chemical APIs and plant extracts for healthcare purposes.
Speaking at the annual shareholders' meeting in Cologne last week, chief executive Axel Heitmann admitted that, “Asia and Latin America have already returned to levels seen before the economic crisis but it will still take some time before the Western hemisphere fully recovers.”