September 2016 – Surfactants Monthly
The highlight of the month for me, of course, was the trip to Berlin and the 5th ICIS European Surfactant Conference. We were fortunate enough to have one of ICIS’ young up-and-coming journalists cover the whole thing for us so I will post a few links to Melissa Bartlett’s surfactant articles in a separate post. Coming up next month we have the 6th (already!) Asian Surfactant Conference in Singapore. Please join me there, November 8 – 9th at the Marina Bay Sands. As always, the day before, we have our business training course as an optional extra for all conference attendees.
End of commercial. Here’s the news:
A big new refinery project in China will include ethylene oxide capacity, according to ICIS. China’s Zhejiang Rongsheng is building a joint venture refinery-petrochemical complex in Zhoushan, with the first phase due to start up in late 2018. The yuan (CNY) 160bn ($24bn) project, which will be built in two phases in China's eastern Zhejiang province, is expected to have an overall refining capacity of 40m tonnes/year or 800,000 bbl/day. It will have an ethylene capacity of 2.8m tonnes/year, with aromatics production estimated at 10.4m tonnes/year, and will include a propane dehydrogenation (PDH) unit with a total capacity of 1.2m tonnes/year. The complex will produce a bunch of downstream products such as polyethylene (PE), polypropylene (PP), ethylene oxide/ethylene glycol (EO/EG). (The EO capacity is expected to be 50,000 tonnes/yr in phase 1 and 100,000 tonnes / yr in phase 2), ethylene vinyl acetate (EVA), styrene, butadiene (BD), methyl tertiary butyl ether (MTBE)/butylene 1, phenol, acetone, bisphenol A (BPA), polycarbonate, acrylonitrile (ACN) and methyl methacrylate (MMA).
Elsewhere in EO, our well-thumbed copy of the Midland news told us that the Dow / Sadara mixed feed cracker started up and of course downstream products fro this project include EO – which is planned to feed a number of adjacent surfactants producers.
The abovementioned Melissa Bartlett of ICIS reported that European fatty alcohols markets are postponing discussions on Q4 contracts, amid spikes in feedstock and high spot prices. Spot levels for C12-14 fatty alcohols in Europe remain above €1,800/tonne. A strong rally in feedstock palm kernel oil (PKO) prices of course has been pushing this increase. Market sources “expects further increases during September for Q4”, echoing recent comments by other players which pointed to the possibility of spot prices going above €2,000/tonne. Negotiations for Q4 contracts have yet to begin for many participants. The producer said it had postponed discussions until the end of September. Though the consensus in the market points to likely increases in Q4, many in the market are thought to be taking a “wait-and-see” stance, in order to monitor trends in feedstock costs, their impact on global prices and how this will translate into the European market. The prevalence of hand-to-mouth buying seen as a response to rising costs is expected to continue.
The fatty alcohol volatility of course is a function of what is happening upstream. Volatile palm oil prices in Asia pushed some buyers in the downstream oleochemical sector to the sidelines. On 7 September, crude palm oil (CPO), palm kernel oil (PKO) and palm stearin prices fell to Malaysian ringgit (M$) 2,890/tonne, $1,508.93/tonne and $705/tonne, respectively. On 5 September, CPO, PKO and palm stearin rose to M$2,910/tonne; $1,522.82/tonne; and $720/tonne from M$2,830/tonne; $1,479.20/tonne; and $707.50/tonne, respectively, on 1 September.
In a superbly crafted article in ICIS, Judith Taylor discussed recent PKO price volatility and record high prices. PKO prices moved from about $800-900/tonne around mid-2015 to $1,200/tonne later in the year, jumping higher in 2016 to hit about $1,500 and up by the third quarter this year. These wide fluctuations pinched alcohol producers because the cost of the PKO purchase comes well ahead of the sale of the finished alcohol into the US market – usually a three-month lag. During the second half of 2015 fatty alcohol prices plummeted into a critical margin situation for most Asian natural alcohol producers. One result from the lack of margin was that Asian producers severely cut back capacity utilization rates and some shuttered alcohol production altogether. Mid-cut alcohol contract prices fell about 17 cents/lb in the third quarter of 2015 and did not recover from this dive until negotiations began for the second quarter 2016. In 2016, first-quarter C12-15 fatty alcohol contracts were assessed at 53-62 cents/lb, bulk delivered. The 53 cents/lb low end of the spread marked the turning point for natural fatty alcohol producers because margins were gone. This turning point came during the Palm Oil Conference (POC) in Malaysia in March 2016. “PKO prices rose from about $800/tonne in December to over $1100/tonne in March. Prices rose by double digits on the mid-cut alcohols in each of these quarters, boosting the range to 79-89 cents/lb by the third quarter. PKO prices remain high going into the fourth quarter, maintaining at $1,500/tonne and over. Supplier offers for fourth-quarter natural alcohols now range from the 90s cents/lb up to 122 cents/lb, offers that are up about 20 cents/lb over the third-quarter assessment.
