The First ICIS World Surfactants Conference

(May 12^th and 13^th Weehawken, NJ)

I was honored to chair the first ICIS World Surfactant Conference, which took place last week after about 7 months of planning between myself and the ICIS conference team. Based on the feedback I got from many people, whose counsel and opinion I value, the event was a success. The ICIS folks agreed and some preliminary planning has already been done around the next conference. Nothing has been finalized, but I can give you an early hint about one aspect. The venue will be much bigger! Why? Because last weeks conference actually sold out twice – even after getting more space – and the people on the waiting list are already vowing to register early next time.

To give you a flavor of what around 150 people experienced in the room over 1^1/2 days, I note below, the line-up of speakers and just one interesting point that I took away from each while chairing the conference. More comprehensive coverage of the event will no doubt appear in ICIS Chemical Business magazine over the coming weeks and in the ICIS Green Chemicals Blog, penned  by our good friend and colleague, Doris De Guzman who pretty much live-tweeted the entire proceedings (complete with “twitpics”) from the front row.

Neil Burns of Neil A Burns LLC: I tried to give an overview of the key issues that would be explored during the conference – which I summarized as Value Chain, Volatility, Sustainability, Globalization and M&A. Not as catchy as Tom Nelsons “VUCA” but set the tone for the rest of the event.

Pascal Juery of Rhodia : Company is focusing on sustainability and growing regions of the world. They have been in Brazil for 100 years. Still lot of room to grow and consolidate as the specialty surfactant market is still very fragmented.

Bill Tittle of Nexant: North America set to become a net exporter of EOD’s as advantaged ethylene is converted to purified EO for ethoxylation.

Mohammad Al-Bibi of Farabi Petrochemicals: Farabi will commission a second 120 KMT/yr LAB plant in 2012 helping ensure the middle east remains a net exporter of LAB going forward.

Kongkrapan Intarajan of Emery Oleochemical: Emery’s aggressive growth strategy is driven by vertical integration (Sime Darby and PTT parents), Global Presence and Technology Access (recent ventures with Aekyung in Korea and ERCA in the Netherlands). By 2015, the business mix is expected to be 50:50 base oleochemicals : specialty derivatives.

Janet Crawford of Akzo Nobel: Tallow now costs 60% more than crude oil on lb for lb basis. At this point, expect to see demand destruction in surfactant markets.

Gillian Morris of Kline and Co. : $800 Million market for specialty surfactants in personal care with still 45% of that in Europe!

Jochen Flucht of Henkel: Henkel will play at all stages of the supply chain; including, for example, hedging kerosene for their LAB/LAS purchases.

Brian Chung of Rhodia: 100% naturally derived SLES, uses ethylene oxide made from ethylene derived from ethanol made from molasses via fermentation.

Tom Nelson of P&G: P&G is working with LS-9, Amyris, Braskem and others to try to mitigate the volatility and price pressures from traditional petrol and oleo raw material supply chains.

Icilio Adami of Desmet Ballestra: The new enhanced loop ethoxylation technology represents a breakthrough in terms of efficiency, throughput and capital cost effectiveness for ethoxylation.

Chris Cerimele of Houlihan Lokey: The surfactant industry continues to eb shaped by M&A. Western companies tending to divest oleochemicals while Asian oleochemicals companies tending to seek technology driven investments.

Alessandra Lancellotti of Frost and Sullivan: There are 15,000 companies in personal care in Brazil and the country is the number three consumer of such products in the world.

Bob Moser of Brenntag: Distribution is a fragmented market with plenty of room to grow. Brenntag has a 6.9% market share followed by Univar at 6.0% and Nexeo (formerly Ashland) with 2.8%.

Walter Rakitsky of Solazyme: Walt opened up the “surfactant revolution” part of the conference with a vision of designer oils produced via genetically engineered algae from a variety of biomass feedstocks. Technology is proven and being scaled up by this company that has already filed for a $100 Million IPO after being funded by VC and strategic investors.

