Chem Giants to Form Exchange

SAN MATEO (05/21/2000) - Some of the largest companies in the chemical industry announced last week plans to form an electronic marketplace to facilitate the buying and selling of chemicals and supply-chain collaboration.

The exchange will include major chemical industry rivals DuPont, Dow Chemical, Rohm & Hass, BASF, and Mitsubishi Chemical, with plans to go live by the end of the year.

The business case for rivals working together is grounded in high infrastructure costs and in the need to build in economies of scale for an exchange to be profitable.

"For a marketplace to be successful, it has to have liquidity -- sufficient revenues going through the site to make it a financially viable vehicle," said Gwin Bompas, e-commerce leader for specialty chemicals at Dow, in Midland, Michigan.

"If you only have $100 million dollars going through the site, for example, and there is only a 1 percent or 2 percent transaction fee, $1 million or $2 million in revenues can't support much infrastructure," Bompas said.

"Therefore, it makes sense to have a much bigger site," Bompas said.

The exchange will address contractual sales, setting it apart from the current Internet market exchanges such as ChemConnect and E-chemicals, which primarily focus on the more volatile spot market in off-specification and excess-inventory chemical products.

Many industry analysts believe that there is more to the announcement than the need to address "supply-chain inefficiencies," as company officials said.

Rather it is all about defending their turf.

"The Internet allows a dot-com exchange [or] a start-up to sell goods even when they don't take inventory. It allows anyone from anywhere for any product no matter who manufactures it to become, overnight, a market-maker," said Richard Arns, executive director of the Chicago Research and Planning Group, an organization of CTOs.

The still-unnamed exchange will be financed for about $150 million, officials from the chemical companies said.

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