Currency Effects Mask Gains in North America. (cover story)

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Author: Wood, Andrew

The strength of the euro against the dollar is making it tough for Degussa to achieve its aim of increasing its sales in the Nafta region to 25% of the total. Nafta sales decreased 6% last year, to €2.28 billion, about 20% of Degussa's total. First-quarter sales were also down 6%, to €511 million, about 19% of the total. However, sales in each period were up in constant dollar terms, says John C. Salvatore, president of the company's U.S. operating subsidiary Degussa Corp. (Parsippany, NJ), and president and CEO/Degussa Construction Chemicals Inc. (Cleveland).

"Currency had a big impact. There was a substantial amount of growth excluding that effect," Salvatore says. "Overall, the business in North America was reasonable last year, although the impact of high natural gas prices, and the cost and availability of certain petrochemical feedstocks put pressure on profits," he says. "We have been trying to pass along the higher costs through price increases. The first quarter was much better, however, and overall we continue to see favorable growth opportunities," he adds.

Some businesses were problematic in North America last year, including fine chemicals and performance products. Fine chemical sales were lower last year, due to overcapacity and price pressure, Degussa says. The performance products unit was affected by lower food ingredients sales, as well as currency effects, the company says. The construction chemicals unit, however, had "a great year," Salvatore says.

The construction chemicals business overall was helped by new products. "We are the undisputed leader in construction chemicals, with a strong orientation towards customer solutions," Salvatore says. The business is growing "nicely" in North America, he says. "We remained on track in the first quarter, although profitability is being challenged by substantial raw material and freight price increases, so we have to implement price increases." Recent investments in North America have included the $14-million restart of a super absorbents plant at Greensboro, NC; and an undisclosed investment to double fumed silica dispersons capacity at Mobile, AL, Degussa also purchased Cytec Industries' share in the companies' Cyro methacrylates joint venture for $95 million, and plans to raise capacity at the units' Fortier, LA site. There has also been substantial restructuring in the region, including a reduction in the number of U.S. sites from 69, to 57, and a reduction in the number of jobs from 5,700, to 5,550. "Nafta is competitive, but we must keep improving our productivity," Salvatore says.

PHOTO (COLOR): Salvatore: Favorable growth opportunities.

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By Andrew Wood