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Home»FLI Articles»Afton Chemical Corp. unveils long-term growth plans in Asia and Latin America

Afton Chemical Corp. unveils long-term growth plans in Asia and Latin America

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Afton Chemical Corp. unveils long-term growth plans in Asia and Latin America

Historical tough times all but forgotten for the global specialty chemical manufacturer

By Vicky Villena-Denton and Aaron Stone

Last year marked a significant milestone for Afton Chemical Corp. as it opened its first petroleum additive component manufacturing plant in Asia, located on Jurong Island, Singapore, on 17 May. Previously, it had a toll manufacturing arrangement with Chemical Specialties in Singapore, which still exists.

The plant has full capability to produce all of the engine oil additives needed for the Asian region and is scalable to allow Afton Chemical to grow according to demand. In the longer term, additional units, such as specialty dispersants, may be added to produce other petroleum additive products in line with market and customer needs, the company said.

The opening “marks the end of a significant development and construction process at our new, fully owned facility, which began back in 2014,” said Rob Shama, president of Afton Chemical, based in Richmond, Va., U.S.A.

“More importantly, it marks the start of a new chapter where we are able to better secure the supply of key components for our customers to be able to meet their future growth aspirations.”

The opening of the plant represents a new phase of Afton Chemical’s ongoing expansion into Asia Pacific, and is central to the company’s plans to ensure that its specialist additive products are “Made in Asia for Asia.”  The company’s “Made in Asia” strategy is aimed at ensuring it has the right supply footprint to meet its customer’s needs. “The Singapore location provides a great central location to serve the broader ASEAN region with access to China and the Middle East for customer supply,” said Gina Harm, vice president supply.

The organisation already manages a number of other facilities across the region, including technology centres, in Suzhou, China, and in Tsukuba Japan.  Its “Made for Asia” strategy also ensures that the products and services it offers are developed on the basis of regional insights.

“This new manufacturing facility serves as a real vote of confidence in Singapore, a country with a robust infrastructure and a well-established position as a petrochemicals and supply hub.  This plant will further strengthen our global supply network, and help us and our customers to capitalise on the continuing migration of upstream capacities into the region,” said Teddy Gottwald, president and CEO of Afton Chemical parent, NewMarket Corporation, which is also based in Richmond.

The second phase of the USD 300 million plant, which includes the construction of additional component production units, is scheduled for commissioning in 2018.

“Afton’s decision to construct a second phase of their new chemical additive manufacturing facility in Singapore reinforces our value as a strategic base for companies to chart their regional growth,” said Cindy Koh, director energy & chemicals, of Singapore’s Economic Development Board. “Asia’s industrialisation and its booming demand for automotives have made it the fastest-growing regional engine oil additives market in the world, and we will continue to grow this market as a key vertical within the higher value-added specialty chemicals sector.”

But it hasn’t always been so rosy for Afton Chemical.

Ethyl Corp. was founded by General Motors (GM) and Standard Oil of New Jersey (Esso) in 1923. GM carried the “use patent” for tetraethyl lead (TEL) to reduce engine “knock” and Esso held the manufacturing patent. The name Ethyl Corporation was derived from tetraethyl lead itself.

Due to its harmful effects, most notably water, air and soil lead pollution, as well as toxicity to humans, tetraethyl lead has been banned in practically every country in the world. Although Ethyl Corp. historically denied claims TEL presents consequential health risks, liabilities of TEL are thought to have been principal to the decision to sell Ethyl Corp. in 1962 to the Gottwald-led Albemarle Paper Manufacturing Company, which then adopted the name Ethyl Corp.

Throughout the 1970s and 80s a gradual shift away from TEL occurred as the automobile industry opted for unleaded fuel options. Ethyl Corp. responded through a program of expansion and diversification as well the “spin off” of certain business units.

The acquisition of Amoco Petroleum Additives in the U.S. and Nippon Cooper in Japan in 1992 helped bolster Ethyl’s additive strengths; and further change in 1996 saw the purchase of Texaco Additives Company. This enabled Ethyl to enhance its research and testing capability, expand its product lines and establish a broader global presence.

