October 2016 – Surfactants Monthly
The nine most terrifying words...
October was a big news month and so I won’t waste a lot of time on commercials except to note that, next week, I’ll be in Singapore for a bunch of meetings and the sixth Asian Surfactant Conference in Singapore. Please join me there, November 8 – 9th at the Marina Bay Sands. On Monday the 7th we have our business training course. I also want to remind readers that if you like this news content, you can get stuff like this every single day, all day, 24/7, 365 (get the picture!) at www.icis.com. Subscribe to the dashboard, like I do. You won’t regret it.
Now the news:
In Berlin, the talk was all about Palm and I expect the same in Singapore next week. As reported by ICIS, Malaysia’s crude palm oil (CPO) production increased for the second month running in September, but crude palm kernel oil (CPKO) production declined after recovering in August, according to official data from the Malaysian Palm Oil Board. The country saw its CPO production increased from 1,701,831 tonnes in August to 1,715,125 tonnes in September, marking a second consecutive month of increase, but still a drop of around 12% year-on-year. However, after recording a month-on-month increase of around 17% in August, CPKO production dropped from 193,064 tonnes to 180,059 tonnes in September, representing a drop of around 7% on a month-on-month basis and around 17% year on year.
Pricing therefore continues to bounce around. On 10 October, crude palm oil (CPO) and palm kernel oil (PKO prices closed down at Malaysian ringgit (M$) 2,650/tonne ($642/tonne) and $1,288.56/tonne respectively, compared to M$2,740/tonne, and $1,341.87/tonne at closing on 5 October and M$2,800/tonne, $1,439.53/tonne on 28 September. Over the last month, CPO has lost around M$270/tonne in value, while PKO dropped by around $222.50/tonne respectively. A week later and a reversal. On 17 October CPO prices closed at Malaysian ringgit (M$) $2,810/tonne. PKO closed at M$1,341.66/tonne on 17 October.
In light of the upstream volatility, the fatty alcohols markets continue to be challenging. During October suppliers have mostly maintained their C12-14 alcohol offers even as buyers continued to push for prices towards $2,000/tonne FOB (free on board) SE Asia. C12-14 alcohol prices were assessed as $2,100-2,200/tonne FOB SE Asia. The rampup from just over $1,000/tonne a year ago has been dizzying for many manufacturers of surfactants.
Sasol Louisiana Update: In any excellent in-depth piece, ICIS reporter Tracy Dang talked about the huge new Sasol project. The Lake Charles Chemicals Project (LCCP) in Louisiana is about half complete. It consists of a 1.5m tonne/year ethane cracker, as well as six downstream chemical production facilities. The first unit, a linear low density polyethylene (LLDPE) unit, is expected to achieve beneficial operation in H2 2018. This will be followed by the ethane cracker and the ethylene oxide (EO) and mono ethylene glycol (MEG) units later that year, and then a low density polyethylene (LDPE) unit shortly thereafter. The total project is expected to achieve beneficial operation in H2 2019, company executives said. The LCCP will consume about 100,000 bbl/day of ethane. The cracker is a purity ethane cracker – meaning its feedslate will consist of 90-95% of ethane – rather than a flexible cracker. That’s becaue the focus is low-cost ethylene output. Approximately 90% of the cracker’s ethylene output will be converted into Sasol’s downstream products. The ethylene oxide (EO) chain consists of a 300,000 tonne/year crude EO unit with hydrolysis and purification capacity and a 100,000 tonne/year ethoxylation unit that will supplement existing capacity on the site. The 173,000 tonne/year Ziegler alcohol unit will also supplement existing capacity on site. The 30,000 tonne/year Guerbet alcohol unit will add to the company’s global production capacity. The remaining ethylene will supply Sasol’s 50% share of its joint venture with INEOS in Texas, which will produce high density polyethylene (HDPE). Wow! It's such a joy to see investment on this scale in the US Chemical industry, isn't it?
Speaking of EO: US ethylene oxide (EO) contract prices for September rose by 3.7% on the back of an 8.3% rise in feedstock ethylene contracts for September, as assessed by ICIS. September EO contract prices were assessed at 57.60-67.10 cents/lb ($1,270-1,479/tonne) FOB from 55.40-64.90 cents/lb FOB in August.
