Cologne Germany--Lanxess AG is increasing prices of rubber chemicals at the expense of market share. According to Dr. Ulrich Koemm, member of the board of management, the company is not prepared to sell rubber chemicals at a loss, even if this means losing market share.
Koemm described the rubber chemical business as "close to a disaster" in terms of profitability in 2003 and through most of 2004. In the middle of 2004, said Koemm, Lanxess completely changed the strategic focus of the business, and declined to sell products at unsustainable prices.
As a result, said Koemm, Lanxess has moved from top supplier of chemicals to some tyre manufacturers to fourth position, but as a result, the profitability of the business has improved, "quarter by quarter".
He added that other suppliers had followed Lanxess' lead and increased their own prices to the market.
The rubber chemical business is dominated by three large suppliers: Flexsys, Lanxess and Crompton.
Koemm said factories for making rubber chemicals are not, on the whole, capital intensive. He added that this low cost had led to a structural over-supply situation where the various suppliers to the business would add capacity as soon as demand started to approach the limits of supply. "The business was badly managed" he concluded.
Because the plants are relatively low-cost, said Koemm, Lanxess can afford to leave some capacity idle if it cannot get the right price for its products "We are looking for value" said Koemm.
Lanxess adopted a similar strategy in the butadiene rubber business and in the end closed two of its five plants.