We talk with Maciej Budner, head of the Oxoplast Business Unit, about the impact of the economic situation on the current state of the market and the idea of business growth in the spirit of Zielone Azoty (Green Azoty).

 

What is Segment Oxoplast’s business based on?

 

We manufacture OXO alcohols, aldehydes and plasticizers, which are used in virtually every area of daily life. Among our customers are companies from industries such as chemical processing, plastics, paints and varnishes, medical, automotive, as well as manufacturers of building materials, plant protection products, and fuel additives…

 

What is our market position in the Oxoplast area?

 

In Europe, we are the second largest manufacturer of 2-Ethylhexanol, our primary OXO alcohol, and the first manufacturer of DOTP plasticizer, which is marketed under the brand name Oxoviflex. In this respect, our company is unique in the European Union, as production takes place at dedicated installations and the main process line is based on the continuous esterification technology developed by us and ICSO “Blachownia”. Additionally, this favorably affects the purity of the product and its qualitative stability, while also influencing the processing parameters of the finished products. After all, for all products we have adopted the ZAK Quality principle…

 

As for Poland, we are the only manufacturer of OXO alcohols and the leader in the area of plasticizers. The Polish market accommodates approx. 20% of Segment Oxoplast’s products.

 

Our core business is the European market, mainly the EU countries, and for several years we have also been successfully expanding our market in North America.

 

Due to the EU regulations and the general industry trends, several years ago Grupa Azoty ZAK decided to discontinue its orthophthalate products. Have you been able to find replacements for all applications, or are there any gaps left by the phthalate products?

 

We definitely don’t miss phthalates. Discontinuing their production was a measure that the company consciously took in view of the regulations coming into force back then, which continue to have a significant impact on the nature of the market. Particularly as regards higher orthophthalates, there is a successive move to restrict their use in further segments, especially when it comes to sensitive applications such as medical supplies, children’s toys and food packaging.

 

We are well aware that the path that Europe and the entire world are following and will continue to follow involves further restrictions on orthophthalates. So it was a natural course of action for us to set up a large plant for the production of DOTP (Oxoviflex non-ortho phthalate plasticizer – ed. note).

 

What goals for Segment Oxoplast result from Grupa Azoty’s strategy and the Green Azoty (Zielone Azoty) program?

 

Expanding the portfolio and developing new product platforms is the main goal, and work is already underway. The Green Oxoplast (Zielony Oxoplast) concept is being developed, as a natural part of the Green Azoty (Zielone Azoty) program.

 

Alongside the production of aldehydes and OXO alcohols, it is necessary to develop a so-called “business leg” using bio-renewable raw materials and bio oriented products, which will segmentally replenish our existing range of products. This is the path that leads to being environmentally responsible.

 

In terms of the production of OXO alcohols and plasticizers itself, we are leaning toward tapping energy sources to power our facilities, which will not rely on conventional energy sources. Our focus is also on boosting energy efficiency by conducting, e.g., thermal modernization of the Oxoplast Business Unit’s facilities. A sizable portion of the OXO and ester plant apparatus has already been put through this process.

 

How will the recently launched Research and Development Center support Segment Oxoplast’s activities?

 

Since we have had an application laboratory for several years, we have closely studied the processing of our plasticizers in PVC formulations, as well as the impact of their quality on the parameters of the finished product. This knowledge is invaluable, and also affects our ability to operate in a market that is becoming increasingly specialized with each passing year.

 

Meanwhile, the opening of another facility – the Research and Development Center – will be crucial for the development of technologies and products based on bio-renewable raw materials. Zielony Oxoplast (Green Oxoplast) is expected to be a complementary project created in close cooperation with development and investment services, and should cover the stages from the launch of research to the final product.

 

How can we run a business after the pandemic, facing the war across the eastern border? Can we talk about any kind of stability and action planning given these circumstances?

 

It is essential to distinguish between two issues here – strategic planning and operational planning. If we look at business cycles from the perspective of several decades, ups, downs and crises are nothing new, so the strategic goals of the business that we presented in Grupa Azoty’s Strategy remain unchanged.

 

In recent years, we have experienced a demand and price boom, largely fueled by the COVID-19 pandemic, which postponed the economic downturn seen in the latter half of 2019. The pandemic fundamentally changed people’s habits. Purchasing capacity and demand for products, largely the ones for which our products are used, have increased. Consequently, Segment Oxoplast recorded peak results in 2021.

 

Foreseeing what 2022 would look like, we predicted a slowdown from the middle of the year, as the global economy was overheated, which is part of the business cycle, though in this case disrupted by COVID-19. In contrast, Russia’s aggression on Ukraine led to the intensity of factors such as a drop in demand due to the soaring energy prices and high cost involving the production of raw materials, which would have happened anyway.

 

There has been and is now great unpredictability when considering short- and medium-term planning. Prior to 2022, we had not experienced such spikes in gas prices or had to make such dramatic decisions in a very short period of time based only on signals from various branches of the market environment. Also, for the first time in history, we were cut off from the supply of propylene from Ukraine overnight. This was the first and most challenging problem of last year. Within a month, we constructed an alternative system for securing the Oxoplast Business Unit in basic raw material and implemented a mechanism for short-term planning and operation that is flexible and adapted to the conditions we face.

 

The current turbulent nature of the business environment is significant, and as a result, stability in functioning, maintaining production and jobs takes tremendous effort. This is our shared responsibility, both at the level of the individual, the company and Grupa Azoty.

 

What is the reason behind the decision to expand business on the U.S. market?

 

A strategic aspect of Segment Oxoplast’s business concept is regional diversification. Within the U.S. market, there is a reliance on human relations among those operating in the business. Given this factor, a decision was made several years ago to start local representation on the US market. At first, we shipped products from Poland in iso-containers in smaller quantities, which went directly to customers. In order to tighten the established cooperation and handle larger volumes, the next step was to start local activities. Hence, two years ago, the decision was made to rent a 2-Ethylhexanol storage tank on the east coast of the US and test the mechanism of operation. A formal route had to be taken based on the laws there at various levels and regulatory requirements, which required extensive effort and openness from our company’s services.

 

Last year, we decided to expand this activity and rented a second storage tank. Today we have a total storage capacity of 2,500 tons for 2-EH alcohol and 1,500 tons for Oxoviflex b plasticizer. Ultimately, we would like to deploy several thousand tons of both products annually in the US market.

 

How are we planning to develop the Segment’s business on the U.S. market?

 

Lately we have attended several important conferences and exhibitions, which is essential to function on the market, be visible and establish connections. It’s also a kind of declaration of being serious about long-term business on a given market.

 

Without a doubt, we are operating in a difficult time, and being able to allocate volumes across logistics centers in different parts of the world is crucial to keep production and business management flowing. While the operations we are undertaking are ambitious, given the opportunities offered by the U.S. market, there is clearly much to strive for.

Thank you for the interview.