Andy Shafer of Elevance : Andy rounded out the surfactant revolution with his vision of the Elevance metathesis technology as implemented in a series of biorefineries (180 KMT/yr first unit to commission this year in Surabaya). These plants to provide surfactant feeds from sourced uncoupled with crude or palm oils.

In summary, I was very pleased with the quality of speakers and participation by the delegates. Given that, I regarded myself as very fortunate to be able to chair the event and to work with such a talented team at ICIS in putting it together. Next year – a bigger venue and a continued focus on high profile, interesting speakers.

North American Ethylene –the Impact on Surfactants

(April 15^th Racemics Meeting)

I was fortunate enough to be invited to a meeting of the Racemics club in NJ recently and was further fortunate to hear an outstanding talk by TIson Keele of CMAI on the future of North American manufacturing in the ethylene value chain. The talk was fascinating and, true to form for Tison, gave concise insights into what really matters for the chemical industry. Overall, shale gas in North America is going to help ensure that we have an advantaged feedstock position here for ethylene derivatives for the next few decades.

What I found particularly interesting was the expected impact on the surfactant industry – which I think will be significant. Consider the following:

• While oil is an important part of the supply chain, only 7% at best of crude oil ends up in chemicals (most of that polymers). 93% is used in fuel
• Natural gas is now the feedstock of choice to make ethylene in North America, the Middle East and Southeast Asia. Europe and Asia/Pacific still tend to rely on crude oil/ naphtha feeds. This is now putting these regions at a serious cost disadvantage to North America in particular due to the historical low cost natural gas in North America. Historically, there has been a 6 – 7:1 energy equivalency multiple of crude oil to gas. Today it is around 20:1.
• This cost advantage is fairly recent and the industry has not caught up. The newest ethylene cracker in North America as built 12 years ago. With an average 30 year cracker life, there seems to be pent up “demand “ for new cracking capcity in North America.
• Recent announcements by Chevron and, just today, most specifically from Dow plus discussion around Westlake and Formosa Plastics, suggests at least one (Dow), if not all four will add ethylene capacity in the US in the next few years. Notwithstanding new plants, many existing plants are debottlenecking to take advantage of their newfound competitive position.
• Given the expected improvement in North American ethylene cost and availability, there is an accompanying renewal of interest in expanded and even, new ethylene oxide (EO) capacity. Ineos recently has publicly mused about putting EO capacity in North America, to complement its olefins and ethanolamines capacity in the US and its leading position in Europe in EO. Such a move would add a significant new EO player in North America. Dow of course is already in EO in the US and recently re-directed significant capacity in Taft from MEG to EO.
• Approximately 77% of EO goes into making glycols (MEG, DEG and TEG) for PU, textiles and other applications. The other 23% is purified to ethoxylation grade and used in the production of surfactants.
• Therefore the outlook for purified EO costing and availability to support ethoxylation in North America is positive. It looks likely that the work around EO expansion is to be accompanied by work around expanding ethoxylation capacity in North America.
• The prospects therefore for the surfactant industry look robust in North America with much of the potential expanded ethoxylation capacity being directed at ethoxylates and ether sulfates for export markets.

Kudos and congratulations again to Tison for an outstanding talk.  It will be interesting to see how these supply chain related themes are addressed at the First ICIS World Surfactant Conference on May 12 / 13^th in NJ. Many of the companies there are operating in this and related areas throughout the world.

The Green in Green Chemistry

March CM&E Lunch Report

The ACS York CM&E group hosted another outstanding lunch last Thursday at the award-winning Aureole restaurant in New York City. The theme was a panel discussion on green chemistry and we were honored to have as co-moderator the ICIS Green Blogger, herself, Doris de Guzman. I was the other moderator and the panel was a tremendous mix of banker, mature company and new company – i.e.

• Chris Cerimele, head of chemicals at Houlihan Lokey
• Bob Barclay, co-founder of Martek
• Jason Anderson, VP Business Development, Novomer

A remarkable feature of the session was – no powerpoint! It may be just me but I get the impression that people just simply pay more attention when there are no slides. We had a rapt audience of over 50 in the room and another 10 or so on the webcast.  Just a sample of some of the highlights of the discussion:

• The “green premium” – what will consumers pay for and how much will they pay to be green? – Answer: Zero. These businesses have to bring value to consumers in terms of product performance and cost – just like any other product. That was the unanimous conclusion of our pane.
• Europe – leading the way in green businesses? Not exactly – in many ways Europe is jealous of the robust capital and intellectual markets that allow new businesses to flourish in the USA.

