Lead in water is bad news. Lead in gasoline can be the stuff of which successful investments are made, at least in the short term.

Innospec Inc. (Nasdaq:IOSP) is a fuel treatment company that produces lead-based additives used by refiners to increase the octane rating of gasoline. It has three distinct business segments: fuel specialties, active chemicals and octane additives. Its fuel specialties business works to create additives that have the ability to improve fuel efficiency, enhance engine performance and reduce emissions. The active chemicals segment focuses on the household detergent and personal-care markets, and the octane additives segment works to make gasoline burn more efficiently by boosting octane levels.

In 2007, fuel specialties accounted for 62.2% of Innospec’s net sales. Active chemicals made up 22.2% of net sales and octane additives comprised the remaining 15.6%. Although its octane additives business is profitable, the segment has been experiencing declining demand and will likely cease to exist in the next several years. The reason for this trend is that Innospec’s octane-additives business comprises sales of tetra ethyl lead (TEL) for use in automotive gasoline. Global use of TEL has been on the decline since the U.S. enacted the Clean Air Act in the early 1970s and other countries have followed suit in exiting the leaded gasoline market.

The company has anticipated the decline and has done an excellent job of growing its fuel specialties and active chemicals segments to compensate for the expected drop-off. For Innospec’s fourth quarter ended Dec. 31, 2007, the company reported . . .

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