Surfactants Monthly Review – September 2017
This month, we dealt with weather, some of which impacted our industry; although most supply chains seem to be back to normal as of the writing of this blog. We also produced two surfactant conferences, Amsterdam and Mumbai. As you know, my attitude is “you gotta be there” and so you won’t see summaries or copies of papers or anything like that here. I am, however, developing a blog post on the central theme of this year’s conferences, decisions. More on that later.
At the beginning of the month, the inimitable Judith Taylor of ICIS, in an outstanding analysis, described US detergent range C12-15 alcohol contract prices as “teetering” during the first half of 2017. This as volatile feedstock costs and flat demand pushed back on producer margins barely recovering from benchmark lows in 2016. ”Teetering”, as students of Norse languages will tell you, means “about to fall”. US fatty alcohol contract prices were at benchmark lows entering 2016. While that timeframe seems old, it is an important starting point in considering the 2017 price trends. This is because recovering from the low end of the Q1 2016 range of 53.00-62.00 cents/lb ($1,168.45-1,366.86/tonne), with a mid-point of 57.50 cents/lb, was challenging for natural alcohol producers. Volatile palm kernel oil (PKO) prices in the second half of 2015 dragged down early 2016 fatty alcohol prices.
The bottom-mark price level of Q1 2016 hit natural alcohol producers much more sharply than it did the synthetic alcohol segment. This is because the feedstock cost-model for the natural producers is based upon that segment’s key feedstock PKO. By Q3 2017, some expected more stability to enter the PKO sector, but this did not happen. Third-quarter fatty alcohol contract settlements completed in early July fell double-digits, led by significant drops in PKO prices, buyers and sellers confirmed. ICIS assessed mid-cut C12-15 fatty alcohol contracts in a 95-105 cents/lb bulk delivered range, falling by 21 cents/lb on the low end and by 20 cents/lb on the high side of the spread. Buyers and sellers said a wide number of contracts settled in the 90s cents/lb, with 95 cents/lb the most commonly discussed low end. The 105 cents/lb high side of the assessment is mainly representative of small volume business. Key natural alcohol feedstock PKO prices fell steeply in the Asian markets during Q2, setting the pace for the dive in the US contract prices, buyers and sellers said. At mid-August and approaching the last month of Q3, there are no fatty alcohol quarterly contracts under negotiation. However, buyers and sellers are keenly watching the PKO prices and somewhat earlier than usual are gauging potential Q4 prices. There is the teetering point. With such volatility across almost 24 months, buyers and sellers seem poised to vie again on the downward side of US fatty alcohol prices.
Early in September, China’s Zhejiang Satellite Petrochemical announced plans to invest over yuan (CNY) 30bn to build a 4m tonne/year olefin utilization project at Lianyungang in Jiangsu province. The project will mainly include an ethane cracker, a propane dehydrogenation (PDH) plant and downstream units. The cracker will produce ethylene to feed downstream polyethylene, ethylene oxide/ethylene glycol and vinyl acetate plants. The PDH plant will have polypropylene, propylene oxide, acrylonitrile, acrylic acid and ester as downstream facilities. The project will take imported ethane and propane as feedstock and be implemented in several stages.
Still in China: Spot fatty alcohol ethoxylate (FAE) imports drew more buying interest in September than in August. Stronger prices in the upstream C12-14 fatty alcohol and ethylene oxide markets drove FAE prices up in recent weeks, tracking an uptrend from August. Meanwhile, deals were captured at around $1,600/tonne CIF (cost, insurance & freight) China in the week ending 13 September. Spot FAE (drummed, 7 and 9 moles) prices were last assessed at $1,600-1,650/tonne CIF China on 6 September, according to ICIS data.
Further up the value chain, Malaysia’s palm oil prices saw huge week-on-week gains on firmer vegetable oil prices and expectation of stronger demand. As at mid-day on 13 September, crude palm oil (CPO), palm kernel oil (PKO) and palm stearin prices were at Malaysia ringgit (M$)2,850/tonne, $1,445.15/tonne and $695/tonne respectively. Compared to 5 September closing prices, PKO prices increased by over $200/tonne, while palm stearin prices rose by over $20/tonne. Some oleochemical producers withdrew their offers on feedstock price volatility.
ICIS’ Joe Chang wrote an excellent analysis of the Dow/Dupont merger and subsequent breakup. I don’t intend to reproduce all the points here. The cynic in me (that’s me not ICIS or Joe) notes that management (that’s Breen and Liveris) are “committed to .. previous targets of” $3bn in cost synergies (read layoffs) and $1bn in growth synergies (read hopes and prayers). As best we can tell, the surfactant related activities of the new company will be in “Material Sciences” and will have sales of around $40bn (based on 2016 figures) with an operating EBITDA margin of over 20% (not bad). It includes cracker operations, plus polyolefins, elastomers, polyurethanes, silicones, acrylics, ethylene oxide (EO) derivatives, propylene oxide (PO) derivatives and cellulosics. Statements from the company laden with the word “optionality” suggest that no-one really knows what will happen, and that, by the way is fine. I would not expect them to. The party line today is that there will be 3 post-breakup companies. Some analysts think there could ultimately be as many as 7 companies coming out of the merger / breakup. My sense is more in line with the latter estimate and I further expect that the best bits will be subsequently acquired by BASF, Sinochem and others, after the dirty work has been done, leaving today’s shareholders seriously enriched; which, of course, is the appropriate objective.
The talented Melissa Hurley, wrote an excellent profile of the European ethylene oxide market this month in the ICB magazine. The following table may be of interest to our readers.
Mid month, Sinar Mas / Cepsa, the petro / oleo JV standing astride the surfactant supply chain, started up its new 200,000 tonne/year oleochemicals plant in Dumai, Indonesia. The new plant, with an investment of €300m, can produce 160,000 tonnes/year of fatty alcohols and uses palm kernel oil (PKO) as its main feedstock. The facility is a joint venture between Spanish energy firm Cepsa and Indonesian palm oil producer Golden Agri-Resources (GAR). GAR is part of the Sinar Mas consortium. The plant is integrated with GAR’s refinery and PKO crushing plant nearby and has its own deep-water jetties. The Dumai plant has started to operate and is ramping up its run rates currently. Full commercial operations are expected by the end of next year. A portion of the plant’s output will be shipped to Sinar Mas Cepsa’s surfactants plant in Genthin Germany, which the JV recently acquired from Gemini Holdings (It’s the old Hansa Chemie plant, as we reported a couple of years ago).
An interesting snippet at the end of the month: AkzoNobel plans to start building a demonstration plant in 2018 that will use a newly-developed technology platform for producing ethylene amines and their derivatives from ethylene oxide. The flexibility of the technology will allow the selective production of a wide range of end products, allowing the company to expand its amines product offering, the company said. The range of ethylene amines targeted includes, but is not limited to, DETA (diethylenetriamine) and TETA (triethylenetetramine), which are key building blocks in a number of growth applications such as epoxy curing, oil and road additives, and paper, according to AkzoNobel.
That’s it for this month. I look forward to seeing many of you in Singapore in November at our 7th Asian Surfactants Conference (and already our biggest and best yet).