If you missed this lunch, you have an opportunity every month – the first Thursday – to join us. On April 7^th, we have a presentation on Growth Opportunities in Specialty Pharma by Michael Higgins, Managing Director of Rodman & Renshaw. In May, we have the long awaited Latin American event, sponsored by CM&E’s own cachaça distiller, Sagatiba of Brazil (yes, that is free caipirinhas for all attendees  – and we haven’t yet figured out how to deliver those via the webcast). Senior executives from Blackrock Latin America and Petrobras will discuss opportunities in Brazil and Latin America in general.

Take a look at our “Press and Downloads” page. There you can see a copy of an article we published in last months INFORM magazine which illustrates the drivers behind some of the changes affecting the surfactant industry today. Interestingly the article features two companies set to speak at the 1st ICIS world surfactant conference that we are organizing May 12 and 13 with ICIS.

Chemical Industry -  Economic Outlook 2011

(per the American Chemistry Council)

Dr. Kevin Swift, Chief Economist at the American Chemistry Council gave a riveting presentation to a packed house at yesterday’s lunch meeting of the CM&E group. A crowd of 80 chemicals executives, bankers, investors, lawyers, consultants and other service providers heard data-packed and highly useful analysis of where we are in the chemicals cycle and where we go next. The lunch audience, including senior members of BASF, Rhodia, Lonza, Helm, Mitsui, Lonza, Huber and DSM was joined by webcast attendees from across North America, Europe and Asia. Hard data and concise opinion was served up with grace and humor and everyone went away with something they would use in their chemicals activities in the coming year.

And  before you ask, no I cannot send you the slides and yep – I have to say again– you really do “gotta be there”. However, in this case, I am told you will soon be able to purchase access to a recording of the webcast, with the slides, here. In coming months I urge you to come to some of these meetings as we have BASF speaking in February, a Green Chemistry panel in March and in May, the long awaited Latin American event, sponsored by CM&E’s own cachaça distiller, Sagatiba of Brazil (yes, that is free caipirinhas for all attendees  – and we haven’t yet figured out how to deliver those via the webcast).

Some bullets from Kevin’s talk to give you a flavor of what we enjoyed:

• We are about 25% of the way up between last year’s trough and the next peak for our industry.
• Car manufacturing recovery and growth particularly in China pulls along a lot of chemicals – about $2,400 worth of chemicals per car.
• Housing is an issue. We have a double dip here in the US and that is a concern as each new house is worth about $17K in chemicals. In addition, household debt is climbing at a rate that suggests a reckoning has to come due and the risk for the US economy cannot be ignored.
• Shale gas featured very prominently in the talk and Kevin’s view of this as a game changer for North American Chemicals was very well received. A number of off-line discussions I had at the event, confirmed that serious investment decisions will be made with the shale gas economic effect on the chemical value chain – a huge factor.  By the way, I have to add that the networking, pre and post the talk –  at this event was outstanding.

A few notes to update you on our activities in private equity and advisory for the chemicals industry. If you have not had a chance to check our updated website, please do so and let me have your comments www.neilaburns.com

