Compounder Alloy Polymers expanding

Richmond, Va., May 8, 2003

Alloy Polymers continues to think big in the toll compounding world, with plans to open a color lab and add a production line at its Gahanna, Ohio plant.

"If you don’t like change, this isn’t the company for you," Alloy President Subhash Pahuja said in a recent interview at Alloy’s headquarters in Richmond.

The pace of change at Alloy has accelerated since 2002, when the firm acquired the 110-million-pound-capacity Gahanna plant from polypropylene leader Basell NV. The purchase increased Alloy’s number of extrusion lines from 13 to 18 and nearly doubled its employee count, taking it from 100 to 170.

The move also brought Alloy, which had focused on engineering resins, into PP’s commodity world. An emphasis on color work also came with the Basell plant, leading to the construction of the color lab.

"Fifty to 60 percent of what the Gahanna plant did was color work," Pahuja said. "We had to support that, so we decided to support it with some gusto."

The lab, which includes a full range of product testing and color development equipment, is set to open next month.

The 125,000-square-foot Gahanna plant also will add its sixth extrusion line early next year. A smaller, pilot-scale line will be included in the color lab. Counting a new clean room and 15 million pounds of new capacity added at the 200,000-square-foot Richmond plant, Alloy will have spent about $20 million to grow the company since late 2001. That total does not include the purchase price of the Gahanna plant, which Alloy declines to share.

The additions seem to be a bit out of step with the low-profile world of toll compounding, which has long been characterized by low profit margins and dimly lit warehouses. Essentially, toll compounders prepare compounds for resin makers or, in some cases, large-volume processors that then either market and sell the material or use it themselves to produce plastic products.

When business is booming, resin makers need the capacity outlet that toll compounders provide. In more difficult economic climates, such as the current one, resin makers tend to keep more work in-house, making it a lean market for toll compounding.

As a result, Pahuja said Alloy has targeted more work with processors and expanded its product palette, which now includes fiber-grade, food-grade and medical-grade compounds, as well as compounds that use various flame retardants and carbon blacks.

Toll compounders such as Alloy also have to be willing to adapt their own product mix to match that of their customers. At one point, Alloy did 18 months of thermoplastic elastomer compounding for a customer. Alloy still has the equipment and capability from that job, although it presently does little TPE work.

Likewise, Alloy ran a one-year PP job for a customer prior to the Basell deal, even though most of Alloy’s work to that point had been in nylon, polycarbonate and polybutylene terephthalate.

"At the end of the day, our goal is to maximize our customers’ business — not our business," said Pahuja, who bought the firm in 1982. "We have to do that, and in return our business will grow as well."

Alloy has had only one unprofitable year in its 21 years under Pahuja. He was rewarded for his efforts in 2000 when financial firm Ernst & Young named him Virginia’s Entrepreneur of the Year.

Pahuja bought Alloy, which was then based in Waldwick, N.J., from International Nickel Co. After a 10-year stint with color concentrate maker Ampacet Corp., Pahuja had been with International Nickel only two months when they put the business up for sale.

"I had to do a lot of convincing with my family," Pahuja said of his decision to buy the operation. "Sometimes even now if things are tough they remind me about that."

Pahuja moved the business to Richmond in 1987 to be closer to plants operated by Allied Signal Corp., one of its major customers. Allied Signal since has merged with Honeywell Inc. but continues to do business with Alloy.

Growing a toll compounding business is somewhat tricky. A toll compounder cannot really hype what they do, since almost all of their work involves secrecy agreements with their clients. If a toll compounder told a resin maker what additives another resin maker was using in its compounds, the toll compounder soon would find his reputation ruined and his business gone.

"In some cases, we make competing products on two different lines, but we can’t talk about them," Pahuja said. "For example, we can talk about our plant operations, but we can’t tell someone if a material that we make is sold into the wire and cable market or not."

Alloy also has taken the somewhat unique step of launching a licensed products business, in which the firm wants to handle production of materials that are trying to reach commercialization or that are coming to the end of their product cycles. Their first deal in this sector came about after the Basell deal, when Alloy agreed to continue production of Hivalloy-brand PP alloys. Alloy still makes Hivalloy in Gahanna, even though Basell sold the Hivalloy business to Crompton Corp. late last year.

"We look at these as strategic partnerships where we take a product from new product development to market decline," said Tony Bernardo, Alloy licensed products director.

The frequent changes in Alloy’s product mix — nylon on one job, PBT on the next, or moving from runs of 50,000 to 500,000 pounds — also represents a challenge for Craig Allshouse, Alloy’s vice president of operations.

"We keep all of our equipment in the best shape possible, and we really have to," Allshouse said. "It’s like working with a big Lego set made up of extruders, pelletizers, blenders and mixers, and they all have to fit together every day."

Pahuja declined to identify who some of Alloy’s larger customers are, saying only that the firm "works with most of North America’s largest engineering resin makers."

Pahuja also declined to estimate Alloy’s annual sales, but said that the Basell acquisition helped the firm grow more than 10 percent in 2002. Sales of both PP-based and engineering resin-based compounds also climbed in the first quarter of 2003, when compared to the same quarter a year ago.

"I don’t like to think of us as a compounding company," he said. "I like to view us as a service company that can do compounding."

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