The Base Chemicals and Materials cluster consists of DSM Agro, DSM Melamine, DSM Elastomers, DSM Energy, and a number of activities that have been carved out from other clusters.

DSM Agro produces fertilizers and is active in Northwestern Europe. DSM Melamine is the world’s largest producer of melamine, used in wood-based panels and laminates for furniture and flooring. DSM Elastomers manufactures synthetic rubbers (EPDM) for use in cars and other transportation vehicles, white goods, various industrial products and construction materials and as motor-oil additives. DSM Energy has small but profitable stakes in various oil and gas fields in the Dutch part of the Continental Shelf.

DSM Agro supplies products and services for responsible fertilization. The company produces and markets nitrogenous mineral fertilizers and industrial products, mainly for the Northwest European market. In agriculture, nitrogen is the prime determinant of crop growth and yield.

The business group operates production sites at Sittard-Geleen and – until 2010 – IJmuiden in the Netherlands. DSM Agro produces and sells about 2.4 million tons of fertilizers per year. DSM Agro also produces products that serve as raw materials for products of other DSM business groups.

In 2008 DSM Agro continued to benefit from the change in market sentiment that had started in 2007. Growing global food and feed demand as a result of positive economic developments in the large new economies in Asia drove high world grain prices, which led to a further increase in demand for fertilizers and a strong worldwide fertilizer market.

The growing of energy crops for biofuels strengthened this development. High grain prices had a strong positive effect on international fertilizer prices. As a result, DSM Agro significantly improved its operating profit in comparison with previous years. Sales rose by 42% and DSM Agro had its best year ever.

This higher result was achieved despite an interruption in production at one of the ammonia plants in the Netherlands which lasted several months.

In March 2008 DSM Agro reached agreement with the Dutch government on the termination of ammonia transport by rail between Sittard-Geleen and IJmuiden by 31 December 2009. When these transports are terminated, the site in IJmuiden will lose its reason for being. DSM has therefore decided to close the site in 2010.

DSM Agro became the first company in the world to greatly reduce emissions of dinitrogen oxide (N₂O). The nitric acid plants in both Sittard-Geleen and IJmuiden managed to reduce their N₂O emissions by 6,500 tons, which has the same effect as reducing CO₂ emissions by two million tons.

Apart from being ISO 9001 certified, DSM Agro is also a member of EFMA (European Fertilizer Manufacturers Association) and complies with its Product Stewardship requirements. DSM Agro was ranked number one in the recent audit of all EFMA members.

The Product Stewardship program is to ensure that fertilizers and their raw materials, additives and intermediate products are processed and manufactured, handled, stored, distributed and used in a safe way with regard to health, occupational and public safety, environment and security. DSM Agro promotes good agricultural practices by encouraging farmers to use correct amounts of fertilizers of the required quality at the required time, applied by means of properly adjusted fertilizer spreaders. To this end, DSM Agro provides its customers with high-quality fertilizers plus internet application services to ensure that fertilizers are used in a responsible manner.

With a market share of close to 20%, DSM Melamine is the global market leader. The main application of melamine is in wood-based panels and laminates used for furniture and flooring. It is also used in car paints, durable plastic tableware and flame retardants. The growing number of consumers in emerging economies, notably China, is driving demand.

Melamine is used in impregnating resins and adhesive resins for the wood-processing industry. It boosts the scratch, moisture and heat resistance of wood products. Melamine can be combined with softwood from rapidly growing trees to obtain high-quality panels that can replace hardwood. The growing scarcity of hardwood is boosting the use of melamine. Stricter legislation on emission of formaldehyde is expected to have a positive impact as well.

The product is also used in paper money, lipstick, glossy magazines, ice hockey sticks and printed textiles. The bridge that links Sweden and Denmark across the Øresund contains MelaminebyDSM™ to improve concrete flow characteristics.

The market for melamine is growing at an average rate of 4% per annum. Several new plants of a small scale are being built in China. Total capacity in China still exceeds local demand. In addition, new world-scale plants will be built in areas with low-priced natural gas in the next few years.

DSM Melamine has plants in Sittard-Geleen (Netherlands), Pinglu and Jishan (China), and Bontang (Indonesia). The Chinese melamine is produced by Shanxi FengHe Melamine Co. Ltd. (DSM 49%). The plant in Indonesia is a joint venture with P.T. Pupuk Kalimantan Timur and P.T. Barito Pacific Lumber Company.

Sales increased by 10% in 2008; operating result was negative. Excluding China, worldwide demand and production capacity in 2008 were below the 2007 levels. Prices for melamine increased during the year, but at a lower pace than the price of urea, ammonia and natural gas, the main raw materials for melamine.

However, with increasing economic headwinds towards the end of the year, price increases for melamine in the last quarter were lower than envisaged. Lower demand together with destocking in the downstream industry put pressure on sales. The planned shutdown of the plant in Indonesia in September was prolonged until the end of the year and in the Netherlands, too, DSM Melamine closed one plant temporarily.

In China DSM started a 49/51 joint venture with Shanxi Fengxi Fertilizers, Shanxi FengHe Melamine Co. Ltd. The output – 52,000 tons per annum in 2008 – is sold on both the domestic and international markets under the MelaminebyDSM™ brand.

