By Frank Esposito (SENIOR STAFF REPORTER)

HOUSTON — Kraton Performance Polymers Inc.'s 2012 year was better than it looked — and the firm's prospects for 2013 are looking up, as its joint venture project in Taiwan is back on track.
Kraton — a Houston-based maker of styrenic block copolymers and polyisoprene synthetic rubber — posted a $16 million loss in 2012 after earning almost $91 million in 2011. The firm's sales were flat at just over $1.4 billion.
But Kraton's sales volume in pounds for 2012 actually grew more than 3 percent to almost 690 million pounds, and investor relations director Gene Shiels cited a change in asset valuation as a reason for the 2012 loss. That change included the value of the firm's plant in Belpre, Ohio, and of inventory there.
During 2012, Kraton posted "nice gains" in sales of its Cariflex-brand polyisoprene, Shiels said during a recent interview in Houston. He added that although Kraton wasn't certain of the product's future just a few years ago, its sales have more than tripled since 2008. Cariflex has found a home in high-end surgical gloves, where it's replacing natural rubber latex. Health-care giant Cardinal Health is one of the firms using gloves made of Cariflex.
Kraton's standard SBC products continue to be used by Apple Inc. in wire and cable applications such as headphones, earphones and power connectors. Apple is interested in SBCs as a PVC replacement, Shiels said. Technology giants Dell Computer and Hewlett-Packard Co. are looking into using the material as well, he added.
The resurrection of Kraton's proposed venture with Formosa Petrochemical Corp. came about after the Taiwanese government relaxed restrictions it had put on the proposed site in Mailiao, Taiwan, where Formosa already operates a massive petrochemical complex.
Fires at the site in mid-2011 led the government to place conditions on building that Shiels described as "onerous." The fires later were found to be caused by corrosion caused by salt air and not from any operating practices.
The venture officially re-formed in late February and now is on track to begin construction on a 66 million-pound-capacity hydrogenated SBC plant by midyear. Mechanical work on the plant is expected to be complete by the end of 2015. The venture is a 50-50 partnership, but Shiels said Kraton will have full marketing rights to the plant's output, which will be aimed at intravenous bags, and wire and cable uses in China and other parts of Asia.
"We still wanted to do the project, but we wanted assurance of no more roadblocks," he explained.
Kraton also is in the process of installing a semi-works line in Belpre. The firm had operated a similar line in Houston at a site it shared with Shell Chemical, but Shell's need for the space prompted Kraton to launch the $45 million new line in Belpre, Shiels said. The new line is expected to be up by the end of this year or in early 2014, making pilot and semi-commercial runs, with annual output of at least 550,000 pounds. The new line also is expected to create 11 jobs at the site.
Another $45 million Belpre project — an updating of the plant's digital control system — is expected to wrap up this year as well, Shiels said. In addition to Belpre, Kraton operates plants in Brazil, Germany and Belgium, as well as a joint venture plant in Japan.
Like other materials firms that use butadiene as a feedstock, Kraton has been bounced around by that product's volatility. Butadiene had sold for 86 cents per pound in late 2010 before shooting up to $1.77 by August 2011. It had fallen back to 98 cents by December of that year and was at 77 cents in December 2012 before taking off again, hitting $1.55 in April.
"It's been very disruptive for our business," Shiels said of butadiene pricing. "Our customers started modifying their purchases. They've tried to pre-buy because the material was showing commodity-type behavior."
Butadiene "has been the most volatile building block in the [specialty chemicals] industry – more than even titanium dioxide."
Kraton in 2008 took a big step toward handling its commodity costs and improving its ability to pass on price increases when it adopted its Price Right strategy under CEO Kevin Fogarty. After posting low pretax results on record production in 2007, officials reviewed all 4,500 SKUs in the firm's portfolio.
They found that only one-third of Kraton's products were making money, with one-third breaking even and the final one-third losing money. The resulting Price Right strategy implemented a one-time price increase on some products, which cost the firm some business, but improved long-term profitability, Shiels explained.
"Our mantra had been capacity utilization, with fixed-price contracts to lock volume in," he said. After Price Right, Kraton "let those fixed-price contracts expire, and moved to 30-day notice for cost pass-throughs."
New applications for Kraton — which employs 950 and generates about 40 percent of its sales from the Americas — include using its SBCs in oil fields, where they can absorb six times their own weight in oil. As an asphalt modifier, Kraton SBCs can extend road life by three to five years, Shiels said.
Earlier this year, Kraton also commercialized some of its materials in shirts made by Columbia Sportswear, where Kraton products can have a cooling effect.