• Silicones: Our involvement with SiVance, carved out of Clariant, September ’09, continues to be a great pleasure. The business is doing very well. The carve-out could not have gone more smoothly and we are still hiring to support continued growth in the coming year.
• Other equity activity continues with a focus on specialties in North & South America and Europe. Compared to this time last year, the pipeline is packed very well. Our partnerships with GenNx360 and Linley continue to bear fruit across a fairly wide EV range up to $1Bn +.
• Our advisory practice focuses on surfactants, oleochemicals and related feedstocks. Our partnership with Desmet Ballestra Italy has been particularly active with the recent re-launch of their ethoxylation platform on new technology. We continue to limit other advisory work to a few long-term clients. However, we will expand our reach into Asia and Latin America with additional personnel in the coming year.
• Our support of the ACS, CM&E Group continues to be very fulfilling. In March, Tim Wilding of Oppenheimer gave an outstand review of chemicals M&A. Then, in October, a panel including GE Capital, Lanxess, Jones Day, GenNx360 and Houlihan Lokey sold out the venue with their “Anatomy of a Deal” discussion. If you are in New York City, January 6^th, please join us for lunch with the ACS Chief Economist for some unique, unedited analysis of the industry’s prospects for 2011. Register here.
• In partnership with ICIS, we are organizing and chairing the 1^st World Surfactant Conference in NYC area, May 12 – 13 2011. Preliminary details here. This is a business conference targeted at senior managers in the industry.

As always, please feel free to reach out if you think we can help with anything. Our equity capital program combines a patient outlook with good understanding of the chemical industry. We like to support management teams with a growth agenda and to enable owners realize their ambitions for their businesses.

Our best wishes for a happy and prosperous New Year.

Neil

Base Oils – ICIS Conference Notes

While no longer invested in base oils related markets, I like to keep my hand in, should anything come up in that sector. To that end, I spent a day and a half at the 6^th Annual Pan American Base Oils Conference organized by ICIS in Jersey City, just over the Hudson River from lower Manhattan. Kudos to Michelle Fagan and the rest of the ICIS team for a superbly organized event with outstanding speakers and a record attendance. This bodes well for the First ICIS World Surfactant Conference next May, organized by the same team and chaired by me.

Some key points from the conference which overall highlighted major changes coming down the pike for this industry and those related to it. As usual this is not a conference report or review. We don’t do that here. We believe that “you gotta be there” at these events. So here are some interesting (to me at least) snippets.

• While Western Europe is essentially a Group 1 market, the Americas a Group 2 market and Asia, Group 3 – get ready for a tidal wave of Group 3 capacity coming on-stream in Asia which is going to force some capacity closures (mainly of Group 1 and 2 refineries) in the Western markets.
• Scale matters: small base oil refineries are being closed and large ones built. With the commissioning of the Chevron Pascagoula group 2 plant (PBOP!), the US capacity will b e 75% Group 2 (from 65% now). With Group 2 oils being usable in 97% of all applications, some of the smaller remaining Group 1 refineries are sure to come under increasing pressure.
• Kline & Co., as usual, delivered an outstanding presentation on the subject of Shell’s new GTL project (Pearl). Bill Downey emphasized how the GTL strategy needs to be analyzed in the context of Shell’s finished lube business which he expects will undergo a serious upgrading when the GTL output is available. Good to know that one of Bill’s colleagues at Kline, Gillian Morris will be presenting at our ICIS surfactant conference.
• Neste gave an interesting talk on their high performance group 3 oils, NexBase, although glossed over their renewables initiatives. Interesting to see that the impact of biofuels on the lube oil market will be addressed at the next ICIS base oils conference in London.

Bottom line – in what, on the face of it, seems to be a boring industry (oil for your car), some big capacity and technology shifts are coming and some plants will close as other (mainly larger and located further East) will open.

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Cleantech – Energy and Chemicals

There’s a lot happening in cleantech now – impacting energy and chemicals. First, on Thursday December 9^th, Con Edison, the CM&E Group of the American Chemical Society and the American Institute of Chemical Engineers are sponsoring the 5^th annual Energy and Resources Conference. I am privileged to hold a board seat on the ACS CM&E group and was happy to play a small role in helping plan the conference.

I was recently fortunate to be invited to a Goldman Sachs conference on cleantech. This day-long event featured around 50 companies and a number of Goldman investment bankers and stock analysts active in the renewables space. I will not blog the entire proceedings here as that is not fair to either the organizer nor the attendees of this invitation only event. As I like to say – “sometimes, you just gotta be there!”. However, I will list here a few learnings and memorable quotes, from this event and other meetings in the last couple of weeks, that capture the status of this extremely important and dynamic field – especially as it impacts the chemicals markets.

