Opinion: Chinese deal turns sour for Kraton

ERJ staff report (PR)

Styrene block copolymer (SBC) major Kraton’s combination agreement with LCY Chemical Corp. of Taiwan is set to be either terminated or renegotiated in the next few days.

Announcing the agreement in January, Kevin Fogarty, Kraton's president and CEO, said: "LCY's SBC business, with its cost-effective operations and the strategic location of its manufacturing plants, including its recently expanded 300 kiloton plant in Huizhou, China, has generated growth rates exceeding twice the average of the SBC industry”.

However, bosses at the global SBC supplier were then taken aback by an 80-percent drop in LCY’s first quarter earnings, as an expected pickup in Chinese demand for products such as paving, footwear and adhesives, failed to materialise.

Without knowing how Kraton assessed LCY in advance of the deal, it is surprising that the downside risks were not more obvious given that the SBC market in China was already facing overcapacity, high inventory levels and low margins.

China offers rich rewards for the companies that build up relationships and partnerships with local businesses, government agencies and communities. The most important – and perhaps most elusive – ingredient is accurate market knowledge.

Please email your views on this topic to ERJ editor: Patrick Raleigh

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