Elkem Company Overview and Financials
Risk factors (II/VIII)
2.1.6
Elkem operates in a highly competitive industry
The markets for silicones, silicon materials and silicon-based alloys are global, capital intensive and highly competitive. Elkem faces competition on a range of factors within all of the markets in which it operates, both from major international companies and from smaller regional competitors.
In general, any failure by Elkem to compete on the basis of price, product performance and quality or any of the other factors discussed above, or to otherwise adapt to changes in its businesses and targeted end-market applications, could have a material adverse effect on Elkem's business, results of operations,
financial condition and prospects.
2.1.7
The costs of complying with changing environmental, health and safety laws could negatively impact Elkem's financial results
Elkem uses large quantities of hazardous substances, generates hazardous wastes and emits wastewater and air pollutants in its production operations, most notably in its Silicones division. Consequently, its operations are subject to extensive environmental, health and safety ("EHS") laws, regulations, rules and
ordinances at the supranational, national and local level in multiple jurisdictions across the European, African, Asia Pacific and North and South American regions. Elkem is also required to obtain permits from governmental authorities for certain operations.
Elkem may not have been and may not be at all times in complete compliance with EHS laws, regulations and permits, and Elkem has been held liable for environmental damage in the past. If Elkem violates or fails to comply with these laws, regulations or permits, Elkem could be subject to penalties, fines, restrictions on
operations or other sanctions. Under these laws, regulations and permits, Elkem could also be held liable for any and all consequences arising out of human exposure to hazardous substances or environmental damage Elkem may cause or that relates to its operations or properties.
Many EHS regulations have become more stringent over time and the trend is likely to continue, especially as regulators and government increasingly focus on human health and the safe use of chemicals and their products in commerce, as well as their potential impact on health and the environment are likely to
manifest themselves in more stringent regulatory intervention. Permits necessary for Elkem's operations may not be issued or continue in effect, and any issued permits may contain more stringent limitations that restrict Elkem's operations or that require further expenditures to meet additional requirements imposed by
permits. In addition, compliance with more stringent EHS regulations will likely increase Elkem's operating costs including costs related to the transportation and storage of raw materials and finished products, as well as the costs of storage and disposal of waste.
Changes in EHS regulations in jurisdictions where Elkem produces and sells its products could also lead to a decrease in demand for its products. Concerns about product safety and environmental protection could influence public perception of the Group's products and operations, the viability of some or all of its
products, its reputation, and the ability to attract and retain employees. Further to regulatory changes, health and safety concerns could increase the costs incurred by the Group's customers to use its products and otherwise limit the use of the Group's products, which could lead to decreased demand for these products.
Such a decrease in demand would have a materially adverse effect on the Group's business and results of operation.
2.1.8
Costs of compliance with climate change laws and regulations and other specific emissions-related laws, could adversely affect Elkem's operations and performance
Some of the principal environmental risks associated with Elkem's operations are emissions into the air and releases into the soil, surface water, or groundwater. In particular, the production of silicon and ferrosilicon result in significant emissions of CO2. Other air emissions from Elkem's primary production processes
include SO2, NOx, PAH, MECI and dust. Elkem's operations are subject to extensive national and international environmental laws and regulations, including those relating to the discharge of materials into the environment, waste management, pollution prevention measures and greenhouse gas emissions. If Elkem
violates or fails to comply with these laws and regulations, Elkem could be fined or otherwise sanctioned. Because environmental laws and regulations are becoming more stringent and new environmental laws and regulations are continuously being enacted or proposed, such as those relating to greenhouse gas
emissions and climate change, the level of expenditures required for environmental matters could increase in the future. Future legislative action and regulatory initiatives could result in changes to operating permits, additional remedial actions, material changes in operations, increased capital expenditures and operating
costs, increased costs of the goods Elkem sells, and decreased demand for Elkem's products that cannot be assessed with certainty at this time.
2.1.9
Elkem is increasingly subject to regulations directed at the chemicals industry
Since 2015, Elkem has become more specialised in the production of chemicals, with a majority of its revenues attributable to silicones. As a consequence, its exposure to regulations directed at the chemicals industry has increased. Many of the chemical substances that Elkem relies on, as well as many applications for
Elkem's products, are regulated by the EU's Registration, Evaluation, Authorisation, and Restriction of Chemicals Regulation ("REACH"). Restriction and authorisation requirements pursuant to REACH could impair Elkem's business by interfering materially with the manner in which it currently conducts its operations or
with the manner in which its products can be used. There is a risk that the distribution of some of the compounds the Group imports, produces and sells currently will be prohibited in the future or be subject to an extensive, time and cost intensive authorisation process or other requirements that ultimately may not permit
the Group to continue producing certain of its products.
One of the main raw materials for the production of Elkem's carbon products is coal tar pitch. Coal tar pitch has been included on the EU List of substances of very high concern. In addition, the production of certain silicone- based products, including personal care products, entails the production by Elkem of certain
intermediate products such as the cyclosiloxanes D4 and D5. Certain public bodies in Europe have concluded that D4 and D5 may be regarded as unsafe, and that their use should be restricted. This means that it is likely that these substances will be subject to strict regulations within the EU in the future. So far, the
regulatory focus has been on the presence of D4 and D5 in end use products, such as personal care products. If the focus moves to the silicone production process, however, this may result in restrictions on Elkem's use of these intermediates, which in turn could materially and adversely affect the Group's silicone
production.
Regulations such as REACH are likely to become more stringent over time as they are designed to ensure a high level of protection for people and the environment and demand comprehensive tests for chemical products. Test procedures required by regulations such as REACH can be costly and time-intensive, and
may lead to a rise in production costs. The use of chemicals in production could be restricted, which could make it impossible for Elkem to continue manufacturing certain products. In addition, the regulation or reclassification of any of Elkem's products could require it to incur increased costs to comply with notification,
labelling or handling requirements. Given the complexity of the Group's global operations and the growing importance of chemical manufacturing to its business, there is an elevated risk that the Group may not always comply with REACH and similar regulations in the United States, China and other jurisdictions where the
Group operates or sells its products, which could result in fines, sanctions and other penalties. Any of the foregoing could have a material adverse effect on the Group's business, financial condition and results of operations.
Elkem
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