And speaking of Singapore: Our friends at our favourite island’s EDB, who last spoke at our May, NYC surfactants conference, refuse to rest on their laurels. Singapore’s Jurong Island industrial complex is seeking to attract further chemical investment by adding infrastructure and lowering the costs of doing business. According to Damian Chan at the EDB, while abundant shale gas has shifted chemical investments towards the US in recent years, Singapore’s EDB has been taking steps to improve its own competitiveness in the areas of feedstock flexibility and utilities. These include building terminals and infrastructure to allow for more import options on feedstocks such as liquefied petroleum gas (LPG) as well as naphtha. The four crackers on Jurong Island – two owned by ExxonMobil, one by Shell and one by PCS (Petrochemical Corp of Singapore) – with combined capacity of around 4m tonnes/year of ethylene, can all crack varying degrees of LPG, along with naphtha. But it’s not all commodities, according to Chan. Investment is coming from the specialty chemicals space with new greenfield projects as well as research and development (R&D) facilities, as companies seek to be closer to their customers. The Singapore EDB has identified five specialty chemical market verticals as areas of focus – lubricant additives, consumer chemicals, oilfield and water treatment chemicals, agricultural chemicals, and animal health and nutrition, as well as two horizontals in surfactants and functional polymers. Music to our ears and something we will explore in depth at the Marina Bay Sands, next week.
The subject of vertical integration in the surfactant supply chain, is a perennial one at my conferences and courses. I’ve also written a bunch of articles and papers on it. Here’s Huntsman’s take as related to ICIS at the EPCA. Huntsman’s lack of integration in its European surfactant business played a key role in its decision to sell its operations there to Innospec. “We are into surfactants in a big way in the US. In Europe we weren’t integrated,” said Monte Edlund, president of Performance Products for the US producer. So there it is. If you are Huntsman with Huntsman’s product mix (my words, my emphasis) then if you’re not vertically integrated, it’s not worth it. By product mix, I mean in Huntsman’s case in the US, EO for which their Port Neches, TX plant is the country’s largest manufacturing site, and ethoxylates. Makes sense to me. I would not necessarily apply this same thinking to other vertical integration scenarios, particularly from PKO down to surfactants. We'll address that question in much more detail next week in Singapore.
Earnings Time / Stepan: Stepan had a tough third quarter and, no surprise, Europe and Latin America are to blame. ICIS reported that Stepan’s third-quarter net income decreased by 18% year on year to $20.4m, while sale sales stood largely flat at $445m as struggling surfactants sales in Europe and Latin America could not offset higher polymers sales. By divisions, sales at Stepan’s largest division, Surfactants, stayed flat year on year at $290m but operating income suffered 5% to $20.7m due to lower volumes in Latin America and Europe. North American surfactant operating income actually improved on higher volumes. And the trend continues with North America leading the pack for surfactant manufacturing, as we have discussed extensively during our conferences and courses.
AkzoNobel’s third-quarter net profit was unchanged at €285m compared with the same period last year, even as sales slipped 4% as reported by ICIS. Revenues for the three months to September 2016 fell to €3.60bn, due to “adverse currency/price mix effects”, but operating income increased 4% to €454m, the company said.
In other Akzo news, the company inaugurated two new specialty chemical plants at its sites in Ningbo, China, that together represent a combined investment of €80m. The company will also invest an additional €90m in building a new specialty chemicals plant, to be located in Nanguang Chemical Park, Tianjin, where it will replace an existing plant in the area. The new facilities in Ningbo deal with surface chemistry and polymer chemistry, while its Tianjin site will focus on the latter. The Ningbo site includes an alkoxylation facility, which will make surfactants.
