Fighting for a Nobel cause

Since April 2000, Eka Chemicals has been under the control of a new president, Jan Svärd. As the chemicals industry undergoes great changes, the company's new head rounds up the developments at his company and in the industry as a whole

by Rhiannon James

Jan Svärd may not have won a Nobel prize just yet, but he certainly makes it into Eka Chemicals' hall of fame for being the youngest president in the company's history. Founded in 1895 as Elektrokemiska AB, Eka Chemicals is one of three remaining units from Alfred Nobel's original industrial empire - he of the explosives and the peace prize fame. Svärd may not have made any explosive changes at the company since he took over at the helm in April 2000, but he has set himself a few ambitious targets for the future at Eka Chemicals. As he explains, "Companies that fear change will lose out. There are also opportunities to be grasped through change and companies need to have a look at their business carefully to seize the opportunities."

In Svärd's opinion, his challenges lie in the following areas:

• to turn Eka into a truly global company
• to grow Eka's paper chemicals business, especially in performance chemicals
• to launch more and more new products in paper chemicals
• to restore profitability to a normal level in hydrogen peroxide
• to ensure that Eka optimizes its unique position as both a bleaching chemicals and paper chemicals supplier.

Although many of the challenges are company specific, the aim of being a global player is certainly not confined to Eka Chemicals' wish list. Over the past few years, consolidation among chemical suppliers to the pulp and paper industry has developed at a rapid pace. Chemical companies have spent their time either snapping up rivals or teaming up with them in marketing and technical alliances that will stretch their resources further across the world.

Even so, Svärd believes that there is more work to be done in the sector. "The chemicals industry is a bit more consolidated than the pulp and paper sector, but the pulp and paper chemicals side is not that consolidated. M&A activity will definitely continue next year," he predicts.

One of the main driving forces behind M&A activity in the chemicals industry is the fact that customers are getting bigger and becoming more global. The suppliers are forced to join up in order to face up to the ever more powerful buyers of their products. On top of that, the cost of research and development (R&D) is increasing and companies can achieve economies of scale in this area (and in production, of course) through consolidation moves.

Byron Smith, vice president of Paper Chemicals at Eka, explains one of the consequences of these moves in the industry. He points out that, "As the customers globalize, they are also standardizing their operations. For example, Nordic papermakers with operations in Asia want to use the same chemicals abroad as they use at home."

In company terms, Eka has grown considerably over the past decade. "Eka now has a presence on every continent, whether it be through production or sales," Svärd explains. "Going forward we see the main growth areas as Asia and Latin America. Everybody always thinks of Asia, but Latin America is also showing rapid growth in pulp mills. Eventually the paper growth will follow there."

So far, the company's growth strategy has consisted of bolt-on acquisitions and some building of new capacity. The most recent acquisition was carried out in the US, where the company bought up Hopton Technologies. Not only did the acquisition strengthen the supplier's position in North America, but the move also expanded Eka's portfolio in surface size and coating chemicals.

Performance counts

Many of the company's recent moves have focused on the paper chemicals side of its business. This is in line with Svärd's pledge to "grow the paper chemicals business". But the strategy is even more defined than that - within paper chemicals, the company wants to focus on boosting its portfolio of performance chemicals.

Smith explains the choice, saying, "Some customers are looking to cost cuts first, but others are looking to optimize quality and then costs. Performance chemicals can help them focus on quality. We want to help them do that."

Although many customers are opting to use a single supplier for their entire chemical needs, Eka does not aim to be everything to everyone. Svärd says, "We are unique in the pulp and paper industry as we have a wide portfolio of chemicals to offer, from bleaching all the way to performance chemicals. But we do not necessarily have to be the single supplier for all chemicals. Instead, Eka's strategy is to partner with other companies, for example with certain process chemicals, in order to provide the full scope of a contract.

In line with the company's commitment to performance paper chemicals, the R&D effort in this area is also high. Smith comments, "R&D is 6% of sales for paper chemicals. It is the heart of the paper chemicals side." The fruits of these efforts are borne out in the raft of new products that Eka has launched in the past few years, or has in the pipeline for 2001.

"We have a new wet strength product, which will be produced at the new French plant. We recently launched a new range of Compozil products, called Compozil Select. There are also new products in AKD/ASA sizing and rosins and we've developed a new solvent free wax," Smith comments.

Bleaching progress

Although the progress mentioned above largely centers on the paper chemicals side, Eka is by no means neglecting its traditional pulp bleaching business. One of Svärd's goals is to "restore profitability to a normal level in hydrogen peroxide". As the industry has tried to clean up its image and processes over the past decade, chlorine bleaching has made way for more environmentally friendly alternatives, using hydrogen peroxide and chlorine dioxide. He explains that the industry invested heavily in this area, expecting there to be significant uptake of hydrogen peroxide as a bleaching chemical, but this did not exactly go to plan. "There has been overcapacity in hydrogen peroxide for the last four years. This is now in balance and we hope to restore profitability to a normal level," he says. Svärd is convinced that the use of hydrogen peroxide will increase, albeit slowly over the next few years.

Another trend which Svärd believes will develop slowly over the next few years is e-business in the pulp and paper chemicals business. The progress will be slower than many expect because, in his opinion, the auction websites that have popped up over the last few years are not what Eka customers want or need. Eka is not against e-business or the rival internet sites that have been set up, but the company is convinced that the customers are looking for something else, he comments.

Svärd explains, "Take hydrogen peroxide as an example. The cost efficiency of the product is to a large extent based on the location of customer and supplier, it's a question of logistics. We don't think our customers want or need to buy over the internet. He adds, "There is not such a great future in store for auction sites in our opinion. They can't expect to use mass marketing tools for specialty chemicals customers."

Svärd believes that his customers are far more interested in using e-business tools to reduce costs and manage their supply chains. And as Smith explains, "One way in which we can work together with technology to cut costs is through remote control or metering of customers' tanks. This allows us to manage our inventories together." So far, Eka is using this technology at some customer sites in the Nordic region, where the supplier is managing an onsite chemicals plant remotely for the mill. "We leave the companies to make pulp and paper, while Eka makes the chemicals," Smith points out.

In a rapidly changing environment, Svärd appears to have his work cut out as the new head of Eka Chemicals, but his strategy appears to be straight forward and clear. But Eka's president is quietly confident about the outlook for the pulp and paper chemicals business over this year. "On the pulp side, Asia is coming back and Latin America looks promising. For the moment, the US is not doing too badly either. We hope to see further strength in 2001. There will also be more steady growth in paper chemicals over the next few years," he forecasts.

The only blip on the horizon for Svärd is that his past experience in Azko Nobel's other division has led him to follow trends in similar industries closely. "The polymers industry usually peaks before pulp and paper. At the end of last year, this sector was just starting to show signs of softening, suggesting that pulp and paper might follow." But he is never too pessimistic for too long. He adds that, "Despite this, the polymers sector is expected to take off again, so there's no reason why pulp and paper shouldn't follow as usual."

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