• The Walmart Effect: Do not underestimate the power of WalMart in the greening of their supply chain and its ripple effect to suppliers and other retailers. The surfactant industry well remembers the impact of WalMarts banning of nonylphenol ethoxylates from its products and similar initiatives.

• Large companies like Siemens are driving investment in this area. Siemens claims a €23 Billion environmental portfolio and their venture capital arm has invested €80 Million in Greentech businesses.

• Solar Power? In 6 hours, the world’s deserts receive more energy from the sun than mankind consumes in a year. The challenge, of course, is capture and storage.

• Venture Capital companies, are of the opinion that the constraint in the development of many greentech businesses is human capital not financial capital. That is, there’s plenty of money just not enough people to evaluate and execute on good ideas.

• If there is a lament of the renewables sector it is China – “they do everything better than we do and quicker and with more money and greater national purpose” . This reminds m e of the great British lament during the 60’s and 70’s era “brain drain” when all the clever and talented Brits came to the USA because everything just worked better here and there was so much money to be made. I do not include myself in either (clever or talented) category as I came here in the 80’s and it was love not money that convinced me to stay! Of course it was the tremendous capital allocation system that the Brits envied in America. Money got to where it was needed – plenty of it and fast. It is worth thinking a little more deeply exactly what we are envying in China with regard to their renewables sector. This is not a political blog but let’s say that maybe there is a way to adopt what we like of the Chinese system and leave behind the bits that we find not to fit with our own society.

• The world’s biggest solar farm will be built in Erdos, Inner Mongolia (yes that’s part of China), next year; 2.2 GW. The supplier of key equipment is US firm, First Solar. At same time, we learn 95% of solar panels made in China are exported (can this be right?)

• Biomass: One of my favorite subjects, given the potential impact on the supply chain for surfactants and oleochemicals. One of the GS conference panelists likened this to a game of musical chairs in which the emerging companies scramble to line up supply chain partnerships in order to ensure commercialization for their technologies. Some notable partnerships in this space already, include. Codexis/Shell/Cosan, Solazyme/Unilever, LS9/P&G, Wilmar/Elevance/Stepan. A recurring theme in this space is “Brasil” and, unlike the lament that is “China”, Brasil is more of a clarion call – “go South young man!”. It is becoming a bit of an in-joke that the “out of office” replies for large swathes of the renewables industry should just read “I’m in Brasil. Try back next month. Obrigado!”

• Agriculture is key for the biomass sector. Without the right stuff at the right place at the right time in the right quantities and the processed by the right technology, nothing significant is going to happen. This is where companies like Monsanto, Bunge, Cargill et al., have to step up to the plate. Where does the biomass come from – to execute this fuels or chemicals revolution? BP Biofuels, not surprisingly, views this sector as a resource play and they are betting on non-food cellulosics. For many companies Brasil is “the model” . Sugarcane is two thirds carbon, but apparently sweet sorghum is even better, according to Ceres and others.

• Reed Hundt and the Coalition for Green Capital have proposed a sort of Fannie/Freddie type entity, the Green Bank, for financing green initiatives. Interesting, politically and economically.

• Bottom line; this is an active, exciting and sometimes fractious sector. Follow the money, however and you will see some serious players as investors and recipients of investment. The old Yorkshire saying has it that “where there’s muck, there’s brass”. However the converse is not necessarily true, as this sector demonstrates. To learn more, why not join us on December 9^th at the CM&E Energy and Resources Conference?

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Chemical Distribution – Why so Attractive to PE Funds?

The recent announcement that TPG will acquire Ashland’s chemical distribution business was no surprise to most of the North American distribution community. What is noteworthy however, is that, again, a major chemical distributor has found a home in a private equity fund’s portfolio. Ashland now joins Brenntag (BC Partners investment – recently IPO’d), Univar (Clayton, Dubilier and Rice recently joined CVC as investors) and Azelis (3i) as a PE owned chemical distributor.

In addition to these large (USD Billion +) deals there have been a number of recent smaller deals in which PE firms have invested in chemical distributors. These include Post Capital’s investment in BHS and AEA’s investment in Reladyne. Reladyne is a consortium of four regional lubricant distributors.