We have often commented favorably on Elevance here and elsewhere. Their co-operation with Stepan I have often pointed to as a good move for both companies. I just noticed, however, that they seem to have divested their US production operations and the buyer has reverted to the plant’s original use, good old tax advantaged biodiesel. World Energy announced that it has acquired from Elevance Natchez that company’s 72m gal/year (273m litres/year) biorefinery on the Mississippi river in Natchez, Mississippi. World Energy has been supplying BQ9000 certified biodiesel from the plant under a production contract with Elevance since January 2013. Elevance acquired the plant in 2011. Elevance had planned to convert the plant so it could use the company's metathesis technology. Once completed, the converted plant would have been able to produce multifunctional esters such as 9-decenoic methyl ester; bio-based alpha and internal olefins, including decene; and a mixture of oleochemicals. For World Energy, the Elevance acquisition follows one that it and its joint venture partner BIOX announced in June. Under it, the venture acquired a 90m gal/year production plant known as World Energy BIOX Biofuels (WEBB), located at the Kinder Morgan Liquid Fuels Terminal on the Houston Ship Channel in Galena Park in Texas. WEBB is now in its final stages of preparation for production startup.
An excellent piece in ICIS news this month outlined the status of the Sasol project in Louisiana and the capital cost over-runs there. This has al been well documented. However the following caught my eye: The Ziegler and Guerbet alcohols (ZAG) are potentially the real added value units for the LCCP (The Sasol cracker project). They have been included to provide earnings stability [my emphasis] in what will be a very competitive PE market. Sasol says it will sell only about 110,000 tonnes/year of ethylene on the merchant market. It will produce ethylene, PE and monoethylene glycol (MEG) first, bringing the Ziegler alcohol and alumina units on next to take advantage of a relatively large merchant market and the more specialized Guerbet alcohols and ethoxylates for what it calls “high margin applications”, last. Ethylene oxide (EO) demand from the ethoxylates business is expected to grow, moving MEG production to higher purity EO. More specialized markets are expected to pull growth in the alumina and Guerbet alcohols and a more differentiated Ziegler alcohols business, noted Sasol. The linear low density PE (LLDPE) unit is expected to be on stream in the second half of 2018 followed by the cracker later that year. The EO value chain units will follow. The low density PE (LDPE) and remaining plants will come on line during the second half of 2019. For Sasol, then, a lot of margin sits in the alcohols and gives management what it calls a “high level of confidence” for the LCCP. It admits that making assumptions on the longer-term cost of ethane has been difficult but its detailed explanation of cost assumptions has gone a long way to allay fears that the company was stretching too far. That having been said, while engineering for the complex is 85% complete, construction is only 15% complete. The split of the $11bn in capital expenditure cost for the project is expected to be $4.3bn for the cracker, $2.6bn for the PE plants and $4.1bn from the EO value chain units and the fatty alcohols plants. Sasol has already spent $4.8bn on the project.
The differentiated nature of the cracker project is illustrated superbly by this graphic put together by the ICIS editors using Sasol published information. Notice the cooly named "ZAG" segment - Ziegler and Guerbet. Hearkens back to the old "differentiated commodity" business model for Sasol O&S. Nicely done.
I’ll be speaking at the ICIS Oleochemicals Conference in Miami next week, so here’s some cattle slaughter stats. Cattle slaughter totaled 2.75m head in August, up by 18% year on year, the US Department of Agriculture (USDA) said in its most recent slaughter. Beef production in August 2016 totaled 2.26bn lb, up by 17% year on year. The average live weight was down by 11lb from the previous year, at 1,352lb, USDA said. The average live weight is the weight of the whole animal, before slaughter. The figures are reported in USDA’s monthly livestock slaughter report by the National Agricultural Statistics Service (NASS). US tallow-based fatty acid producers typically use bleachable fancy tallow (BFT) as feedstock. BFT is primarily derived from the fat tissue of beef. Fatty acid suppliers use a prior-month BFT feedstock average as a factor in the contracts. BFT has been hovering around 27-28 cents/lb ($595-617/tonne) in the Chicago cash market in recent weeks. We’ll be discussing tallow and other oils and fats production in some detail next week and linking this to the fatty acids markets in the US.
Down at the far end of the value chain, we have huge news that Unilever will buy Seventh Generation. So much better than the dubiously named “Honest Co.”, the subject of earlier Lever acquisition rumors. A part of me is sad, in that it is the end of an era for Seventh Gen. However, I am pleased for Unilever. They have acquired a superb brand and a company that actually walks the talk in the green space. The valuation is very healthy, rumored to be around $700 Million for a company with $200 Million in sales. Again, a bit like the dollar shave club deal, Unilever is buying into a segment and a loyal set of customers; hence the 3.5 X Sales valuation. Does either company "need " the other? No. But can 2 + 2 = 5? Yes, given Lever's global reach and 7th Gen's fervent fan base.
That’s it for this month. See you all in Singapore on the 8th Nov (7th if you are doing our training course)