Chemical companies setting up online exchange

An international group of 12 major chemical companies on Wednesday announced plans to create an online business-to-business marketplace for that industry.

Other chemical companies will also be able to participate in the still-unnamed venture, which is due to be set up in July and to open for business by the end of the year. The 12 founding companies said the Internet-based exchange will be an independent company with its own management team, following a model being used by similar ventures that have been set up in businesses such as the automotive and retail industries.

US-based companies among the 12 founders include Dow Chemical, Du Pont, Rohm and Haas and Van Waters & Rogers. Other participating companies include BASF AG and Bayer AG, both headquartered in Germany, and BP Amoco PLC, which is based in the UK. The 12 companies said they've committed to invest a total of $150 million in the online venture.

In a conference call, the companies said the new marketplace will focus primarily on the longer-term contractual side of the chemical market instead of "spot buys," which are being left to more auction-oriented Web sites. The exchange will let users buy and sell everything from raw materials to the chemicals used in food and drugs, and it also plans to offer logistics services such as financing and transportation.

Analysts had mixed views about the plans.

Tom Harwick, an analyst at Giga Information Group in Cambridge, Massachusetts, said the focus on "relationship-based" contractual sales is a good strategy for the founding 12 companies to follow. But before the venture can move forward, he added, the companies need to choose a primary software vendor that can set up the exchange and handle functions such as sourcing, purchasing, and electronic bill presentment and payment.

Brian Dinges, a spokesman at BP Amoco, said a technology partner hasn't been selected yet, but that is high on the list of priorities.

Laurie Orlov, an analyst at Forrester Research, said the marketplace plans could run into contractual complexities that are inherent in collaborative efforts among competitors - a pitfall that also faces the automotive exchange being developed by General Motors, Ford Motor and Daimler-Chrysler.

"The jury is still out on this (concept)," Orlov said. "There isn't one trading exchange that has gotten far enough to see if the collaboration between competitors will work. It's all been at the launch and war of the press release stage."

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