Huntsman acquired spray foam company Demilec in April 2018 as a route to higher added for its MDI business. Simon Robinson interviewed Demilec's Doug Brady and senior Huntsman executives and found out how things are progressing.
Huntsman has an overriding strategy in its polyurethanes business: to try and keep the amount of profit on every tonne of polyol or diisocyanate it makes the same, irrespective of market conditions for the base materials.
It wants to turn the business into something less like a roller-coaster and more like a funicular railway, which ratchets its way upwards, delivering consistency, steady growth and good returns.
This business model is built around differentiated products, with barriers to entry and the chance to use global presence and scale.
This idea bought Huntsman and Demilec together.
'Spray foam has largely been a niche market and it is becoming a significant product in the insulation space,' said Dough Brady, vice president, product management and technology at Demilec.
'Huntsman bought Demilec partly to globalise the brand. There are no global spray foam brands at the moment. There is great synergy in combining Demilec's spray foam knowledge with Huntsman's local systems house network,' he said.
Brady sees Europe as the biggest opportunity for Demilec. His company has a range of HFC-free formulations in the US and once they are CE-certified it will move into the region, he explained.
'Demilec was founded in Canada, many of our North American customers spray in cold-weather which makes Russia an excellent opportunity.'
The spray foam company will partner with Obninsk-based Huntsman NMG (HNMG), a systems house which Huntsman fully purchased in 2012.
'We have strong, robust foams for those applications, and Huntsman has the local production, sales and support.
'HNMG is really a systems house with its own in-house distribution network across Russia. This covers all the key industrial centres. We have the perfect opportunity to take the technology directly to the contractors,' Brady added.
Brady is not just interested in the colder parts of the world, he has global aspirations.
'We are also looking at the Middle-East and Asia Pacific,' he said.
'The Middle East has aa high adoption rate and Japan has made great strides in converting to HFO technology. We feel we can be successful in that market,' Brady said.
This is because Demilec has already developed pre-blended HFO-blown foam formulations that can be used on conventional machinery. Existing formulations can often only be applied on three-stream machines.
'These are much more complicated,' explained Brady. He believes that this complexity is holding the market back.
The move to HFO blowing agents is 'a massive change for the spray foam industry. We are having to reformulate completely. The HFO blowing agent is not a drop-in replacement, it requires a total formulation change. Working with the molecules has been a significant challenge for the industry.'
He continued:'The HFO molecule breaks down after a few days in the atmosphere, a huge, huge environmental advantage versus the HCFC molecule.'
If materials are one variable in applying spray foam, then the machinery and the application are the other two. Material suppliers may have limited influence over the spray foam applicator, but they can suggest the machinery that they should use.
Huntsman has ties with spray foam machinery maker Graco in North America and would be happy to extend them.
'Graco has an international presence and capability. We have started conversations with them in Europe, and we will explore conversations in Asia too. They have a very strong distribution network,' Brady said, adding, 'cooperation will help their business, as we bring more products and opportunities.'
Looking at Huntsman Huntsman's M&A activity over the past few years, one thing stands out: the fit between Demilec and the purchase of Texas-based Oixd in 2013. Oxid's business is based on speciality polyester polyols.
'Demilec has its own polyester and creates its own polyols for consumption. By having our own polyols, it has made it easier in with areas such as flammability,' said Brady. Like other companies, Demileic started to specify its own polols to help control product consistency.
'We started from a control perspective in terms of vertical integration. Our company has a strong sustainability theme, and the polyols deliver excellent renewable and recycling content. We have 19% recycled and 6% renewable content in our resins from our polyols. We've been with soy since our foundation. The renewables come from PET renewables and from soy oil,' he added.
'We're not a polyol company, so to be able to partner with Oxid, has been very helpful for us, we have started exchanging best practices and technology,' Brady said.
Pavneed Mumick is Huntsman's global vice president of technology & innovation, polyurethanes.
He said: 'because we have our own specialist polyols, it is difficult for someone to thaek our polyols and formulations and replicate them. It buys us intellectual property, that's hard to copy.'
Steve Burns, vice president the Americas, polyurethanes, sees a similarity between his business' approach to Demilec and Tecnoelastomeri.
Tecnoelastomeri makes hot-cast MDI systems and the machinery to process them. It specialises in footwear and cast systems it was purchased in June 2015.
'We have formed a global elastomers team with TPU, footwear and Tecnoelastomeri cast applications and we hae a team now that is leading the charge of our elastomers platform,' said Burns.
'We want to take Demilec from North America to the World; just as we want to take Tecnoelastomeri from Italy to the world.'
'This new global approach is starting to gain traction. The new approach came about after we realised, we had to globalise our approach to footwear. That was the catalyst. Why not form a team and put all of our elastomer investments into their hands? It's been very successful so far.'
The largest market for spray foam is North America, followed by China, said Stephen Burns, vice president the Americas, polyurethanes. His view is echoed by IAL Consultants in a report published at the end of 2018. China and the US accounted for 60% of global spray polyurethane foam use in 2018, according to the consultants.
The Global Overview of the Spray Polyurethane Foam (SPF) & One Component Foam (OCF) markets said total spray foam production was 600 kt in 2018 and there are stark contrasts between the two large markets. In China growth is stagnant, in the US it is growing strongly.
Dough Brady, vice president, product management and technology at Demilec estimates the US market is worth about $1.2 bn/year, and that it is growing at around 12%/year. This growth is being driven by three things said Brady.
'First, [Building] codes are getting more difficult to achieve with traditional products.' They are also becoming more comprehensive, he said.
'they are about more than insulation and R-value. They are also about sealing and continuous insulation. No one solution provides everything, but spray foam does a phenomenal job.'
Metropolitan sophistication
Because of spray polyurethane foam's high insulation properties, it is winning applications across the US and especially in areas where real-estate is expensive.
Walls become thicker to meet insulation standards with standard materials. 'Wall thickness is important in in expensive areas such as New York, where the ability to save two inches (5 cm) all the way around a room, more than makes up for the cost of using spray foam. We are seeing growth in metropolitan areas.'
Current growth in the US construction sector is the second thing pushing growth along. Currently, construction is growing at 4%/year 'and that growth has been robust,' he said. Growth in construction products is hitting many markets and this is helping the move away from traditional insulation towards spray foam.
'Lastly, foam speeds construction because the air barrier and insulation are applied in one go. Most houses which are built traditionally require a Class 2 vapour retarder. We're replacing that with spray foam. We give the house a vapor barrier and continuous insulation. All you need to worry about is the interface between the windows and the doors.'
Applying spray foam also makes traditionally built wooden-framed US houses more robust.
'Spray foam is a class 5 Hurricane product and we're currently evaluating it for its earthquake capabilities,' said Brady.
'In the residential sector, people are concerned about the air quality in their houses. By creating a foam cooler around the house and using the air conditioning system to exchange the air inside the house through a filter, the air inside the house can become cleaner,' he added.