We don’t often talk coconut here, but it’s important for the Philippines and still important for surfactants. Fair Trade is making a play there and we heard about that in our Berlin conference. Also, the inimitable Caroline MIdgley talked coconut at the Pan-Am Oleo conference in Miami last month. Thankfully, I did not have to follow her and was able give my talk on North America without a direct comparison to one of the masters in the oleo field. According to Caroline the Philippines lis likely to see a 1-2% annual growth in coconut planting. Higher prices or lauric oils have attracted more farmers to put more acres into the business. However, the volumes involved are really not going to make a dent in pricing
Elsehwere in Asia, downstream products, particularly alcohol ethoxylates, continue to reflect feedstock volatility. In ICIS data, Asia AE prices have been trending higher since July, following the uptrend in feedstock fatty alcohol (C12-14) prices from July to September. However, C12-14 prices dipped by $50-100/tonne FOB (free on board) southeast Asia mid October, as suppliers reduced C12-14 offers on lower palm kernel oil (PKO) prices. AE spot prices (drummed basis; moles 7 and 9) were last assessed at $1,500-1,540/tonne CIF China and $1,550-1600/tonne CIF southeast Asia, as of 5 Octobe
Also in Asia, the other side of the molecule (EO) declined to a three-month low amid an overall weaker ethylene market in northeast Asia. During the week ended 12 October, EO prices fell to yuan (CNY) 8,800/tonne EXWH, down by CNY300/tonne EXWH (ex-warehouse) from late September
In personnel news: The end of an era. Stepan’s chairman and former CEO F. Quinn Stepan is to retire from the position at the end of the year, the company announced on October 20th. Mr. Stepan, who has served as chairman of the company since 1984 and served as CEO from 1984 to 2005, will be succeeded by F Quinn Stepan Jr, company CEO and Mr. Stepan’s son. Edward Wehmer, CEO of US financial services firm Wintrust, will serve as lead independent director upon Mr. Stepan’s retirement. The elder Stepan will retain a seat on the board of the company founded by his father in 1932. I think most readers know of my admiration for this company. And I use Stepan in my business courses as the example of a well run surfactant manufacturer. 30 years as Chairman. Well done. Great achievement. I also have to add that the Stepan company have been such great leaders in the industry, with very active roles in ACI, CSPA, SCC etc.
Al Greenwood of ICIS did a masterful analysis of the Mexican ethane situation in May, which I blogged about. Now there is more to the story. Al contends that Mexico could struggle with ethane supplies for the rest of the decade (!) if forecasts for the nation's oil production hold true. Mexico relies on oil production for much of its ethane, which it extracts from associated gas. Oil production, however, has been falling, due to maturing fields and budget cuts (i.e. chronic mis-management – my comment). Mexican oil production has fallen from over 3.4 million barrels a day in 2004 to under 2.2 today. Al’s analysis shows that Mexico was producing well over 150,000 bbl/day in 2000. By 2016, production in March and April were at the lowest levels in the series, at less than 102,000 bbl/day. Ethane production could fall further given the forecasts for crude production in Mexico by UBS among others. Pemex, for their part, has acknowledged that ethane production has fallen, and this caused downstream production of derivatives to fall as well. For ethylene, this will vary depending on the plant. Braskem Idesa, for example, has stressed that its new Ethylene XXI complex has an assured supply of ethane to feed its ethylene and PE production. Ethylene XXI receives ethane from state producer Pemex under a 20-year contract. Al analyses the impact on all downstream products, but let’s cut to surfactants. Mexico can import some ethylene derivatives, such as MEG and PE. But ethylene oxide (EO) is too dangerous to ship overseas. If Mexico cannot make enough EO, it is unclear what the country's surfactant producers will do for feedstock. Mexico can avoid this problem and further imports by increasing ethane supplies. However, it seems unlikely that this will happen anytime soon. Mexico cannot receive ethane from overseas because it lacks the terminals. Mexico could also increase natural-gas production. Natural gas has been neglected over the decades because of distortions caused by the country's earlier energy regulations, which allowed only state producer Pemex to produce hydrocarbons. (my comment: You could not make this up as a morality play on the evils of state control of production).
My dear readers, please read the entire article by the accomplished journalist, Al Greenwood at ICIS. I have given you the short, surfactant-centric, version above. Read it and reflect. This is what state control does to an industry, and a country. This should not have happened. This was not a natural disaster or bad luck. This ethane shortage, and its downstream woes, was deliberately wrought by state implemented government policy. I think the nine most terrifying words in the English language are equally as terrifying in Spanish…
That’s enough for now. See you all in Singapore on the 8th Nov (7th if you are doing our training course)