DSM Melamine’s objective is to consolidate its leading position and improve profitability. The business group will continue its efforts together with customers to grow further via innovation. Examples are cost reductions across the value chain, exploitation of the handling advantages of melamine-based resins over competing glue systems based on phenol or isocyanates, and the use of alternative fibers for panels.

With a market share of around 16%, DSM Elastomers is one of the global market leaders in EPDM (Ethylene Propylene Diene Monomer) rubber under the brand name Keltan^®. It is also the number two player in the market for EPDM-based – fully vulcanized – thermoplastic elastomers (TPVs). DSM sells these TPVs under the brand name Sarlink^®.

Production plants for Keltan^® are based in Sittard-Geleen (Netherlands) and Triunfo (Brazil). Plants for Sarlink^® are found in Genk (Belgium) and Leominster, Massachusetts (United States).

Keltan^® EPDM is used in cars and other transportation vehicles, white goods, various industrial products and construction materials and as motor-oil additives. It is also used as a waterproof covering for roofs.

DSM has maintained the position of Keltan^® as the global innovative leader in the EPDM market in 2008. The customer survey executed in June amongst 180 customers confirmed this position and the main brand values (high quality, high security of supply and high service) were clearly recognized.

DSM launched several new Ziegler-Natta catalyst based Keltan^® products and built a new reactive extrusion line in Triunfo (Brazil). With this new line, the company is able to strengthen its position in the oil additives business but the line also offers possibilities for new functionalized materials. The first commercial products were delivered in February. At the end of the year, the line was fully operational.

In the development of the Advanced Catalysis Elastomers (ACE™) technology 2008 was an important year. After a very successful trial run, commercial-scale production of the first innovative range of products commenced at the end of 2008. The ACE™ technology enables DSM to produce products with a high VNB (2-vinyl-5-norbornene) content, which is unique in the world of EPDM.

Sarlink^® TPVs are used in a wide variety of applications including automotive, consumer, electrical, food, building, medical and industrial applications. It is also used as infill material in artificial turf sports surfaces, mainly soccer fields, under the brand name Terra^® XPS.

DSM’s strategy for Sarlink^® is to maximize growth, replacing thermoset rubber and PVC, through the development of new advanced technology solutions.

Global demand at DSM Elastomers was strong in the first half of 2008, driven by healthy growth in the emerging economies.

Raw-material prices continued to increase in the first half of the year. The further weakening of the US dollar – especially in the first eight months of the year – caused pressure on both prices and margins. By passing on the cost increases to the market the business group was nearly able to safeguard its margins.

In the second half of the year, demand in both North America and Europe fell, mainly driven by a continuous restructuring of the automotive industry and its suppliers. Moreover, the downturn in the housing market continued to affect the building and construction industry.

The business group’s sales decreased by 7% in 2008; operating result was negative.

DSM Energy participates in the exploration and production of oil and gas on the Dutch Continental Shelf. The business group is also involved in the transportation of oil and gas through its ownership of pipelines on the Shelf. DSM participates as non-operator with a stake of up to 25% in the oil and gas joint ventures and up to 40% in pipeline systems.

At year-end, the business group had a share in twenty producing oil and gas fields and during the year participated in two gas field developments. All fields are located in 25 production licenses. DSM Energy’s strategic mission is to maximize cash flow by minimizing cost and maximizing production in the existing licenses.

During the first half of the year the oil market saw very large price increases, followed by similar decreases after the onset of the turmoil in the financial markets in the third quarter. Over the entire year the average Brent oil price was USD 97 per barrel, which was substantially above the average level in 2007. The sales prices for natural gas follow those of oil with some delay and were also above the 2007 level. The business group’s operating profit was once again at a high level.

One development project, the A6/B12 field, delivered first gas in 2008. Another project, the M7-A field, suffered from installation delays due to poor weather conditions and start-up is now expected in Q1 2009. The business group’s total production of 1.8 million barrels of oil equivalent in 2008 was slightly less than in 2007. The remaining reserves at the end of the year were about 7.9 million barrels of oil equivalent, of which 7.3 million in the producing fields, compared to 8.1 million and 7.4 million respectievely in 2007. Without new developments the remaining reserves are expected to continue to decrease in the years ahead.

In cooperation with RWTH Aachen (Germany) and Delft University of Technology (Netherlands) investigations into the monetizing of coal concessions continued in 2008. Results so far indicate that these concessions at present do not have a positive value, but DSM continues to work on the valuation of these concessions.

Further, the business group provided geological support to DSM Agro in a potential CO₂ underground storage project. DSM Energy is one of the founding members of the DAP foundation (Delft Aardwarmte Project) in the Netherlands to produce warm water for the energy benefit of the entire Delft University campus and surrounding housing areas. During 2008 the feasibility of the project was established and the next phase of the project was prepared. The necessary sub-surface permits have been applied for with the Dutch Ministry of Economic Affairs.

The Base Chemicals and Materials cluster also includes several activities that have been carved out from other clusters. These include Stamicarbon, Citric Acid, DSM Special Products and the Maleic Anhydride and derivatives business. These activities together achieved a higher operating profit and higher sales in 2008.