However, Ethyl went through tough financial times in 2000, sinking the value of its parents stock to 55 U.S. cents in 2001. The company had to do a reverse stock split to comply with the rules of the New York Stock Exchange, Shama admitting “2001 and 2002 were challenging times for Afton (Ethyl)”. Although he says that the “period made us stronger and we emerged with a new business model”.

In 2004 Ethyl Petroleum Additives became a wholly owned subsidiary of NewMarket Corporation, changing its name to Afton Chemical Corporation. In the same year, Warren Huang, a Taiwan native with a Doctorate in Chemical Engineering Degree from Carnegie Mellon University in Pittsburgh, Penn., U.S.A. and an MBA from Washington University in St. Louis, St. Louis, Mo., U.S.A., was named president of Afton Chemical.

The next decade witnessed a remarkable change in fortune for Afton.

By way of example, in February 2015 parent New Market Corp.’s stock reached a high of USD480.33 on 23 February 2015 and is now trading in the USD420 plus range.

While operating profit for petroleum additives declined 2.6% to USD374.9 million in 2015, strong operating performance in the Americas and, to a lesser extent, the Asia-Pacific region, was overshadowed by changes in foreign currency, the parent company said. Nonetheless, net income continues to rise. For the full year of 2015, NewMarket Corp. reported a 2% rise in net income of USD238.6 million, or USD19.45 per share, compared to net income of USD233.3 million, or USD18.38 per share, for 2014.

A number of reasons are central to the remarkable turnaround: A change in focus from a low-cost, high-volume producer to a customer-oriented service producer; establishment of a regional based-structure with P&L responsibility; and finally, Ethyl benefited from industry consolidation and capacity reduction that took place prior to their change in fortunes.

What makes this resurgence even more startling is that it occurred during a time when additive suppliers are bemoaning increasingly complex, cumbersome and costly industry regulations and processes as prohibitive to commercialising new and innovative products. Although Afton Chemical does not participate in some market segments, parent New Market Corp. serves as the bellwether for the petroleum additive industry, being the only publicly listed company among its peers.

Afton Chemical Corp. unveils long-term growth plans in Asia and Latin America
Photo courtesy of Afton Chemical.

In addition to its Singapore investment, Afton Chemical announced it will invest in a new petroleum additive plant at Bayer Industrial Park, in Belford Roxo, Rio de Janeiro, Brazil. The new facility will be operated by Afton Chemical Indústria de Aditivos Ltda, the Brazilian subsidiary of Afton Chemical.

The new plant will provide the additional infrastructure to support the company’s long-term growth plans in Brazil and the Latin America region. “This investment reflects our commitment to this key strategic growing market,” said Pablo Blazquez, Afton’s vice president for Americas. “Since the acquisition of Texaco Additives businesses and facilities… Afton has established a significant presence in Brazil’s petroleum additives market. This new facility in Rio de Janeiro will help us to continue developing customer partnerships deploying our company’s Passion for Solutions(R) in Brazil and the Latin America region.”

The Rio de Janeiro facility will be operational by mid-2017 and is designed to provide a safe and environmentally sound operation in full compliance with applicable regulations as well as with Bayer and Afton’s policies. At the same time, the design provides cost-effective security of supply and flexibility to grow as regional demand warrants.

The new facility complements and expands Afton’s current footprint in Latin America, which includes subsidiaries in Brazil, Mexico, Argentina and Venezuela.

In December, Afton Chemical announced its acquisition of Aditivos Mexicanos, S.A. de C.V. (AMSA) for approximately USD182.5 million.

Aditivos Mexicanos is a petroleum additives manufacturing, sales and distribution company based in Mexico City, Mexico, with a plant located in Nuevo Parque Industrial, San Juan Del Rio, Mexico.

“This acquisition represents a significant step for Afton in expanding our global capabilities to bring value-added solutions to our customers worldwide,” Shama said.

The acquisition, which is subject to approval by the Mexican Federal Economic Competition Commission (Comisión Federal de Competencia Económica) is expected to close during the first half of 2017.

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