Other deals in the distribution space are rumored to be in the pipeline and we’ll comment on those as they are announced. Coincidence? No. So, what’s the attraction of distribution for PE firms? In our view, it’s three major of factors:

• The industry is fragmented and there is still significant room for consolidation. North America is the most mature market where the top 5 players have around half of the market. Europe is much less concentrated and Latin America and Asia, less so again.

• Distribution businesses enjoy economies of scale. The ability to manage larger networks with a relatively fixed investment in IT and management systems is one factor driving consolidations financed by PE funds.

• What was once primarily a relationship business now lends itself to quantitative management methods, well understood by private equity companies and their consultants.

The case for chemical distribution as an interesting investment is made fairly convincingly by the data in a paper by BCG, published earlier this year.

Looking forward, we see continued acquisitions by the North American big three, Ashland, Brenntag and Univar and by others. Consolidations driven by the scale related factors above will continue to be financed by these PE sponsored companies. Owners of small, regional and specialized chemical distributors may therefore find 2011 a good year in which to sell – or to compete in the interstices left between the ever larger market leaders.

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The Next Revolution in Specialty Chemicals?

There is constant debate about when and how quickly we will run out of oil, but there is no doubt that, at some point, we will. The term “peak oil” has passed into the popular lexicon to describe the point at which oil production reaches its highest historical level, a point beyond which, literally and figuratively, it is downhill for oil producers. Recent analysis by “The Oil Drum” illustrates various predictions of when and at what point, global oil and natural gas liquid production reaches its peak. Most predictions are grouped around “about now” as the time that the peak is reached.

The issue of peak oil has implications, of course for transportation and other essential areas like heating. Not as widely discussed, at least in the mainstream media is its implications for the chemical industry and surfactants in particular. Crude oil based products end up as alcohol sulfates, ether sulfates, linear alkylbenzene sulfonates, alcohol ethoxylates, nonylphenol ethoxylates, softener, conditioner and antimicrobial quats and amphoterics. That is, in essentially every major surfactant class used in every class of detergent, personal care and industrial cleaning product. Try maintaining basic personal, household and institutional hygiene for a day without oil.

Our blog post on surfactant economics discussed current issues with feedstock pricing and volatility but really did not address the long term issue of what happens when these feedstocks run out. Some companies however, are building a business around addressing this question and their activities are starting to have a direct impact on the future of the chemical industry and the surfactant and oleochemical industries in particular.

These companies are focusing on chemicals made from naturally occurring bio resources (or biomass) like vegetable oils, switchgrass, non-food and food crops, algae and other sources of triglycerides and carbohydrates. The current wave of activity grew out of the bio-fuels initiatives around ethanol (from Corn (maize) in the US, Sugar in Brazil) and biodiesel (from soybean oil in the US, palm and Canola in other parts of the world). Bio-fuels grew in response to the abovementioned “peak oil” scenario. While many companies started chasing the brass ring of a gasoline substitute, a number realized that an easier, quicker, higher margin way to get to market is to use bio resources, instead of oil, natural gas or crops, to make chemicals for use in diverse markets like cosmetics, lubricants, coatings, detergents, polymers and many other niche applications.

Today, there a number of these bio-chemical companies that are working with some innovative and potentially game-changing technology for chemicals production. A popular business model revolves around  biorefineries, which take biomass (as noted above) and produce existing chemicals more cost effectively than the traditional routes from oil, natural gas or traditional crop vegetable oil (like palm oil) splitting. A secondary market opportunity is to produce new, custom tailored chemicals that are not available via the traditional routes.

An outstanding resource for understanding and tracking this emerging segment is the ICIS Green Chemicals Blog, to which your author credits his initial realization that this field will bring about the next revolution in specialty chemicals and related markets.

In fact, the author of the ICIS Green Chemicals Blog will be moderating, with me, a panel luncheon discussion hosted by the NY ACS, Chemical Marketing and Economics Group on March 3^rd in New York. Further details here.

The following table lists some companies active in this growing field. The first two listed, Martek and Novomer will be panelists at our March 3^rd CM&E meeting.